To explain this economic modeling, let us first establish that we all want to be healthy, be more humane, and to protect the environment. These needs, we shall label them as latent needs as they tend to be subconscious, omnipresent, and intrinsic in us. But these needs are often overridden by explicit counter signals in our world which is by now, dominated by highly optimized, mass-produced goods, and high-velocity consumptive environment.
I take grocery shopping as an example of this counter signal. Have you ever shopped for organic fruits and vegetables in Cold Storage? Why are they typically 3x higher in price from mass-farmed produce? Here I submit to you the psychology of price anchoring as having an effect to suppress the latent need. Because we have a highly-optimized supply chain for mass production, the parallel, not-yet-optimized supply chain is used only for the niche market.
While we inherently know that organic produce is healthier for ourselves and our families, we are unwilling to pay the higher price, thus creating an ever increasing price gaps between the two supply chains. Note that I use the word ‘unwilling’, and not ‘unable’ because I submit to you that for many of our households, we can absolutely afford the healthier option. But because of the price anchoring, this latent need is suppressed from the choice dilemma, often not even entering into our conscious decision-making. But what if we can close the price gap, with use of technology and process innovation, of the healthier foods by increasing the yield, optimizing the supply chain, or converting more customers to increase demand? My hypothesis is, we can lower the price curve where such types of innovation can co-exist with mass goods consumption. This model is illustrated by the graph below.
- Customers (early adopters) possess latent needs in reducing harm to the environment, health, and well-being.
- Products with impact to these 3 dimensions are multi-stratified: low end, mass, high-end.
- Products which meet the latent needs are typically priced on the upper end of price value (but not a ‘luxury’ consumption or veblen goods), and creates a dilemma for the customers (degree of latent needs vs. willingness to pay) against the mass priced alternatives.
- Restorative Innovation changes that value equation.
- Inherently spreads socially.
- Co-opts more adopters as the dilemma reduces in magnitude of difference.
Characteristics of Restorative Innovation
- Superior on the latent needs attributes, along the dimensions of health, humanity and the environment that customers value.
- Contains new value propositions to attract a new (and often) niche customer segment who is willing to pay a price-premium for the attributes.
- More expensive than comparable providers’ mainstream products/service.
- Can co-exist with mainstream products for an extended (even indefinite) period of time.
- Price gap diminishes over-time (due to technology or scale) creates a parallel and duo consumption pattern.
There are many examples of Restorative Innovation being used. For example, The New Luncher, a startup in Singapore, has the vision of bringing healthy foods to children via subscription model of lunch boxes. The promise of The New Luncher is to use healthy cooking methods and does not tolerate processed food, preservatives, artificial flavours/coloring/MSG. While their lunch boxes are not inexpensive (averaging around SGD 7.90/lunchbox, versus typically SGD 4-5 for mass production buffet style canteen pre-cooked foods), it does appeal to a certain group of parents who want to start their children on a healthy diet because they believe that nutrition is critical to fuel children’s bodies and help them to stay healthy and at peak performance. The vision of The New Luncher is to bring the cost curve down to within incremental costs difference (from today’s 75% price premium) so more children can enjoy good foods, every day.
Another example is Tria, a sustainable food packaging company who has innovated around a new package to enable full organic waste conversion to high-NPK fertilizer. On the choice dilemma, sometimes, this choice is made on our behalf by businesses. For example, a Styrofoam cup costs around .04/cup, and decomposes in about 500 years, and a typical paper cup is .08 and decomposes in 20 years. For a Polylactic, bio-resin (PLA) cup is .12 and decomposes in 3-6 months, and a TRIA cup in 24 hours is .14/cup. Again, we are looking at an almost 5x cost difference. Many F&B businesses choose the cheapest packaging, exasperated by the new model of eating foods on delivery. We are forever adding more to our earth’s debt.
“Almost any new technology initially has high unit cost before it can be optimized and this is no less true for electric cars. The strategy of Tesla is to enter at the high end of the market, where customers are prepared to pay a premium, and then drive down market as fast as possible to higher unit volume and lower prices with each successive model.” – Elon Musk
We also see examples of Restorative Innovation in established enterprises. Cargill, the world’s largest privately held corporation when measured by revenue and founded in 1865, has a joint venture with Thailand PTT in Natureworks, LLC to supply bio-plastics with use of greenhouse gases as raw materials. Their product, Ingeo, has a substantially lower carbon footprint, and is biodegradable. There are many applications of Ingeo and this is an exemplary example of how great research can be commercialized in Restorative Innovation.
Other opportunities abound. A start-up called Zero Mass Water from Arizona extracts water from air, and is able to produce 2-5 litres of water a day based on an off-grid solar system. There are many other opportunities in the various problem spaces, as listed below.
Restorative Innovation Opportunities
Create safer/cleaner/healthier (‘good’) products
Increase yield/capacity/supply of good products
Increase efficiency of supply chain of good products
Increase demand/consciousness of good products
Circle Economy/Preserve the natural environment
Let us return to the original question posed at part 1 of my blog, on how we can feed 9 billion people by 2050 with sustainable production methods. There are many emerging innovations on plant-based food that mimics cow flesh but uses 95% less resources than traditional livestock. Crickets and other insect proteins are also efficient protein sources. Ikea has a future living lab SPACE10 that is experimenting with cricket protein for the famous Swedish meat balls. Another innovative company YNSECT is innovating around growing insects efficiently and processing them for fish meal and pet foods. Impossible Foods, a company recently funded by Temasek to the tune of US$75M, is working to create a meat-tasting protein from extracted from soy roots. The secret to this work lies in extracting heme, a process that is patented from Impossible Foods. Impossible burgers are now available in various restaurants in the U.S., and are priced higher than conventional beef burgers, but the pricing is expected to come down as scale increases. Alternative protein companies are gaining investors’ notice in their innovations. Memphis Meat, which specializes in lab-grown meat, has received funding from Tyson Foods. Memphis Meat’s meat was produced at US$18,000/lb in 2016, and has come down to US$2400/lb today, and is expected to reach $4/lb in 2021, based on their projects. I’ve included both of these alternative protein companies’ product pricing on the cost model below:
There are many cases now emerging – innovations around the theme of restoring health, humanity, and the environment. I am in the process of creating a playbook so to bring a greater focus to this value creation framework for young entrepreneurs, to stimulate their imagination on innovations around this theme, and to adopt a holistic view, and to see the interrelations between ‘physis’ and ‘poiesis’.
According to estimates from United Nations, we will see the world’s population reaching 10 billion around 2060. If we continue to singularly focus on innovation as relentless pursuit of economic growth, we may find ourselves depleting what nature intends for us, in terms of positive growth and change. I believe the time has come to encourage our young people to reimagine value creation in terms of how we restore health, humanity, and the environment. The changes that are causing negative effects to our health, our societal values, and our environment have been adding up gradually, and if we are blinded by the gradualness of changes and evolution in our Darwinian world view, we may not be ready when a bifurcation event happens, suddenly and on a large-scale, as such changes almost always do in a complex system.
I hope my blog on Restorative Innovation ignites our collective imagination on what is possible and changes the innovation narrative from relentless pursuit of economic growth to pursuit of value from a more balanced view on what is good for economy and what is good for us. Innovation should serve a purpose for society, and should not be a solely monetary pursuit.
Again, my team and I would like to invite you to attend the first World Restorative Innovation Forum (WRIF) in association with SWTICH Singapore to understand and apply Restorative Innovation in your ventures and strategy! We are bringing together a stellar line up of speakers from WWF, World Economic Forum, INSEAD. Startups like Antler, The New Luncher, TRIA and a keynote by the Deputy President of United Nations Association on Singapore, Lee Kwang Boon. Do register here, and I look forward to seeing you on 17th September.