The current model
In 2019, only a single BanaPads product was available: a pack of 10 pads with a retail price of US$0.49 per pack. Bbaale and his team had plans to expand this product line once the production enhancements were complete, using the unique benefits of BanaPads’ door-to-door distribution model (in particular, the repeat sales due to the relationship built between the Bana Champions and their customers).
BanaPads was helping girls and women to overcome a sensitive problem. Doing so in a friendly and empathetic manner was translating into high conversion rates and high retention. Based on these calculations, Bbaale had concluded that the ratio of customer acquisition cost versus customer lifetime value was favourable.
To protect Champions from internal competition, BanaPads had capped the number of customers per Champion at 165 (four Champions per village was enough to cater to most villages’ needs). Therefore, in order to grow, the organisation needed to move into new villages. In fact, its recent rapid growth had meant that it was now capacity-constrained and, at the beginning of 2019, supply was insufficient to fulfil the demand of the 184 Champions (up to 50% of Champions were unable to fulfil the orders they had); hence the need to complete automation of the production process.
There was also a good opportunity for BanaPads to expand its product range, offering packs in different sizes to increase affordability and consumer choice. It also intended to implement a new marketing plan by adding illustrated comics to its packs, which would help educate rural women on menstrual health and hygiene using superhero characters.
The financing options
In 2019 Bbaale was in discussion with a venture capital (VC) fund that was considering an equity investment in BanaPads, but the VC had several concerns with the current business model and urged Bbaale to make substantial changes to it to secure investment, including a much more sales-driven focus.
This meant that, if Bbaale was willing to give up much of what made BanaPads successful in terms of social impact in the first place, he could get the investment – but it would also dilute and delay its social impact.
The alternative option was to stick closer to the current business model, likely limiting external investment. In that case, social impact would be deeper but on a much smaller scale and with a slower ramp-up speed.
Bbaale believed that the tension between BanaPads and the VC fund lay in the fact that the fund was more concerned about financial metrics than underlying impact, while he aimed to generate both types of value (financial and social); hence he believed the returns on investment should be assessed equally on these two fronts.
The investor also suggested reducing Bana Champions’ duties to allow new ways of distribution to be put in place, or even eliminating them completely and moving to traditional retail sales and distribution channels. This would imply lower operational sales-force costs for BanaPads (from an initial 5% of revenues to 3% in five years) and therefore a higher valuation of the company.
But Bbaale felt that the VC’s projections were treating impact as a binary variable, rather than one variable to optimise together with financial performance. He therefore decided to prepare his own financial plan, assuming no changes to the current business model and focusing only on generating social impact.
He then identified four possible options to move forward. The first was to convert BanaPads into an ‘investable business’, which he could do in two ways. One was to keep the Bana Champions in place, as they were a critical element for sales, but shift their focus from raising awareness and empowering women to driving sales. In this scenario, he would also need to adjust the product price to offset the cost of retaining the Champions.
The second VC option was to remove the Bana Champions from the model completely and instead simply use conventional retail channels, such as supermarkets, as the VC investor suggested. This would allow BanaPads to scale to new countries, driving revenue up, but would likely jeopardise social impact.
The third option was to dismiss the VC investor’s offer and focus on social impact. This would mean going back to an NGO structure and looking for more grants in order to increase production and grow the business. In this scenario, BanaPads could reduce prices and put much of its focus on female empowerment.
Finally, he could dismiss the VC investor’s offer and instead look for other types of equity investor who were more aligned with his business philosophy, including his view on the Bana Champions and product pricing. But this would mean that full automation and subsequent growth would be delayed, and he would have to start looking for new investors again – a time- and energy-consuming process which would also divert his focus from the business.
The case is a classic illustration of the tensions between financial and social impact, and the inevitable trade-offs that have to be made by social entrepreneurs when seeking to raise outside investment in order to scale. In teaching it, Dr Alemany draws on concepts and tools such as Theory of Change, impact metrics and the valuation of startups.
While the VC industry is accustomed to using various tools and metrics for the valuation of startups, combining tools from the world of finance and traditional VC investment with those of the social/NGO space to quantify and compare both types of impact – financial and social – is a highly novel approach.
Using the concepts
Theory of Change (ToC)
ToCs (see box) are a useful way to capture how an organisation or initiative creates change in the world. The ToC starts from the current problem (needs) and ends with the desired state of the world (impact). Each step in between represents a logical jump from input and activities of the initiative to outputs, outcomes and, finally, impact. Most impact investors expect to see a ToC in pitch materials, and a compelling ToC has evidence to prove that the ToC is valid in the real world (ie that the activities lead to the desired changes).
Impact Measurement Project (IMP)
The IMP breaks down impact into constituent parts. Generally, people only consider the actual changes, but it is also important to consider who the changes affect and how much they will impact on them, including the depth of change (is it a big change or a small one?) and its scale (how many people will it impact?). The IMP will likely also include an estimation of the duration of the impact and the key risks that may follow from the impact created. It may also consider the question of additionality will change occur anyway, even if the initiative does not take place? And how ‘additional’ is the new initiative?
Impact Money Multiple (IMM)
Developed in 2016 by an impact-investing fund for growth-stage companies and a social-impact advisory firm, the IMM applies the rigour of financial performance measurement to the evaluation of social and environmental impact.
It has four steps: assessing scale (number of people reached by the initiative); identifying social or environmental outcomes; estimating the economic value of outcomes to derive a monetary value for the impact created; and adjusting for risks (including issues in transferring academic findings to new contexts and adjusting figures accordingly).
The aim is to calculate the financial value of the social good projected to result from each pound invested, thereby enabling social-impact investors to estimate the projected return on an opportunity.
But it was not merely pedagogic utility that attracted Dr Alemany and her co-authors to the BanaPads story. One of the most encouraging aspects of the case is that, given the powerful gender taboos in Uganda, the protagonist is male: “It was inspiring to find a man fighting and providing support and help for women’s basic health in Uganda,” Dr Alemany says. “Richard Bbaale represents the type of person we need in this world: empathetic, supportive and hard-working.”
His is certainly quite a story, and made for quite a case study: in June this year it won the European Foundation for Management Development Case Writing awards in the category ‘Inclusive Business Models’.
‘BanaPads: To grow or not to grow? That is the question’ is now available on the LBS case portal. You can access it here. An accompanying teaching note for educators is also available
Luisa Alemany is Associate Professor of Management Practice in Strategy and Entrepreneurship; Academic Director, Institute of Innovation and Entrepreneurship at London Business School