In September 2012, Kenya Climate Innovation center was launched as the first of seven incubators that were set to be launched by the World Bank. The aim of the Center was to help entrepreneurs and innovators to come up with innovations that would provide the private sector with the opportunity to address the climate change menace from the doing good business perspective.
Fast forward to today, close to 140 businesses have been incubated and half of them have products in the markets they operate. These businesses are providing low carbon sources of energy, clean drinking water as well as increasing yields in the agriculture sector. All of these solutions have a double effect on fighting climate change as well as improving the livelihoods of citizens. Key to achievement of these outcomes is to have innovations scaling and ensuring they do not bring a lot of disruption in how the market operates and organizes.
From my experience it is clear that in scaling clean technology (clean-tech) related businesses, what is important is not the scaling of the business but of the idea. For instance, take the case of clean cook stoves, where we have not yet seen one company that has sold millions of the stoves but there are various companies working in different localities. This model has its advantages such as the addressing of the specific needs of a given locality as well as better customer service.
On the other hand, the disadvantages are that the benefits accrued to scaled business are nonexistent such the economies of scale on distribution and marketing, production etc. This however does not prevent the businesses that have more scalable products such as M-Kopa which has now sold of 300,000 solar lanterns in Kenya alone.
The point to note is that scale especially for the clean tech businesses is more about replicating business ideas and processes that will help in resolving the climate change threats as opposed to the scaling of the individual companies. It is therefore important to create an enabling environment that will help in the diffusion of the various sustainable business ideas and models across Africa. The reason for this is due to the magnitude of barriers in scaling clean tech businesses, including the cash required to scale the business.
Financing for scaling
Scaling a business always requires more funding and the availability of the funding is still a challenge especially when the financiers have not properly understood the sector. Uber for instance, has raised over $8 billion to scale. Is this possible in the clean tech sector? This will only happen if the investors, governments, philanthropists and other financiers are willing to make massive investment in the sector, which has not been the case so far.
The definition of the risks and rewards in the clean tech sector need to be redefined. This will happen when there is more understanding of the sector especially from the investors who have not provided the required financing due to lack of proper metrics to measure the return and the risk. In most cases they have been stuck to the financial returns and the business focus is more on the triple bottom line – people, planet and profit.
If the metrics are defined in the form of the triple bottom line more and more investors could join the bandwagon and invest in the sector. On the other hand, the risk definition for the investors is in question. The risk perception is higher than the actual risk and this does not help in the provision of financing to the sector.
Related to financing is the facet of consumer financing, and its availability and structure. To have more people adopting clean technologies, the consumers of the products will need to justify the switching costs which include the upfront payment of the products vis a vis the savings and benefits that will be gained over time. This calls for financing and business model innovations which has not happened at a rate that enables many consumers to reap the benefits associated with innovative clean tech products.
Governments also have a role to play to catalyze the movement towards scaling of clean tech businesses. The role of the government should be two fold. First, to provide an enabling environment for entrepreneurship to thrive. This will give more citizens an opportunity to come up with ideas that will solve some of the pressing challenges that the society is facing from a private sector perspective. Secondly, the government can provide a policy and regulation framework that enables the adoption and use of clean tech solutions in respective countries.
African governments should take the Silicon Valley model of entrepreneur-led scale where they can provide investments and funding that enables scale as well as building the required infrastructure such innovation hubs, design labs, testing labs as well as funding research that will catalyze more entrepreneurial ideas.
Development partners as well as philanthropists have a role to play especially in the form of resources that will help in implementation of the policies as well as setting up incubators and accelerators that will help nurture businesses in the sector.