From my interviews at http://MeetInnovators.com, one of the interesting patterns from talking with highly successful entrepreneurs I’ve learned is that business incubators do work – in a certain way. Generally big incubators like idealab haven’t worked well, because all the separate companies end up being run by generally unmotivated employees.
Where incubators do seem to work is when lots of ideas are tested at once, and after a time, the losing ideas/businesses are all dropped. This enables the stars of the team to completely focus on the winning ideas. Tagged, Myspace and Zappos are companies that have roots in this idea.
And generally when a new business is going to work, you can see it pretty quickly.
So why not apply this to testing social business ideas in the 3rd world? From living in the Dominican Republic since 2001, I know that sometimes there isn’t the ability or risk capital to test new ideas. Muhammed Yunus has received a Nobel prize for coming up with the Grameen Bank, which does microlending to poor families, enabling them to get out of poverty. This has been successful as a business and has seen massive social improvements as a result.
But why didn’t someone try microlending before? This could have been done 100 years ago.
So why not set up a 3rd world business incubator? Prototype 10 ideas at once. Document all the results publicly and when scalable, sustainable business models are found, they can be published worldwide for local entrepreneurs to implement across all the countries which can support them. The risk capital for this could be raised from donors in wealthy countries like the US. US$1M would easily fund a lot of idea testing.
But we need to make it more interesting. Having worked in a non profit in the past, I’m less than impressed by the quality of many people working in the non profit world. I think many of them are there because they are not able to be successful in the business world.
So in addition to the $1M in risk capital, we put up a significant prize – say $1M – for the team which comes up with an idea meeting certain criterion (scalability/social value/profitability, etc). This will ensure that true, ambitious entrepreneurs will pay attention and get involved. It means there will be a form of economic payoff just like there can be for starting a business.
If breakthrough ideas like the grameen bank could be prototyped, tested and successfully implemented and then documented for use worldwide, this could be an amazing breakthrough. Local people in third world countries WANT to make money and given working systems (a little like a franchise, except the locals will fully own it) they will certainly do it. We can leverage the capital and business ideas from the 1st world to help implement better systems in the third world.
Here’s an example of an idea which may merit testing:
Here in the Dominican Republic, there is a huge number of single mothers. Abortion is rare here and people don’t use contraception as much as they should. If a girl gets pregnant, the guy usually vanishes.
This is an economic death sentence for the mother. She usually has to stay home to take care of the child, dropping out of school and not advancing further. She may end up with more kids and now she’s a stay at home mom with nobody to support her – she ends up being supported by the extended family. Its a difficult life.
Why not test a system where single mothers can pay a small amount of money, say US$80/month to put their kids in childcare. If a childcare business took 100 kids, and put 4 people to take care of 25 kids each, the salaries for these 4 people would only need to be around US$300/month. If we include a security guard for an additional US$300/month, adding in someone to do cleaning, and rent, we can overestimate costs to be around US$3000/month. 100 kids paying $80/month each for childcare would bring in US$6000/month, leaving a US$3000/month profit.
If this worked, it would enable new single mothers to stay in school, get a real job and become economically independent. And it would allow creation of new businesses, helping grow local economies.
I have no idea if this idea would work or not. I have no kids and know nothing about childcare. I do know the numbers above are quite accurate for the Dominican Republic. There are plenty of reasons why it wouldn’t work. But there is the small possibility it COULD work and for the really good ideas the only way to know if it will work is to try it.
If we took risk capital from the US, and tested ideas directly in the third world, we just might be able to come up with some new breakthrough ideas like the Grameen bank. We’d help solve social problems, create business growth and help lift people out of poverty.
If we ask today – would it be worth $2M to come up with an idea like the Grameen bank, I think the obvious answer is that it would be a bargain. So maybe its time to start testing and prototyping other new ideas as well.