Opportunities in the BOP Market
Having shared personal lessons learned over the years in Part 1, while painting a realistic picture of a world in the midst of chaos in part 2, Part 3 focuses on the art of possibilities and further elaborates on why I share a sense of careful optimism for the world today.
In preparation for my talk, I returned to my roots of social entrepreneurship and social innovation as a means to lift millions of people out of poverty around the world. And in the process, I turned to the writings and works of two people whom I consider to be personal heroes, among many others of course, namely Jacqueline Novogratz of the Acumen Fund, and Paul Polak, author of the book ‘Out of Poverty‘.
For the remainder of my talk, I highlighted four social enterprises impacting and improving the lives of millions of people in developing countries around the world, all within the context of showcasing opportunities that exist within the base-of-the-pyramid (BOP) market that many would-be entrepreneurs, especially those from developed countries, may not even be aware exist at all.
Photo credit: World Economic Forum
When I refer to the BOP-market, I am referring to the estimated 4 billion people who live on less than $2/day in the developing world. Whereas we know everything there is to know about targeting affluent customers in the developed world, in a manner of speaking, it seems we know nothing of how to target the other 90% percent of customers in the rest of the world, representing an estimated market size of USD $5 trillion that is fairly rural and underserved, comprised mainly of an informal economy that is incredibly inefficient with very little competition.
If we are going to work towards lifting millions of people out of poverty, then the key to all of this begins with a shift in mindset where we see the 4 billion at the BOP not simply as passive recipients of aid and charity, but rather, as consumers, customers and clients, and more importantly, as people who want to take control and make decisions in their own lives.
Jacqueline Novogratz has an amazing TED Talk where she points out that when we think about large-scale solutions to poverty, we cannot deny humans their dignity–we need to give people the freedom of choice and opportunity because that is where dignity starts. Jacqueline also discusses some of these solutions within the context of patient capital alongside the work the Acumen Fund is supporting in East Africa and South Asia, where patient capital is capital that lies between the financial markets and aid/charity. This capital, which has, among its many characteristics, a high tolerance for risk as well as a long time horizon allowing the entrepreneur the opportunity to experiment, is invested in social entrepreneurs who know their communities and are building scalable solutions to address issues such as health care, water, housing and alternative energy.
The reality is, people in developing countries are already making transactions every day in cash markets, even if they are only living on less than $2/day. In fact, they are actually more market-oriented than most as they struggle to navigate their way through the informal, mainly cash-based economy when making decisions related to purchasing food, health care, education and other services.
That said however, given the characteristics of the BOP-market mentioned above, people at the BOP are paying more money for lower quality goods and services, relatively speaking, than we do in developed countries for similar goods and services.
If that is the case, what if there was a better way to serve people in the BOP-market and in the process lift them out of extreme poverty, while generating profits to ensure financial sustainability for the social enterprise in the long-run?
Paul Polak has pointed out that this can and has been achieved, where some of the common features of initiatives that have truly helped extremely poor people move out of poverty, include:
- thoroughly listening to poor customers and thoroughly understanding the specific context of their lives;
- designing and implementing ruthlessly affordable technologies or business models;
- energizing private sector market forces that play a central role in their implementation;
- radical decentralization that is integrated into economically viable last mile distribution;
- and, designing for scale–a central focus of the enterprise from the very beginning.
As highlighted by some of the examples of social enterprises below, there is certainly a world of opportunity that exists out there in the BOP-market; given the right mindset and approach towards tackling poverty and coming up with innovative and scalable solutions that places human dignity right at the centre of it all.
When reflecting on the nature of the social enterprise ‘space’ and all the opportunities that exist, not only in the BOP-market but in the developed world as well, I often find myself returning to the following quote, attributed to Bill Drayton of Ashoka,
“If you give a man a fish, you feed him for a day. Teach a man to fish, you feed him for a lifetime… Social entrepreneurs and changemakers will not rest until they have revolutionized the fishing industry.”
If you are interested in learning more about market-based solutions to the challenges of global poverty, although slightly dated, I would recommend reading the following:
- Emerging Markets, Emerging Models published by the Monitor Group in March 2009;
- The Next 4 Billion: Market Size and Business Strategy at the Base of the Pyramid published by the World Resources Institute in March 2007.
Micro Drip (Pakistan)
In Pakistan, 120 million people directly depend on agriculture to survive. Yet modern irrigation technologies cater to farmers with large fields, leaving smallholder farmers to rely on flood irrigation – an inefficient use of water resources that does not maximize crop yields – or on expensive and polluting diesel pumps.
To address this challenge, Micro Drip markets and distributes affordable drip irrigation technology in Pakistan, delivering water directly to the root of the plant–maximizing plant growth, ensuring major input cost and water savings, and improving farm yields. Its systems reduce the amount of water smallholder farmers need to cultivate an acre of land by 50 percent, improve yields by 40 percent, and lower input costs by 30 percent. And, because they allow for year-round farming, fewer farmers and their families are forced to migrate during the dry season. Micro Drip has already reached more than 3,000 farmers in 2009, and over the next five years has the potential to impact 20,000+ farmers.
The overall result: reduced dependence on flood irrigation and the opportunity for farmers to earn steadier incomes.
Source: Acumen Fund
Aravind Eye Care System (India)
India has the largest population of blind people in the world. Of the 12 million blind Indians, 80 percent have been blinded as a result of complications from cataracts, including 300,000 children. A simple cataract operation could help seven million Indians regain their sight. Setting the eradication of blindness as its objective, Aravind Eye Care System has pioneered free surgery for poor people, and offers cataract operations costing between 50 and 200 US dollars. What is interesting about Aravind is that even though nearly 60 percent of their patients don’t pay a single rupee, Aravind still makes nearly US$8 million per annum, allowing it to operate the Aravind Eye Hospitals and to function as a research institute, providing international training in eye-care and producing eye-care products through Aurolab.
Aravind’s orientation toward patients and communities has determined its scale and its innovative approach. This patient-oriented philosophy has enabled Aravind to simplify its workflow and boost efficiency, where the secret to Aravind’s capacity for providing cataract surgery for US$50 and intraocular lenses for five dollars, is the hospital’s free clinics. Counterintuitively, Aravind does not lose money every time it performs an operation for free. In the medical business, overhead such as medical instruments and manpower accounts for the highest costs. So for Aravind, the more patients they see and the more operations they perform, the lower their average fixed cost per person becomes. So each time Aravind does an operation for free, they raise their profits ever so slightly.
A Liter of Light (Philippines)
A Liter of Light is a sustainable lighting project which aims to bring the eco-friendly Solar Bottle Bulb to disprivileged communities across the Philippines. Designed and developed by students from the Massachusetts Institute of Technolog (MIT), the Solar Bottle Bulb is based on the principles of Appropriate Technologies – a concept that provides simple and easily replicable technologies that address basic needs in developing communities.
Source: A Liter of Light website
$35 Aakash Android Tablet (India)
The Aakash Tablet, distributed at a government subsidized price of $35 to anywhere between 10 to 12 million students across India by the end of 2012, is an example of a “leapfrog technology,” a concept where the latest innovations jump directly into areas where legacy technologies never penetrated. Tens of millions of people throughout India who never had access to a landline phone now walk around with cell phones in their pocket. Many of those likely to use or own the the Aakash Tablet will never have used a desktop computer, and it’s possible they never will.
Now imagine the educational potential of the world’s lowest-cost tablet being unleashed to hundreds of millions of Indians eager to join the world economy. At the heart of the Aakash tablet is an HD video co-processor that will connect viewers to one of the largest educational libraries ever assembled: YouTube. When the Aakash tablet reaches villages across India, an entire generation will have instant access to rich educational content such as the Khan Academy. And with the Aakash tablet in hand, students across India will be free to do what their global counterparts do — or should do — with their computers, including the educational basics such as creating documents and spreadsheets, and browsing the web for research materials.