The Business Solution to Poverty: Designing Products and Services for Three Billion New Customers

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How can the world's nearly 3 billion who live on $2 a day or less be lifted out of poverty? Paul Polak (bestselling author of Out of Poverty) and the organizations he has founded have pioneered methods that have already helped nearly 20 million of the world's poorest people to get out of poverty without charitable or government handouts. Now Polak teams with social entrepreneur and author Mal Warwick (bestselling author of Values-Driven Business) to reveal the keys for entrepreneurs, businesses, and others to replicate this success and expand its scale to include hundreds of millions of the poorest of the poor around the world.

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1 “ The Poor Are Very Different from You and Me”

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In this chapter you’ll meet your customers where they live, and you may gain new perspective on poverty as it’s experienced in developing countries.

Unless you yourself grew up in poverty in the Global South, you’ll find an environment there that may be radically different from anything you’ve experienced before. You’ll also learn that the conventional wisdom about poverty being an unrelieved misery is a myth. Here’s a taste of what you’ll encounter as you set out to establish a business to serve the poor — because, if you follow our lead, one of the first steps you take will be to venture out into the field to talk to people like those portrayed in this chapter, the people who will become your customers. These are people who constitute a marketplace to be served, with real needs to be met.

As we enter the outskirts of a village in eastern India, we come across a farmer who appears to be in his early 30s. We’ll call him Sunil Mahapatra.1 Sunil lives with his wife and three children in a small mud-walled house on the east end of their village. Until recently, he and his family earned their living from one and a quarter acres of land divided into five separate fields scattered around the outskirts of the village. This includes a half-acre of monsoon-fed lowland rice. The family plants a local variety of rice, hand-broadcasting a few kilos of urea to the rice twice during the growing season. With the help of rain-fed irrigation, Sunil and his family harvested 1,300 to 1,500 pounds (600 to 700 kilos) of rice each year. Their two daughters, aged 6 and 8, and a 12-year-old son helped them keep two young goats for meat and 10 chickens. They also kept a small vegetable garden. Their dream was to someday buy a young buffalo to raise to maturity.

 

2 What Is Poverty?

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Get ready to learn about the surprising nature and breadth of the potential market among the world’s poor.

It’s shocking. After the world’s rich nations invested more than $2.3 trillion over the past 60 years to end global poverty, billions of our fellow humans remain desperately poor.1 Lest we succumb to insanity as Albert Einstein defined it — “doing the same thing over and over again and expecting different results” — it’s essential that we wage any new war on poverty with a different battle plan.

We’ve learned three fundamental lessons from the failure of foreign aid to root out poverty and the limited success of independent development projects.

True development rarely comes from the outside. Top-down development programs administered by governments, international agencies, foundations, or big NGOs rarely work because they’re so vulnerable to government corruption, bureaucratic inaction, the distance between the planners and the supposed beneficiaries, and both distrust and a lack of interest on the part of people who live at the grass roots.2 True development, as evidenced by meaningful, community-wide lifestyle changes, comes almost exclusively through the mechanism of the market, as growing numbers of individual poor people make conscious decisions to take advantage of new products, services, and ideas that they come across at the grassroots level — and as they take what they produce to sell in the market to rich and poor customers alike.3

 

3 What Can Government and Philanthropy Do?

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For more than half a century, millions of people have been engaged in well-meaning efforts to eradicate poverty from the human experience. Here’s how they’ve fallen short of their goal — and what they have done and still can do to make a real difference.

Consider all the players who’ve gotten into the antipoverty business. The United Nations and its numerous agencies. National governments throughout the Global South. Purveyors of foreign aid from every rich country on the planet. Regional and other intergovernmental organizations such as the European Community. Countless thousands of individual nonprofit organizations working across borders, within individual countries, and in specific communities. Charitable trusts and foundations. Faith-based groups and religious congregations. In recent years, rock stars, former US presidents, and billionaires have gotten into the business, too. In theory, they’re all working toward the same end. In practice, the combination results in a nightmare of clashing bureaucratic and political agendas, and the nominal subjects of their concern, the poor, are usually forgotten.

 

4 Why Business Is Best Equipped to Fight Global Poverty

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It’s not just that traditional methods have failed. Businesses possess unique characteristics that are ideally suited to the task of innovating new approaches — and taking them to scale.

There’s nothing mysterious here. Poor people tell us they’re poor because they don’t have enough money — and who knows more about making money than businesspeople?

Private business possesses three overarching and undeniable advantages in addressing the challenge of poverty:

• Profitable businesses attract substantial capital.

• Successful businesses hire lots of people.

• Successful businesses are capable of reaching scale.

These factors are the foundational truths on which The Business Solution to Poverty is grounded. However, there are additional factors that we believe bolster the economic power of business.

• Businesses, especially well-established companies, often can marshal all the necessary specialized expertise in design, financial management, marketing, and other fields that are usually lacking or inadequate in either the public sector or the citizen sector.

 

5 What to Do Before You Launch Your Business

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First, forget everything you know about how to start a business. Here, you’ll find out what you really need to do to begin building a global enterprise that will transform the lives of 100 million poor people.

Let’s assume for the sake of argument that you’ve resolved to start a business along the lines we’re laying out in this book. Doing so will likely be a lot different from what you’ve experienced in the past. What will make a difference for poor people? And how will you go about doing that? What will you do? Here’s our advice:

• Don’t take a course.

• Don’t get an MBA.

• Don’t read a book (except this one, of course!).

For starters, leave your desk or armchair and walk, run, take a bus, or fly to the location of your potential test market — a farming village, preferably one some distance from the nearest town or city and, ideally, hard to get to. If you don’t speak the local language, take along somebody who does. Then start talking to people, in their fields, at home, at a local shop, or walking along a path. Ask them lots of questions about their lives: what crops they grow or goods they sell; what prices they fetch in the market; what tools they have, and whether the tools work well or don’t; what they and their children eat; what they do when they get sick; what makes them happy and what makes them sad.

 

6 The Ruthless Pursuit of Affordability

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When we say “affordable,” we mean really, really cheap — and we’ll lay out 12 guidelines for getting there.

No, we’re not talking about elbowing people aside to get through a department-store door for a 7 a.m. sale. This chapter is about designing products and services that will fit within the meager means of folks who live on $2 a day or less.

There is a misplaced perception that the marketplace serving bottom-of-the-pyramid customers requires products that work poorly, break quickly, and look cheap, and that high-quality products and services can only be given away as charity or heavily subsidized. Nothing could be further from the truth. Products that are attractive to poor customers must indeed be affordable, but they also need to work well and look good. Poor customers are, if anything, more aspirational than the rich. And their demands and need for value are greater, too. When money is scarce, it’s got to be used as efficiently as possible.

But developing products for the bottom of the pyramid is very different from the process pursued by most companies in affluent markets. For starters, as we’ve already made as clear as we can, you need to listen carefully to learn just how different your product needs to be. But, as you’ll also find very early in the process, poor customers nearly always demand prices that are dramatically lower than those that prevail elsewhere. Your product design may thus require the use of different raw materials; different production processes; and a radically new, often simpler configuration of the parts in a product or steps to take in providing a service. On top of that, the village context often calls for different product features. For example, small farmers in Asia and Africa prefer drip systems with simple holes that resist clogging and are easy to unplug, whereas richer farmers prefer expensive filters to keep their emitters from clogging and high-performance emitters that tend to plug fast if there’s dirt in the water.

 

7 Zero-Based Design in Practice: Low-Cost Drip Irrigation

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If you’re wondering how our ideas work in practice, you can get a pretty good sense from the case study in this chapter.

It was 1992. Paul had become interested in drip irrigation purely by accident, knowing absolutely nothing about it at the time. S.K. Upadhya, the managing director of the Agriculture Development Bank of Nepal, had spoken very enthusiastically about the results of introducing bank-supported small sprinkler systems in hill villages. Thus, having learned enough about drip irrigation to have a sense of its value, Paul and his colleagues in IDE Nepal decided to stop by the bank office in the hill town of Tanzen on their way back to Katmandu from a distant site. They just wanted to learn how much those hill village sprinklers cost, but they ended up taking a half-day walk to three hill villages to see how they worked in practice.

The sprinklers — of a type familiar to homeowners who water their lawns — were pressured by 10,000-liter tanks located in small streams 70 feet (20 meters) in vertical height above the fields. The IDE team talked to six or seven farmers, who were very happy with the sprinklers and the high-value horticultural crops they produced — but the systems cost too much to be affordable without major government subsidies. Each one cost about $1,000 and served only two farms, each with one-third to one-half acre of irrigated horticultural crops.

 

8 Design for the Market

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In a market that’s new and strangely different, how do you design products and services that people want and are willing and able to buy? Here are 10 steps to accomplish this.

One of the most pernicious myths in the world of business is that if you build a better mousetrap, the world will beat a path to your door. But there is a heap of difference between designing a tool to solve a technical problem and designing one that attractively, effectively, and affordably meets the needs and aspirations of the customers who are expected to buy it. In any case, without superb marketing and distribution on your part, nobody beats a path to your door. Just ask Sony (which failed in the market with its superior Betamax technology) or Apple with its Mac (commanding only a 10.6 percent market share in the personal computer market in 2012). Or consider the fate of the appropriate technology movement as a case in point for how things can go wrong if you ignore the realities of the marketplace.

The appropriate technology movement died peacefully in its sleep a decade and a half ago. Launched in 1973 by Fritz Schumacher with his lovely book Small Is Beautiful: Economics as If People Mattered, it inspired politicians around the world and across the ideological spectrum, as well as thousands of middle-aged dreamers like Paul and millions of other people from all walks of life around the world. In a consumer society like that of the United States, Schumacher’s concept of “enoughness” seemed revolutionary.

 

9 Zero-Based Design in Practice: A Cautionary Tale

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Markets can be merciless. New technology, no matter how brilliant and innovative, will not survive in the marketplace unless it meets customers’ real needs as they perceive them and offers a true competitive advantage over existing products, whether in price, value, or accessibility.

MIT professor Amy Smith has inspired several generations of students and a global network of development practitioners with her passion and commitment to developing technology suitable for use by poor people in the Global South. But when she and her D-Lab team at MIT launched an initiative to help families in Haiti make charcoal out of agricultural by-products such as bagasse (sugarcane waste), they ran into problems.1

As is so often the case, Amy and her team had the best of intentions. The rationale for D-Lab’s Haiti charcoal project remains convincing. Amy and her students viewed the project primarily as a response to two urgent problems.

First, most of Haiti’s 10 million people rely on wood or wood charcoal to fuel cooking fires, and after centuries of growing population, turning forests into fields, and negligible development, the country is 98 percent deforested. As the project description notes, “Deforestation results in devastating soil erosion — a major contributor to the hundreds of lives lost every year due to mudslides and flooding — and can also lead to … the degradation of aquatic life along the coasts of Haiti.”2

 

10 Design for Scale

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Starting a new business from scratch is one thing. Starting one that’s designed to go global is very different — and that has implications that need to be addressed from the outset.

Over the past three decades, IDE has helped 20 million poor people move out of poverty. On the face of it, this is a laudable achievement, but it’s little more than a hint of what’s possible for the 2.7 billion people in the world who live on $2 a day or less. While achieving scale is the single biggest unmet challenge in development today, we know it can be met. Here are the three practical first steps for doing so.

Five years ago, Paul met with a chapter of Engineers without Borders that had visited a Rwandan village of 1,200 families shortly after the genocide. This village had a mechanized pump attached to a cement tank that could deliver water from a deep tube well to 250 families in the village. But the motor and the tank were broken. So three engineers got the system up and running within three weeks, and 250 families were very happy. Then the engineers learned that most of the other 950 families in the village didn’t have access to clean drinking water, either. The village had quite a few hand pumps, but most of them weren’t working, and many villagers drank contaminated water from village ponds.

 

11 Zero-Based Design in Practice: Safe Drinking Water for Small Villages

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If you’ve been wondering whether the ambitious approach we advocate will really work in practice, read this case study about the early days of one such company as it moved beyond the pilot stage.

The reality is grim. More than a billion people in the world lack access to safe drinking water. Most of them live in small villages with 100 to 300 households, and existing safe-water technologies such as piped-water systems are too big and prohibitively expensive to be operated profitably in such small settlements, much less reach scattered rural households. Furthermore, where such systems exist, they’re so heavily subsidized that they’re perceived as owned by the government, so nobody fixes them when they break. Hand pumps are another common solution, but they are also heavily subsidized. The result is that between one-half and three-quarters of the free or subsidized systems stop working within two years.

In India, as in other countries, a water kiosk employing membrane-technology filtration using reverse osmosis is the favored solution. An estimated 3,000 such kiosks exist in Indian towns and cities, but the technology is impractical for small villages: the capital cost is significant ($4,000 to $5,000), and when you add the cost of the kiosk, pipes, and holding tanks, it’s hard to get away with capital costs for each village of less than $8,000, and kiosks also require full-time staff for maintenance. Installing water kiosks using ultraviolet light to make water safe to drink, like the ones used by the organization Water Health International, is even more expensive. Furthermore, they dispense only a single product. Since safe water in rural villages sells for about one cent a quart (or liter), you pretty much have to sell 1,000 gallons (about 4,000 liters) of water a day ($16 per day, $480 a month) to break even. An entrepreneur can’t hope to cover her costs unless she sells 3,000 to 4,000 liters per day, which is practical only in urban and periurban areas or very large villages.

 

12 Design for Delivery the Last 500 Feet

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When your customers are scattered all over the map, and there’s nothing like FedEx or a working postal system available to deliver your product, the cost of getting your goods into customers’ hands can be prohibitive — unless your business model incorporates a way to fill the gap.

Developing practical and profitable new ways to cross the last 500 feet to the remote rural places where most poor families in the Global South now live and work is an essential step toward creating vibrant new markets that serve poor customers.

Even in emerging economies that feature both a strong industrial sector and a substantial middle class — Brazil and India come quickly to mind — huge numbers of people (800 million in India alone) live far from the towns and cities where goods are abundant and freely sold. Any business that wants to expand beyond the urban areas where customers cluster tightly together must therefore find ways to deliver its products directly to customers who live in more sparsely populated areas.

 

13 Building a Mission-Driven Global Business

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Just try building a business with only a terrific product and the will to win. You won’t get far without an organization of committed people and the structure to make the most of their talents.

Read as much as you want about leadership, organizational development, and management, and then boil it down to its essence. Chances are, you’ll come up with some version of three primary conditions for organizational success: a lofty vision, confident leadership, and inclusive management — all of which add up to inspiration. Shelves-full of excellent books have been written about these concepts, including dozens released by our publisher. We won’t presume to redefine those terms.

However, you know we’re not writing this book about business as usual. We won’t be content building companies that are successful simply in traditional terms, in that they make money — even buckets of money. Our goal is to build large, sustainable, transnational businesses that will help reduce poverty worldwide and on a large scale. Vision, leadership, and management, no matter how brilliant, won’t do the trick. They’re all necessary but insufficient. We contend that two additional conditions are needed for a business to succeed quickly in numerous countries on a truly big scale — and thrive into the future. One is an organizing principle. The other is a commitment to stakeholder-centered management.

 

14 It’s Your Turn Now

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If you still harbor any doubts that the approach we advocate is feasible, you should change your mind within the next few pages, as you become acquainted with the four new companies Paul is setting up — and some of the many areas of opportunity in which you can do the same.

Imagine a world free of hunger and extreme poverty, in which population growth has reversed and humanity’s environmental footprint is shrinking at a rapid rate.

Can you imagine such a future for Planet Earth? We can!

Now, we don’t think for a minute that humanity will solve its greatest challenges by conducting business as usual. As we indicated early in this book (see chapter 4 especially), we don’t believe that the businesses we advocate building will themselves do the whole job, despite their commitment to consider environmental questions as a major factor in decision making. However, we do believe that a dozen businesses operating along the lines outlined in this book, each of which doubles the income of 100 million $2-a-day customers, would bring a measure of prosperity to the lives of nearly one-half of the world’s poorest people — and that would make a huge dent in the incidence of global poverty. But an achievement like that needs to be seen in context.

 

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