By Valeria Budinich

Because billions of people are underserved by the global capitalist economic system, business needs a new vision for conceiving and organizing its work to reach under-served markets of the poor. This issue of Changemakers provides an example of such a vision in Fabio Rosa's delivery of rural electrification to low-income families.

It involves a partnership between the business and citizen sector with innovation at each step of the value chain, from processing raw materials to arriving at the finished product – so we call this the hybrid value-chain approach.

Historically, the business and social sectors have worked in parallel with very little interaction, even when serving the same clients – such as the poor – and yet, for many industries, this potential market could, in fact, constitute a new frontier. The hybrid value chain approach escapes the constraints of boundaries between profit and non-profit endeavors.

Rather, it allows business/social entrepreneurs to create new value for greater social impact. Fabio Rosa's work is a pioneering example of the possibilities of a hybrid value chain approach.

Basic requirements to participate as a full economic citizen of the world include access to electricity, housing or health services. Yet, the poor continue to pay the highest prices for these services while, as a market segment, they are still being considered either unprofitable or too risky by most businesses.

Social entrepreneurs like Fabio Rosa are inventing new markets by designing services based on how much low-income families can pay. Rural electrification technologies have been available for decades, but Fabio's innovation is the introduction of a "rental system" that brings the promise of affordability to millions of people.

Similar insights have led companies like Cemex to introduce "save and build" mechanisms tailored to the needs of residents of Mexican slums, and social entrepreneurs like David Green to pursue a strategy of aggressive low-pricing of hearing aids and other high-margin health products.

As the entrepreneurs behind these for-profit ventures demonstrate the commercial viability of their business models, we need to ask ourselves, "Why and when does for-profit social impact makes sense?" For years, the social sector has been constrained by the amount of subsidies or donor monies available to sustain its operations. Historically, scale of impact has been more a function of available subsidies than the market size or the magnitude of the social need.

Provided that customers have the ability to pay – an assumption that will not necessarily hold in 100 percent of the cases – for-profit social impact offers the possibility of reaching out, with the same amount of resources, to a larger number of clients on a sustainable basis. Scale of impact is therefore one of the two paramount reasons for taking the additional risks involved in any new business venture.

The other reason is the opportunity to leverage the resources of private investors, including both their financial means and the power of private sector distribution channels. But even more important over the long-term is that for-profit ventures take on the challenge of recognizing that the poor are legitimate business clients who will invariably decide what is best for them – one of the basic principles behind full economic citizenship.

As this new dynamic of social/business ventures unfolds, it triggers the need for a new generation of suppliers who have the capacity to innovate and compete for the markets that constitute the next business frontier.

Within the global network of social entrepreneurs who are part of the Ashoka community, we are seeing an increasing number of social entrepreneurs who are freeing themselves up from the constraints of "pure" social approaches. Pursuing a hybrid value chain approach entails learning about new opportunities and risks. Donor funding becomes a strategic investment that, more often than not, is crucial for new market development and product testing. Private sector partnerships bring the discipline and focus of performance-oriented operations, while the social sector offers the possibility to mitigate risks.

Prior knowledge of communities and individual needs and preferences develop into the cornerstone for establishing a thriving market and a loyal customer base. Pioneers like Fabio Rosa offer us a glimpse of the promise of a new future where low-income families have access to valuable services at affordable prices.