Previous Next

Redefining failure: The evolution of the Shell Foundation strategy

April 02, 2015

Since its launch in 2000, the Shell Foundation has evolved an ‘enterprise-based’ model of development. Its outgoing director, Chris West, writes that this has been possible only by embracing and learning from failure.

When the Shell Foundation was set up 15 years ago, we set out to tackle major obstacles to inclusive development in ways that were both sustainable and scalable. As a charity, we chose to focus on entrenched global problems, such as access to energy for low-income consumers, sustainable mobility and job creation via small and medium sized enterprises. Our approach to create, prove and scale disruptive technologies and business models has remained ever constant – yet our strategy to achieve this has had to change significantly as we sought to improve our impact and efficiency.

Moving to an ‘enterprise based’ approach

In our early years, we selected grantees by consulting widely, publicising our areas of interest and then reviewing multiple proposals – a classic ‘Request for Proposal’ methodology. It was based on offering short-term grants of up to three years and awarding less than $300,000 each to a multitude of not-for-profit organisations.

This ‘spray and pray’ approach was marred by a fundamental lack of success, with over 75% of grantees in our first three years failing to demonstrate any potential for large-scale impact and financial independence. The quality of applications we received was poor and, of those we selected, most failed to even achieve their basic stated objectives due to weak execution, an inability to ascertain the true needs of the market and insufficient expertise to develop a business model that could progress beyond a long-term reliance on subsidy.

Through a process of trial and error, we discovered we could radically improve our philanthropic effectiveness by focusing resources (time, money and effort) on developing new approaches with a few carefully-selected entrepreneurial partners, and supporting them to build the organisational capacity needed to validate and scale new market-based models.

By recruiting staff with a blend of commercial and development expertise, we applied greater business discipline to our own processes for partner selection, performance management, cost-efficiency and risk assessment resulting in improved performance over time.

A new theory of change: from pioneers to building markets

By 2009, we had narrowed our focus to a small portfolio of entrepreneurs. Take for example, our Access to Energy programme, one of the Foundation’s three main focus areas. By this stage we had supported pioneers in totally new fields, developing solutions to make modern energy products (like cookstoves and solar lights) and services (such as off-grid electricity and engine retrofits) affordable and available to low-income communities.

Over the next two to three years, pioneers such as Envirofit, d.light and Husk Power Systems began to demonstrate the potential of decentralised energy solutions and cutting-edge technology to deliver measurable financial and social benefit to customers in India and several countries in Africa.

Each business, however, remained fragile. Promising initial growth had slowed by 2011, and it became clear that structural barriers such as low consumer awareness, affordability constraints and limited routes to market stood in the way of significant global expansion. Alongside a range of public and private sector collaborators, we wrestled with ways to overcome these challenges.

Over time, a series of direct interventions evolved into something more strategic. We started to prioritise the creation of dedicated ‘market enablers’ – intermediary businesses, financiers and industry bodies – to provide the critical market infrastructure that a broader set of early-stage energy enterprises needed to thrive. With partners beginning to mature, we entered a new phase of organisational growth: looking beyond pioneer social enterprises to the creation of inclusive markets in order to amplify our impact.

Our Six Step Theory of Change

Shell Foundation has, by need more than design, evolved to work in six areas designed to accelerate social innovation and build new inclusive markets. One of our greatest successes was our work to catalyse a global market for clean cookstoves, set out here against our “Theory of Change”.

Stage 1: CatalyseIn 2002 Shell Foundation started analysing the issue of inefficient cooking in developing countries. Every day three billion people around the world cook their meals on open fires or inefficient stoves – burning biomass fuels such as wood, waste and charcoal. This has major ramifications on health, income and the environment. Cooking in this way produces a dense black smoke that kills 4.3 million people a year, mainly women and children – this is a death toll higher than HIV, Malaria and Tuberculosis combined. Burning fuel inefficiently also significantly raises fuel costs (which can represent up to 40% of family income in parts of Africa) and time spent gathering wood for the poorest families, while the resultant black carbon is a major contributor to climate change.

Although cleaner cookstoves had for decades been identified as the solution to this challenge, no initiative (typically NGO or government-led) had proved able to produce a product that could solve the problem on any sort of scale at state or national level. We identified the potential to catalyse private markets to solve this challenge by making more efficient stoves available to the people who need them.

Stage 2: Pilot

Between 2002 and 2007, Shell Foundation conducted nine pilot projects across seven countries, at a cost of nearly $20m, to understand varying cooking technologies, business models, and customer needs. None of these resulted in the creation of a product that met customer desires for affordability, high performance and durability. Nevertheless, the market knowledge gained proved invaluable and informed the selection of Envirofit in 2007 and the evolution of a new business model to serve this market.

Stages 3 and 4: Create Pioneer and Scale

In 2007 we formed a long-term partnership with Envirofit, a social enterprise spun from the acclaimed engineering department of Colorado State University, to build a clean cookstove business that targeted financial viability and scale from the outset (a radical departure from traditional approaches which centred on give-away schemes and heavily subsidised stoves). Envirofit’s engineers pioneered a new cooking technology to produce affordable cookstoves that are efficient, durable and desirable, and are adapted to suit the cooking preferences and fuel choices of local customers. They now have a range of biomass stoves for different markets, retailing between $10 and $30. Each stove reduces toxic fumes by up to 80% while cutting costs and fuel usage by up to 60% when compared with open fires – delivering massive cost savings and health benefits to customers.

Stage 5: Tackle Market Barriers

Despite having a great product that tested well in different markets, Envirofit struggled to gain traction in the marketplace – and growth was far slower than projected. Around 2009, we began to uncover major structural barriers that would affect the scale-up not just of Envirofit, but any clean cookstoves business (in fact any business that sought to serve Bottom of the Pyramid markets). Major challenges constraining growth included rural distribution, consumer financing, low product awareness and a significant lack of working capital across their supply chain.

Shell Foundation responded in two ways. First by working with Envirofit to innovate, test and scale new ‘value chain’ solutions to key market barriers, such as partnerships with microfinance institutions (consumer affordability), corporates (market access and brand recognition) and shifting to a B2B distribution model. Secondly, Shell Foundation partnered with a range of social entrepreneurs to tackle these barriers to growth at an industry level. This meant working to co-create new supply chain and distribution models and developing new financing solutions to enable the replication of these models and to improve affordability for consumers. Partners included Dharma Life (a specialist rural distributor) and IntelleGrow (a specialist financier providing debt finance to early stage enterprises) who have now supported multiple clean cookstoves to scale in India.

As a result, Envirofit have grown from an initial pilot in southwest India to an international business that works in over 45 countries. They are the stand-out leader of a new market for clean cookstoves, with a large range of efficient biomass-burning products suited for different uses and regions and over 850,000 stoves sold to-date across Asia, Africa and Latin America (benefiting more than 4.2m people).

Stage 6: Build Markets

As part of our efforts to encourage new entrants into the market, and to create a robust value chain to support them, Shell Foundation partnered with the UN Foundation in 2009 to co-develop a non-profit institution that could provide critical support and infrastructure to catalyse the growth of a worldwide industry. The Global Alliance for Clean Cookstoves is a multi-stakeholder public-private partnership initiated by Shell Foundation, the UN Foundation and the US State Department. Established in 2010, the Alliance is working to build a global market for efficient household cookstoves, and aims to foster the adoption of cleaner cooking solutions in 100 million households by 2020. It aims to mobilise public and private grant and investment resources, codify best practice and develop global standards for clean cookstoves and fuels, build the capacity of organisations in the sector, and advocate for a supportive enabling environment. Shell Foundation seconded a dedicated full-time staff member to the UN Foundation to help design an effective model for the initiative.

Since launching at the Clinton Global Initiative in September 2010, the Alliance has secured over 950 partners and to-date has leveraged $200 million funding into the sector from governments, the private sector and NGOs. The clean cookstove sector now includes well over 40 businesses who are serving low-income communities with high-quality products (using different technologies and fuels) at a regional or global level. From our perspective, demonstrating that viable businesses can work has lowered the risk for a range of social and commercial investors to explore the sector, and the market is now primed for significant expansion over the next few years.

Lessons on Piloting

One of the reasons that Shell Foundation is so well suited to catalyse inclusive markets is our ability to make available risk-tolerant capital. The Shell Foundation choose to deploy this in support of high-risk, yet potentially transformative, ideas, technologies and business innovations (at both an enterprise and market level) which other types of private and public funders simply won’t touch.

This means getting comfortable with, perhaps even redefining failure. A large number of the partners we have supported over the years have, while making a genuine difference at a local level, failed to meet our expectations for scale and sustainability. The word ‘failure’, however, belies the iterative learning we gain when things go wrong. Time and again, our experiences have led to the insight we needed to find a successful partner.

While we work to mitigate these risks through improved partner selection and due diligence, Shell Foundation’s view is that failure is a necessary step towards disruptive innovation. We believe failure is acceptable, providing you learn, you learn quickly and you share lessons widely.

Chris West stepped down as Director of the Shell Foundation in February 2015, following 15 years with the charity.

This article was originally published by The Brewery at freuds, in partnership with the SLOW LIFE Symposium. Read the full publication here.