BioLite — Parallel Innovation to Spur Growth and Impact
The following case study examines the risks and rewards of bifurcating a for-profit business into the near-term recreational market and the long-term, high-impact, developing world market. It also highlights the power of metrics to ascertain impact, build a business, and encourage investment.
BioLite began as a night and weekend project to build a super-efficient wood-burning camping stove. Its two founders, Alexander Drummond and Jonathan Cedar, were working at a design consultancy called Smart Design in New York City when Alex made the first prototype by attaching a fan to a tin can. Thrilled by how the simple addition of a fan allowed wood to reach the efficiency of a modern fuel like petroleum, the two friends set about making a more sophisticated version. Soon, they realized that the stove generated enough excess thermal energy to charge electronics, and the BioLite CampStove was born.
A project intended for the recreational market is applied to the developing world. The BioLite HomeStove emerged in 2008, when the BioLite team attended ETHOS, a conference on wood-burning stoves. At ETHOS, they heard devastating statistics about the deleterious health effects of fumes from indoor wood-burning stoves – 4 million people in developing countries die prematurely each year from related diseases. At the same time, BioLite entered their “camping gizmo” into the conference’s clean stove competition, and won. When they realized that their stove was the only one in the competition that didn’t plug into an outlet – i.e., the only one that could serve off-the grid populations – they knew that the fundamentals of their idea could have massive impact in the developing world.
This is when BioLite’s business model bifurcated into what Jonathan calls “parallel innovation” – that is, developing a core technology for a product that has near-term potential in a high-profit market, and using the gains to incubate a product with high long-term impact and financial potential in a more challenging market. Using this business model, they began iterating towards the larger, more rugged HomeStove, their stove for use in the developing world, at the same time as they pursued the recreational market with the CampStove.
Parallel innovation poses challenges to investors, but also rewards. BioLite’s first attempt at fundraising through Toniic failed, because several potential investors felt that the CampStove would sideline the company’s impact potential in the developing world. Other early-stage investors felt nearly the opposite – that the HomeStove posed too much risk for a startup. “If we were GE,” Jonathan says, “putting dollars into a new market with a long break even period would be normal. But for a startup, investors want to see nearer term returns.”
But eventually Toniic investors stepped up stating that from their perspective that the two markets essentially provided two shots at the same goal. Their commitment was quickly followed by a large investment from the Disruptive Innovation Fund. The Department of Energy and USAID eventually also made large grants to help create field trials for the HomeStove and to adapt some of the HomeStove technology to built-in cooking units in Latin America. BioLite was off and running.
A year of successes in the recreational market. So far, the CampStove has been very successful. Their first year of sales in 2012 were triple the company’s initial estimate, and the product was shipped to more than 70 countries. This was in part due to what Jonathan called a “happy accident”. Strong media coverage resulted in boosting online sales, which provided substantially larger gross margins compared to sales to wholesalers and retailers.
For example, when Hurricane Sandy hit, one of the firm’s engineers took a case of CampStoves out to City Hall and began charging people’s phones. The company received great press coverage as a result, and saw a huge bump in end-of-year sales – 50% of their sales occurred in the last three months of the year. It also provided them with clues about a market that they had known about from the beginning but not explored: the emergency preparedness market.
For the HomeStove, a focus on data-gathering and field-testing. BioLite has been data-focused from the beginning, often collecting more data than what investors and grantees request. The most striking example of this is that they built in an electronic usage-logging system into the HomeStoves. Currently this is allowing them to track usage through three different field tests – funded by grant organizations in the UK and US, made through academic partners in the US, and facilitated by partners on the ground. But first things first. According to Jonathan, “We first need to answer the underlying questions of whether cookstoves have a measurable health value and if they are used consistently.” The field tests taking place in Ghana and India through 2013, will map usage rates and health outcomes from the 10,000 HomeStoves. Future data collection opportunities including measuring variables that will affect company decisions down the line, such as price point, pay-as-you-go feasibility, charging capability, and branding.
The importance of equity investments from investors. In order to be sustainable, Jonathan states that the company must be driven by revenue and for-profit investment rather than by grant funding. Although they were able to access grants to complement their own capital investment into bringing the HomeStove to market, Jonathan’s business plan did not require this in order to get this product to market. However, having the grant capital allowed them to move at a faster pace and at a larger scale. Social impact organizations that are struggling to find capital through grants, he says, often don’t have the resources or flexibility to attract highly trained professionals with specific skill sets. Instead they have to rely on generalists, which can make it difficult to turn out a truly state-of-the-art product. This is why it was so important for BioLite to have equity funding from impact investors, and also why it was so crucial that they kept a reserve of capital and reached profitability before that capital ran out. According to Jonathan, “grant funding is not as flexible with respect to the reality of a business like ours, whereas an equity investment combined with revenue generation gives us the ability to fail in small ways and still be in existence.”
Check out BioLite’s CEO, Jonathan Cedar, introducing the new BioLite CampStove here.