This piece was co-authored by Christimara Garcia, a volunteer at the Christensen Institute and founder of Catalyze Innovations Initiative, a Brazilian market-creating innovation action tank.
More than a third of the global population lives in inadequate housing often referred to as slums, favelas, or shanty towns. In Brazil, approximately 50 million people live in such households. Earning just $54 a month, it may seem like there is little to no opportunity for a construction company to focus on this population. After all, how could people earning this income possibly afford to live in better housing? This was a problem that Fernando Assad sought to tackle.
Assad started his career working as a consultant in public-funded programs to bring urbanization infrastructure to São Paulo’s favelas. Through his work, he learned that many government housing programs were focused on developing a community’s common areas such as public water works, sanitation, street paving, and so on. Interestingly, most programs didn’t focus on improving the conditions of the actual living spaces in the home. In many situations a public sanitation system existed, but most families didn’t have a single bathroom at home.
Considering the difficult living conditions in which millions of Brazilians found themselves, Assad saw an opportunity to create a new market. If he could develop a housing solution that met the needs of Brazilians with lower incomes, he could tap into an enormous population of new customers. In our research at the Christensen Institute, we call that a market-creating innovation.
Market-creating innovations transform complex and expensive products into simple and affordable ones, enabling more people who would benefit from them to gain access. But these innovations are much more than products or services; they are systems that unleash a domino effect of sustainable economic development, lifting thousands, if not millions, out of poverty in the process.
Affordable housing for the masses
In 2014, Assad co-founded Vivenda to make housing available to millions of Brazilians who previously lacked adequate housing. Vivenda enables customers to affordably remodel their houses by providing the necessary credit to finance its services.
How Vivenda did it
To reach its new customers, Vivenda’s founders fundamentally reimagined conventional housing construction, taking care to innovate with their customers in mind.
To ensure the organization would be profitable, Vivenda’s founders reduced costs by creating a new value network (the collection of upstream suppliers, downstream channels to market, and ancillary providers that support a shared business model). To do so, they integrated their entire value chain, connecting architects, builders, construction retails, and micro-finance on a digital platform. The end result is margins between 25% and 28%.
Second, Vivenda incorporated an emergent strategy. Since founding the organization, Assad understood that the organization’s strategy should be flexible because Vivenda was going after a market that was not yet defined and it would be necessary to learn much from their soon-to-be-consumers. For instance, Vivenda first offered direct credit to its consumers, but soon realized it couldn’t cover the cost of the credit by itself. To solve this problem, Vivenda partnered with several impact investment funds to provide the capital necessary to finance the renovations in a sustainable manner.
Third, Assad and his co-founders garnered support from critical stakeholders involved in the home construction process, such as the construction industry, banks, professional associations, and others. As Vivenda presented the significant market opportunity to other players, such as impact funds and large corporations, the company was able to secure funding to develop its digital platform and further develop its business.
Vivenda’s impact on prosperity
Since Vivenda’s founding in 2014, the innovative organization has served more than 6,000 customers and created many direct and indirect jobs.
According to Vivenda’s research, living in a suitable and beautiful home improves the residents’ self-esteem, health, safety, and well-being, as well as their relationship with the community of which they are part of. Vivenda has delivered more than 2,000 renovations in several regions in the South of São Paulo, making it possible for thousands of people to have a better life with dignity.
For more stories of innovators that are creating prosperity through new markets, see:
A market-creation story: Aravind Eye Care
