Collection No 1
Rwanda and Kenya experience an infant mortality rate that is eight to ten times greater than that of the U.S.
The top six causes are all related to respiratory failure, and in many cases these deaths are avoidable if patients receive proper ventilation and oxygen. However, access to oxygen in east Africa is limited, expensive and unreliable.
GE decided to fix this, and recruited frog to help. The agreement was that GE provides the equipment – two quarter-million dollar pieces of machinery that create pure oxygen from air – and we turn each of them into a business that satisfies the medical need and can grow organically, without requiring further donations. Once a plan is in place, a team of NGO partners will set up and operate the businesses on the ground: one in Rwanda and one in Kenya.
What We Learned
After about four months of research, business planning, and socialization with health care professionals, government stakeholders, and NGO partners, we’ve come up with a business plan that will allow us to address the medical need for oxygen in a sustainable way. Several important variables will make or break the model. Here’s what we found:
1. The key to success is high volume.
We crunched the numbers. The good news is that the concept is viable, and the equipment GE is donating is capable of generating more than enough oxygen to support the current and near-future needs of the areas where they will be installed.
The bad news is that current demand for oxygen amongst health workers and administrators is much lower than we anticipated, which introduces a lot of risk in terms of business model viability. If the oxygen plants are producing at or near capacity the model can be wildly profitable. But with just a few facilities buying and using at a similar volume to what they use today, the oxygen plants will only operate at about a sixth of their capacity, which makes the business model barely break into positive earnings. This means success and scalability is predicated on volume growth, and on building strong relationships and contractual agreements with the handful of large customer facilities that intend to buy our oxygen.
2. Volume growth requires active demand generation.
To ensure lasting profitability and to be able to scale organically the business will have to sell to a greater number of customers in the addressable market, and increase the amount of oxygen used at each customer facility. This should be possible, as the medical need for oxygen is absolutely there. So why is current demand so low? We identified a couple groups of barriers, and we’ve come up with initiatives that will address them to enable demand to grow.
Awareness and knowledge barriers account for the majority of the discrepancy between the actual medical need for oxygen and the current demand. The main reason for this is that health worker knowledge tends to stagnate after school; there’s not much of a system for spreading new information down through health pyramid to health workers. Those health workers that are aware of the benefits of oxygen expressed a profound need for training on how, when, and how much oxygen to administer to patients in different scenarios. These challenges will be addressed through an array of demand generation activities that our oxygen business will undertake, including campaigns, conferences, training centers, and a “champion” model to raise awareness of the benefits of oxygen and provide the necessary training.
Logistical barriers were accountable for the remainder of the discrepancy, and these are addressed in the business model itself. For instance, the rate of oxygen flow from a single cylinder of oxygen can only support the needs of 1-2 people at a time. Facilities using oxygen cylinders today use a few large cylinders at a time, which creates bottlenecks in the number of mouths that can be simultaneously connected to oxygen and constrains total consumption. In our model we use more, smaller cylinders at a time. This increases the number of patients that can receive simultaneous care, increases total consumption, and makes the cylinders safer and easier to interact with for health workers. Similarly, customers don’t always replenish their oxygen when they need it because they don’t have the time or means to pick up the cylinders, so we’re delivering. In addition to increasing usage, providing delivery will save most customers money; the cost for us to deliver along scheduled routes is lower than the cost for customers to pick up themselves, because we can spread the (extremely pricey) fuel and time across all customers on the route.
3. Government influence can change everything.
Our oxygen business primarily serves the public healthcare system, which means government has a large stake in the game. Government budgeting and usage policies for oxygen could alter consumption at customer facilities more than any other factor. Similarly, due to a variety of benefits, our business is set up as a Private-Public Partnership, which means government will have a say in the way the business operates and how it uses its profits.
The level of government involvement will vary across locations, but in both cases diplomacy is critical, which is where our partners come in. As part of the business pilot our partners will create a formal working group with representatives from UNICEF, the Center for Public Health and Development (Kenya), The Access Project (Rwanda), and others that will lobby the government for new guidelines, policy, and communications in support of the oxygen initiative. More than good diplomacy, part of successfully engaging with the government means getting the government to take ownership of the oxygen initiative and take a hands-on role in advocacy. Our business will seek government sponsorship and involvement in demand generation initiatives, such as conferences and awareness campaigns.
What Happens Next
The GE oxygen plants have been ordered and are already under construction, with plans to install in late 2014. Once installed, a 2-year pilot period will begin, where we will iteratively test the business viability and health impact of the oxygen solution under different business model scenarios, adjusting as we go along. After this pilot period, if the concept proves viable, it will be codified and scaled into other regions in Rwanda and Kenya and eventually into other countries. Stay tuned for updates.
To follow frog’s ongoing involvement in this pilot, or to read more about frog’s work in Rwanda and Kenya, follow us on Twitter and Instagram via the #InsightsO2 hashtag.
Anthony helps companies devise strategies for new products and services designed for top line growth.