Working for Scale

I recently finished reading a book by Paul Polak and Mal Warwick called “The Business Solution to Poverty:  Designing Products and Services for Three Billion New Customers,” a call to arms in which the authors outline a rationale and strategy for businesses aimed at delivering products and services to the lowest income people ($2 or less per day).  Both have decades of experience in international development through enterprise, believe the traditional charity-oriented approach has failed, and advocate that companies find and sell the right product at the right price (using “zero-based design” and the “ruthless pursuit of affordability”) to grow into high-volume, low-margin, but profitable businesses while improving the lives of the impoverished.  The book is well-laid out and an easy read with several examples of business opportunities drawn from Paul’s experience as founder and director of International Development Enterprises (IDE), a non-profit development group.  Paul is also an enthusiastic and well-traveled speaker (as I learned at a conference I attended recently, see below); one can find out more about him, the book, and his ideas at Paulpolak.com.

A major problem with the book though is it is more vision than substance.  Although the authors are clearly familiar with how business operates, they fail to quantify their examples with the basic data that one needs to understand them, e.g., initial capital needs, costs, and sources; product design and development timeframes and costs; operating costs for personnel, manufacturing, distribution, and customer acquisition; revenues, margins, and return-on-investment.  Without these numbers, even if approximate and hypothetical, I was left with a smoke-and-mirrors impression of rather than a viable business model.  The book’s most detailed example is Spring Health, a company that Paul and colleagues started in 2011 (?) to sell chlorinated water in Indian villages.  A table projecting the company’s 2013-17 growth is given, but it lacks basic cost/price data.  I played with the numbers and got a price of $.003 per liter (but had heard in Paul’s talk it was $.08 per liter) and a per family consumption of 123 liters/year that seems way too low to me.  As for cost, data are not in the table, but in the text I noted, while the on-going costs of making the chlorination chemical is low, there is a 25% commission to a shop-owner where the water is stored, an unspecified commission to the delivery people, local marketing and service staff (42 per village), storage tank construction costs, and a central, management staff (I think Paul said there were currently 130).  Projected 2013 revenues are given as $284K, but in the talk Paul said the company is now selling 3.5 m liters per month, which by my calculation is $280K in revenues per month, so either the projection was way off or I misheard, but without the details I don’t know and the discrepancies are disconcerting.

Also in the book, the authors note that the social venture movement (composed of not-for-profits set up to address social ills and their funders) has had exponential growth over ten years but the “collective impact on the incidence of global poverty has been minimal” and that the problem is one of scale.  These enterprises do not plan to work, or do not work, on a large scale that the authors state should be 100 million customers in ten years and revenues of $10 billion.  While I agree with Paul about social venturing’s limitations (and have written about the movement’s lack of business orientation; see my ten or so postings tagged “social venturing”), I think revenues of $10 billion in ten years is an unrealistic (impossible) and artificial goal; if I had a profitable company that improved the lives of only 1 million people I’d be happy.  I also noted the authors ignore the many successful businesses that are selling products to the vast middle (but relative to US standards, low) income group.  I’d like to know why these businesses succeed and what limits their wider success, but the authors dismiss them as models.

Overall, I thought the book is inspirational and is more practically-oriented than many books on solutions to poverty.  Some of the useful advice for starting a mission-driven company is:

  • Base the business on helping poor people earn more money not making their lives better;
  • Have a product/service that is culturally independent;
  • Conduct extensive market research to test the business model; and
  • Expect to hire good employees at competitive salaries.

But starting a business requires a detailed plan (with lots of numbers), even though that plan will be/should be modified extensively based on the founders’ learning and experience, and I found the book short on planning.

As I noted above, Paul was the keynote speaker at a conference I attended hosted by MIT’s D-Lab called Scaling Development Ventures.  It was a good talkfest but, as with Paul’s and Mal’s book, lacking in specifics.  The more than 15 speakers and panelists were drawn from a government agency (USAID), a foundation (Grameen), social ventures, and social responsibility departments of major companies.  Here are three items I thought interesting.

Wendy Taylor, founder and director of USAID’s Center for Accelerating Innovation, gave a brief update of the agency’s Development Innovation Ventures (DIV) program.  She reported that DIV has “invested” (via no-return-expected grants) $50 million over past five years into about 60 ventures of which ten are making the “transition to scale” and has engaged the National Collegiate Inventors and Innovators Alliance to run a business accelerator program.  Unfortunately, she did not provide details (her allotted time was short), but because I have looked into the DIV as a source of funding previously, I plan to follow up on its progress.

Clive Alison, Global Director of Open Innovation for the consumer products giant, Unilever, made several points.  He noted that companies often face the challenge of changing potential customer behavior and to address it need to focus on a perceived value of the products they are selling.  He provided the example of Clean Team, which is a early-stage company that is offering a personal sanitation system in the second largest city in Ghana and was started with help from Unilever.  The Clean Team provides portable toilets that it empties 2-3 times a week, and, since one of the competing and less-costly alternatives is chamber pots with the contents disposed wherever, it emphasizes the reliability of its service and the friendliness of its staff.

The conference included a poster session for local students who are working on social enterprises of various sorts and stages.  One caught my attention, Pan Diagnostics by Vivek Sivathanu, evidently a wearable device for non-invasive monitoring of chronic diseases intended to address the global problem of many more people living longer and having chronic disease.  Unfortunately, I was not there when Vivek was but subsequently learned he is a doctoral candidate in MIT’s mechanical engineering department and a fellow at MIT’s Legatum Center and was on a MIT $100K business plan competition team for a diagnostic system called PeePod.  I‘d like to know more about both.

Although I found the presenters thoughtful and inspiring, I winced at the lack of specifics and quantification that I think are needed for the conference to successfully address its theme of scaling ventures also known as growing businesses.  Perhaps next year, the organizers could include a session called Business 101 for Development Ventures.

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