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Massachusetts Institute of Technology Legatum center for development & entrepreneurship

Legatum Center Blog

Below is an article from the Legatum Center

Unlocking Value in Broken Markets: A Framework for System Change Entrepreneurs

by Valeria Budinich and Archis Mahajan
February 2024


This paper lays out a new framework to understand the different ways that entrepreneurs unlock value in broken or dysfunctional markets. Based on the study of how successful business and social entrepreneurs are transforming markets for growth and impact in both emerging and developed economies, the framework identifies four types of “broken market” entrepreneurs, defined by their answers to the fundamental problem causing market dysfunction. The framework is intended to help System Change Entrepreneurs to identify the type of entrepreneur they need to be and provide them with guidance on the strategic choices they will face when transforming broken markets.

What types of entrepreneurs can unlock value trapped in markets facing systemic challenges?

On a hot and sunny day in 1998 in Nigeria, Archis’ family driver, Abubakar, announced that he had to take leave to travel to his village to transfer some money to his family for an upcoming festival. That same week, Archis’ father traveled to a nearby town to hand cash to one of his suppliers. Making a trip just to transfer money might seem odd, but making financial transactions was challenging for everyone in the area due to the lack of banking services. Viable banking customers, irrespective of their income levels, were left underserved due to the high cost of establishing conventional banking services in their market. Similar market limitations can also exist across services such as medical care, reliable power supply, and clean water. These availability challenges are often present in developing and developed economies in various forms.

Lack of availability also exists on the demand side for emerging technology. Applications are not obvious, and consumers are unwilling or slow to adopt new business methods. For example, highly capable drones are now readily available but have limited civilian applications. Similarly, the 5G network rollout in the United States and other developed nations has been slow due to high costs and limited use cases. And low-cost, low-earth-orbit satellites and gene editing are no longer science fiction, but the development of transformative use cases is gradual. Use cases are unclear despite the billions of viable customers in developing and developed worlds alike who would likely welcome alternative solutions to their availability problem.
This lack of availability on both the demand and supply sides due to dysfunctional or emerging market systems thus represents a “broken market.” A common barrier to unlocking such markets is that they are often conflated with low-income consumers who suffer from an affordability challenge. Rather than consumer-level affordability issue, “broken markets” exist because of systemic or structural challenges at the market level that limits value creation. These structural challenges are the single biggest reason why incumbents mainly choose to ignore “broken markets”, forgoing vast amounts of trapped value. Importantly, the social and environmental issues caused by the lack of services represent the most daunting global challenges for societies and governments.

Incumbent businesses can choose to ignore “broken markets” because they have already carved out a market for themselves and are focused on holding back competition. This is why “broken markets” needs a new generation of business leaders who rather than worrying about competition, recognize the distinct lack of it and focus instead on why value creation has failed. The examples in this research illustrate how entrepreneurs forge unlikely partnerships and address the systemic barriers that result in availability challenges so that the market can finally be unlocked.

This paper describes a new framework based on the study of such business and social entrepreneurs. We hope this will trigger a new understanding of the strategic challenge entrepreneurs face—the type of solution they and their allies need to deploy. The examples also demonstrate the types of “broken market” entrepreneurs, defined by their answers to the fundamental problem causing the market dysfunction. This study aims to present these “broken markets” as an opportunity for change rather than a barrier. The following section explores the strategic challenges and opportunities that shape an entrepreneur’s path. This establishes a framework to guide entrepreneurs’ choices to transform broken markets.

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