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Social Venture 101: Starting a Social Venture source responsibly. TM Leila Chirayath Janah Founder & CEO

Stanford Graduate School of Business: Social Venture 101 20November08

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Page 1: Stanford Graduate School of Business: Social Venture 101 20November08

Social Venture 101: Starting a Social Venture

source responsibly. TM

Leila Chirayath JanahFounder & CEO

Page 2: Stanford Graduate School of Business: Social Venture 101 20November08

What I’m Going to Talk About Today

How I ended up here

Overview of business process outsourcing

The problem with outsourcing for development

One (small) solution: Samasource and Socially Responsible Outsourcing

Case studies

Achieving impact

Questions?

Page 3: Stanford Graduate School of Business: Social Venture 101 20November08

How I ended up here

Overview of business process outsourcing

The problem with outsourcing for development

One (small) solution: Samasource and Socially Responsible Outsourcing

Case studies

Achieving impact

Questions?

Page 4: Stanford Graduate School of Business: Social Venture 101 20November08

10 years ago...

Los Angeles, CA Akropong, Ghana

Page 5: Stanford Graduate School of Business: Social Venture 101 20November08

Competing Views on Development

vs.

Page 6: Stanford Graduate School of Business: Social Venture 101 20November08

Home Work

Bombay, IndiaDharavi, South Asia’s largest slumOver 2.5M people living on 175 hectares

Bombay, IndiaCall center floorMany of India’s 1M BPO workers commute from slum areas

Aha! MomentTechnology and knowlege jobs can lift entire families

out of poverty.

Page 7: Stanford Graduate School of Business: Social Venture 101 20November08

The next Bangalore?

1 million English-speaking youth finish high school and college in Ghana and Kenya each year. They can’t go to Bangalore, much less the U.S.

Page 8: Stanford Graduate School of Business: Social Venture 101 20November08

How I ended up here

Overview of business process/IT outsourcing

The problem with outsourcing for development

One (small) solution: Samasource and Socially Responsible Outsourcing

Case studies

Achieving impact

Questions?

Page 9: Stanford Graduate School of Business: Social Venture 101 20November08

“The services trade at arm's length that does not require geographical proximity of the buyer and the seller.” (Jagdish Bhagwati, Columbia University economist)

Business Process Outsourcing (BPO) is practiced by most of the Global 1000 and includes a wide range of services:

Decision-based processes

Rule-based processes

Data entry, document management and scanningData entry, transfer and coversion

tasks

HR services, live chat and SMS services

Transcription, expense processing, video captioning, medical billing, online reseach, translation

Client-facing processes Creative services, software and web application development, call center, web-design and maintenance

What is outsourcing, anyway?

Page 10: Stanford Graduate School of Business: Social Venture 101 20November08

Where is it done?

Eastern Europe$3.3B

China & Southeast Asia$3.1B

Latin America & Caribbean

$2.9B

Middle East & Africa$425M

$120-150B global business process outsourcing market

India$17B

Source: NASSCOM-McKinsey Study 2005; http://www.indobase.com/bpo/global-market-of-bpo.html

USA$90B

Page 11: Stanford Graduate School of Business: Social Venture 101 20November08

Key Players

Large Outsourcing Firms

Online Marketplaces

...7 billionaires

1%11%

25%

17%

46%USCanada, UK, AustraliaEurope & Latin AmericaIndiaAfrica

Page 12: Stanford Graduate School of Business: Social Venture 101 20November08

How I ended up here

Overview of business process/IT outsourcing

The problem with outsourcing for development

One (small) solution: Samasource and Socially Responsible Outsourcing

Case studies

Achieving impact

Questions?

Page 13: Stanford Graduate School of Business: Social Venture 101 20November08

277% of per-capita income spent on tertiary education in some

countries

+>130M skilled workers in Africa

and rural Asia

+60% unemployment among

university and high school graduates

=

Talent Surplus

Client Deficit

Perception that economically depressed regions are open for

aid, not trade+

Few opportunities for smaller firms to connect to US clients

+ No socially responsible

option that promotes economic development

=

The problem: many poor regions are left out

Page 14: Stanford Graduate School of Business: Social Venture 101 20November08

32 million rural Chinese leave their towns each year for big cities, in search of work

45 million rural Chinese youth are currently enrolled in senior secondary schools

Source: Wang, Dewen. “China’s Rural Compulsory Education: Current Situation, Problems and Policy Alternatives.” Working Paper Series No.36. 2003

The Organization for Economic Cooperation and Development (OECD)

reports that there are 130 million surplus workers in rural India

Source: “Rural BPO.” Drishtee BPO Presentation. March 2008.

Source: Kenya Ministry of Education; Ghana Ministry of Education; Samasource research November 2007 - March 2008.

Over 990,000 young people graduate from secondary and tertiary institutions in

Ghana and Kenya each year and face staggering unemployment

The problem: talent surplus (part 1)

Page 15: Stanford Graduate School of Business: Social Venture 101 20November08

“The dilemma in Kenya, and Africa at large, is that the cost of education is getting so

high...upon finishing, you can’t get a job that will offer returns commensurate with what

you’ve done in school.”

Freda Adundo, IT degree candidate, Kenya

“You find people completing their university education with

honors, and the best they can get is a one-off job doing something unrelated to what they studied. So you end up going back to the rural area where you grew up to do

farming.”

Peter Kimwele, business degree candidate, Kenya

“It’s like the Western countries are missing a generation which they want to import

from Africa...our economy and our brains are in America. Why can’t people earn an

income while they stay here?”

Martin Ntembe, business degree candidate, Kenya

The problem: talent surplus (part 2)

Source: Samasource interviews (Kenya School of Professional Studies: Nairobi). November 2007 - March 2008.

Page 16: Stanford Graduate School of Business: Social Venture 101 20November08

How I ended up here

Overview of business process/IT outsourcing

The problem with outsourcing for development

One (small) solution: Samasource and Socially Responsible Outsourcing

Case studies

Achieving impact

Questions?

Page 17: Stanford Graduate School of Business: Social Venture 101 20November08

One (small) solution:

a new socially responsible outsourcing concept among US enterprises

Defining and promoting

Missionto create knowledge jobs for skilled, economically disadvantaged people

to create business value for US enterprises through low-cost, high-quality business process and IT outsourcing services

small- and medium-sized outsourcing firms (SMOs) in economically disadvantaged regions

Training

SMOs to a global marketplace for servicesConnecting

Method

Page 18: Stanford Graduate School of Business: Social Venture 101 20November08

Defining and promoting

Training

Connecting

a new “socially responsible outsourcing” concept among US enterprises

small- and medium-sized outsourcing firms (SMOs) in economically depressed regions

SMOs to a global marketplace for services

Page 19: Stanford Graduate School of Business: Social Venture 101 20November08

One solution: socially responsible outsourcing

Socially responsible outsourcing promotes economic development and reduces poverty

Foreign capital Small firms Low-income Individuals

$$$a small slice of the

$160B services outsourcing industry

micro-, small- and mid-sized businesses

poor people with untapped talent

Page 20: Stanford Graduate School of Business: Social Venture 101 20November08

Socially responsible outsourcing creates positive social impact by:

directly generating jobs for skilled workers in low-income regions with high unemployment levels

indirectly generating jobs for semi- and unskilled workers

reducing skilled-labor emigration, or “brain drain,” in low-income regions

1Ghana

Senegal

Kenya

Uganda

0 1,000 2,000 3,000 4,000

2

Outsourcing jobs in sub-Saharan Africa

1 direct job 2.5 indirect jobs

3

One solution: socially responsible outsourcing (2)

Page 21: Stanford Graduate School of Business: Social Venture 101 20November08

Wait, what does “socially responsible outsourcing” mean?

Includes firms located in: (a) a developing country, as defined by the World Bank*; (b) an economically distressed region (e.g., Ceara, Brazil; Bihar, India)

Hire firms in poor or very poor regions

Hire micro-, small- and mid-sized firms

Hire firms that are owned by, or employ a majority of,

disadvantaged people

“Disadvantaged” means: belonging to an ethnic or religious minority group, living at or under the poverty line, physically or mentally disabled

Includes firms that employ between 1 and 249 people

Right now, it’s a nascent set of guiding principles for buyers who want to help low-income and socially disadvantaged people pull themselves out of poverty.

Buyers are encouraged to follow any 2 of the 3 principles in choosing a service provider for outsourcing work.

Principle

*http://www.imf.org/external/pubs/ft/weo/2008/01/pdf/statapp.pdf

Clarification1

2

3

Page 22: Stanford Graduate School of Business: Social Venture 101 20November08

What kinds of service providers are included?

Principles Example

Digital Divide Data, a nonprofit Cambodian data entry firm that employs 500+ socially disadvantaged people

1

Hire firms in poor or very poor

regions

Hire micro-, small- and mid-sized firms

2+

1

Hire firms in poor or very poor

regions

+Hire firms that are

owned by, or employ a majority of,

disadvantaged people

3

Hire micro-, small- and mid-sized

firms

2 +Hire firms that are

owned by, or employ a majority of,

disadvantaged people

3

Daproim Africa, a 10-person digitization company headed by a person from rural Kenya

Preciss International, a 15-person data entry firm headed by 2 women

Oriak Digital, a 10-person online research and transcription firm headed by a Kenyan woman

For case studies, see the following slides.

Page 23: Stanford Graduate School of Business: Social Venture 101 20November08

Current Focus

Defining and promoting

Training

SMOs to a global marketplace for servicesConnecting

Samasource is piloting a web-based brokerage process with 8 small firms in Kenya, India, and Nepal

a new “ethical outsourcing” concept among US enterprises

small- and medium-sized outsourcing firms (SMOs) in economically depressed regions

Page 24: Stanford Graduate School of Business: Social Venture 101 20November08

SMOs in Africa and rural Asia firms

US enterprises

Brokerage model

direct jobs

indirect jobs (x2.5)

due diligence > quality assurance > payment solutions > web-based tools

Our platform and sales team will help US firms identify, manage and pay providers...

...and create needed knowledge jobs in poor regions

Page 25: Stanford Graduate School of Business: Social Venture 101 20November08

Data entry, transfer and conversion tasks

Specific rule-based processes

Decision-making and problem-solving processes

Client-facing processes

1-4 plus industry knowledge

4

5

3

2

1

2 contracts signed: Website development3 proposals out: Web testing (750 Industries); Website redesign

American Association of University Professors

Services offered include data entry, digitization, transcription, website and software development

Projects and proposals underway or in development

Brokerage model: results to date

Continued

2 proposals out: online research (World Trade Press); fact-checking (Google)

3 contracts secured: validation of books (Benetech) library card conversion (Digital Divide Data)1 proposal out: additional book digitization

(Benetech)

Page 26: Stanford Graduate School of Business: Social Venture 101 20November08

Brokerage model: prospective market

NonprofitsRationale: Nonprofits face increasing competitive pressure to outsource and have mission-related reasons to outsource responsibly; existing options in India, China are risky from a PR perspectiveSize: 1.4 million registered 501(c)3 organizations spend $5B on administration & overhead annuallyOver 98% of nonprofits outsource at least some IT-related functions

Socially Responsible CompaniesRationale: CSR movement moving deeper into global supply chains; increasing number of “triple-bottom line” companies concerned with social, environmental, and financial impactSize: Networks like Business for Social Responsibility have 200+ members committed to CSR practices; sector could spend up to $6.6B annually on responsible outsourcing

Page 27: Stanford Graduate School of Business: Social Venture 101 20November08

Stories from the Field“One of our workers, Mona, has two kids

and is a single mom. She really cried when our contracts were terminating earlier this

year. This is her life, this is her livelihood. We need to generate a sustainable pipeline for

business development to ensure this doesn’t keep happening.”

“Samasource is really adding value by allowing

organizations to focus on delivering quality services to clients rather than procuring

business.”

“Business development is a major challenge for us. We can’t afford to send salespeople

to the US every few months to drum up businesses and work on branding”

Gilda Odera, Skyweb Evans, KenyaGagan Singh, Source for

Change, India

Steve Muthee, Daproim, Kenya

Page 28: Stanford Graduate School of Business: Social Venture 101 20November08

How I ended up here

Overview of business process/IT outsourcing

The problem with outsourcing for development

One (small) solution: Samasource and Socially Responsible Outsourcing

Case studies

Achieving impact

Questions?

Page 29: Stanford Graduate School of Business: Social Venture 101 20November08

Case Study: Oriak Digital

View Video >> http://www.youtube.com/user/samasource

Page 30: Stanford Graduate School of Business: Social Venture 101 20November08

Case Study: Daproim Africa

• Headed by Steve Muthee, a young entrepreneur from rural Kenya

• Started in 2006 with 4 people• Types of services: form and survey processing,

transcription, digitization (tiers 1-2)• Before Samasource; average revenue per project

$4K• First large project with Samasource: $13K• In pipeline: projects between $10K and $100K• Plans to grow to 20-30 people

Page 31: Stanford Graduate School of Business: Social Venture 101 20November08

Case Study: Preciss International

• Run by two women, Ivy Kimani and Mugure Mugo

• Started in 2002 with 5 employees

• Types of services: online research, data processing, subtitling

• 4 proposals/trials initiated through Samasource

• In pipeline: projects between $10K and $100K

• Planned growth to 70-80 employees

Page 32: Stanford Graduate School of Business: Social Venture 101 20November08

Case Study: Digital Divide Data

• Nonprofit social venture started by Harvard grads in Phnom Penh

• Employs 500 people at 3x Camodian minimum wage

• First project: digitizing old issues of the Harvard Crimson

• Operationally self-sufficient with revenue from services such as digitization, double-key data entry, and survey management

• Social programs: education for sex-trafficked women, on-site medical care, scholarship program -- financed through donations

Page 33: Stanford Graduate School of Business: Social Venture 101 20November08

How I ended up here

Overview of business process/IT outsourcing

The problem with outsourcing for development

One (small) solution: Samasource and Socially Responsible Outsourcing

Case studies

Achieving impact

Questions?

Page 34: Stanford Graduate School of Business: Social Venture 101 20November08

Results to Date

Pilot

~10 vendorsdata entry,

transcription, software

10-25 vendorsdata entry,

transcription, software

25+ vendorsdata entry,

transcription, software

35+ vendorsadditional services

Kenya, India Kenya, India East Africa, India East Africa, India

Offline (MOUs with specific firms),

oDesk

Online supplemented by

offline inputs

Online with minimal offline

support

Online with minimal offline

support

Self-reportedSelf-reported with

background check/follow-ups

Self-reported with 5-10% annual

auditing by third party

Certification and 5-10% annual

auditing by third party

Who

Alpha launch Beta launch Full launch

Where

How

Standards

2008 early 2009 late 20092007

Milestones Reached

July-November - 5 contracts; 15.5K visits

March-July - oDesk partnership, GSVC finals Nairobi pilot & Facebook Developer Garage; 50% increase in Kenyan service providers since then

Feb - Deployed client survey (40+ responses)

Jan ’08 - Web platform with Kenyan vendor

Nov/Dec ’07 - Won Business in Development Challenge; conducted feasibility study in Kenya with 20+ vendors

Page 35: Stanford Graduate School of Business: Social Venture 101 20November08

Premal ShahPresident, Kiva

Darren BerkowitzFounder & CEO

Emeka OkaforDirector, TED Global

Katherine BarrPartner, Mohr Davidow Ventures

Ken BanksDeveloper of Frontline SMS

Mohamoud Jibrell CIO, Ford Foundation

TeamLeila Chirayath

CEOJoy Sun

Initial director

Alice WangBusiness Development and Finance

Henry ThairuKenya Program Advisor

Visiting Scholar, Stanford University

Consultant, Katzenbach Partners

World Bank Development Research Group

BA, Harvard University (African Development Studies)

Expertise: Outsourcing, social enterprise, development

Investment Associate, FT Ventures

Investment Banking Analyst, JP Morgan

Consultant, UN Industrial Development Organization

BS, Economics, BS Finance, MIT

Expertise: Outsourcing, finance, and business strategy

Director, Clinton Foundation HIV/AIDS Initiative

Stanford Graduate School of Business (MBA expected June ’10)

BS, Georgetown University (Foreign Service)

Expertise: Non-profit management and operations, development

Deputy Vice Chancellor, Jomo Kenyatta University of Agriculture and Technology

Chairman, Kenya Council of Science and Tech

PhD, Norwegian University of Science and Technology, Trondheim (Thermodynamics)

Expertise: Entrepreneurship, education, technology in Africa

Advisory Board

Page 36: Stanford Graduate School of Business: Social Venture 101 20November08

Key Lessons for Aspiring Social Entrepreneurs

• The hybrid model: to be or not to be?• Avoid agnosticism - look at critical decision factors and choose

• For SS: team priorities, cost to launch, risk inherent in business model

• If possible, identify a revenue model• Incubation time - overestimate• Refine your pitch (to team members)• Recruit an all-star advisory board• Partner whenever possible• Take advantage of free stuff

• Google tools, Salesforce, conferences, etc.• Find a peer group

• Physical space• Measuring progress/benchmarking

Above all, know that this is one of the hardest things you’ll ever do, and prepare for it.

(living in a van, selling your guitar, tutoring on the side, etc.)