Deidre Lal Schmidt, Executive Director, Affordable Housing Institute (AHI)
AHI is in the business of seeding and supporting housing-related, mission-oriented entities, mostly in the global south. Through this and previous work, I have learned some of the differences between growing a business organically and building one synthetically.
Organic business development occurs when one entity naturally expands its market (geographic, income segment, etc.) or its product offering (new products within existing business line or entirely new business lines). This sort of development resembles evolution. It is a seemingly natural process where logical extensions of an existing business are identified and pursued by a leader or leadership team who have authority and control over resources.
Synthetic business development occurs when an entirely new business activity is brought into being by assembling disparate human and financial resources, usually in the form of several existing entities and often times across sectors. The old-school form of synthesis was merger and acquisition, but a new generation of synthetic business is being cooked up. Social impact investing is driving more holistic definitions of success, requiring soft and hard, social and financial returns. Ashoka, who is credited with coining the term “Hybrid Value Chain” (HVC) to describe the conscious collaboration of citizen’s sector and for-profit entities to serve social outcomes is supporting entrepreneurs involved in this space. Similarly, there has been a growing interest in including the non-profit sector in strategic partnerships, driven largely by limited resources.
Affordable housing development and finance are logical sectors for hybrid value chains and synthetic business development because of the complexity of the activities, the incredible need / market demand in the lowest income groups and corresponding call for subsidy and or public / citizen sector participation.
Housing for the base of the pyramid constitutes a largely untapped market, particularly in the global south and is estimated at over $700 billion dollars However, serving these markets is not simply a matter of tweeking existing physical and financial products; making them cheaper, small or of lower quality. It requires fresh new approaches in manufacturing, marketing, delivery and finance. These approaches often mean synthesizing the strengths and contributions of multiples actors. In my next post, I will share some of what, in my experience, contributes to success in these collaborative endeavors.