How social enterprises can unlock the so-called “bottom billion”
Note: I guest-blog for the Management & Leadership Department in the School of Business at La Salle University. This is a repost from the original blog, which can be found here: http://wp.lasalle.edu/mgtl/2014/10/
How should we view the world’s poor: as impoverished recipients of humanitarian aid, or a dynamic, untapped market? Influential books including CK Prahalad’s “The Fortune at the Bottom of the Pyramid” and Paul Polak’s “Out of Poverty” proposed that visionary social enterprises—companies that seek both financial returns and positive impact on human lives—can “do well while doing good” by delivering goods and services to the world’s least-wealthy people.
It is a powerful idea that shifts our notion of serving the poor from giving handouts to offering quality and choice via the global marketplace. By treating low-income consumers (the so-called “bottom billion”) as customers, companies are forced to design goods and services responsive to their needs, desires, and aspirations. There are countless examples of organizations large and small—from behemoth GE Healthcare to D-Rev, a small non-profit focused on medical devices and this author’s employer—designing for customers living on only a few dollars a day. In a sign of growing relevance, the Social Capital Markets 2014 conference, sponsored by some of the largest U.S. corporations, convened hundreds such business and investors last month in San Francisco, CA.
What Does Success Look Like?
I’ve seen the power of this idea first-hand in more than a dozen countries across Asia, Africa and Latin America. I got my start in 2011 with a company distributing solar-powered lanterns on an island of East Timor. The Timorese fishermen’s cash income was only a few dollars a day, but they often spent over $2.50 a week on kerosene for home lighting—a small fortune for a smelly, dangerous and inefficient source of power. When long-lasting, durable solar lights from D.Light, an innovative social enterprise spun out of a Stanford student project, became available on local markets for less than $20, there was so much demand that hundreds of units were snapped up within weeks.
D.Light knew that local customers had been overpaying for a bad product—kerosene lanterns—and would be willing to change purchasing behavior if a better alternative was available. They had also designed an aspirational product. The solar lantern felt durable and looked modern; higher-end models could not only light up your house, but also charge a mobile phone off the solar battery. It wasn’t magic, just a good product at the right price…but as of 2014 they’ve sold more than 6 million units in what is expected to be a two billion dollar industry in the next ten years.
A Model for Social Entrepreneurship
The company I work for, D-Rev, uses these same principles to engineer affordable, high-quality medical devices. Our mission is to design and deliver innovative products that improve the health or incomes of people living on <$4 a day. The following three phrases characterize our approach:
- User-Obsessed. D-Rev staff have spent countless hours in the field visiting hospitals, talking to doctors, and meeting with policy officials, regulators, and supply chain experts to understand what users need and how to deliver it to them at the right price. D-Rev staff on average traveled more than 50,000 miles in 2013.
- World-Class. Our products are designed to function on-par with or even better than competitive products available in the developed countries. In fact, our products are designed specifically for austere environments—hot, humid, dusty, and rainy conditions—that users face every day.
- Market-Driven. Although D-Rev is a non-profit, we sell or license our products instead of donating. We believe that leveraging the market for product delivery is the most effective and sustainable means to scale. Moreover, being market-driven creates accountability: if the product does not meet user needs, they will not purchase it.
Guided by these principles, medical devices can be designed and delivered to areas of great need. One example is a phototherapy device for treating neonatal jaundice, one of the most common newborn illnesses affecting 1 in 6 infants worldwide. Doctors we met in India complained about the low-quality of available phototherapy devices: these devices rarely met American Academy of Pediatrics (AAP) standards for effective treatment, and the bulbs would burn out within a few months. As a solution, D-Rev engineers worked with doctors and a trusted Indian manufacturer to create Brilliance, an affordable LED phototherapy device—requiring no bulb changes over the lifetime of the device—that would exceed AAP treatment standards at a fraction of the cost of units sold in Europe and America. Brilliance was designed to be easy to use alongside other hospital equipment, with a professional look and feel that reflected a high-quality design. Since launching in Q4 2012, nearly 1000 Brilliance units have been sold to hospitals all over India and in 20 other countries.
Although D-Rev is powered by innovative technologies, product design is only a starting point on the road to impact. Just as crucial is understanding user needs, managing our supply chains, executing locally-relevant marketing strategies, conducting accurate financial analysis, and deploying data-driven management techniques. These skills, common in the mainstream business world, are only starting to be applied in what was typically considered the sphere of humanitarian aid.
Indeed, the greatest challenge facing social enterprises is now to shift from innovation toimpact. For every new product or service that creates positive impact, there are many more that never get off the ground. For sure, developing markets pose challenges—protectionism, corruption, lack of infrastructure—that can be difficult to overcome. But more often it seems that failures are self-inflicted when a social enterprise has a “cool idea,” but only a superficial understanding of their market.
Not Every Idea Works So when stories pop up about some eye-catching invention designed for the third-world—like the PlayPump, a merry-go-round designed to pump water for rural villages as children played (it failed spectacularly)—consider turning a critical eye and applying your analytic toolkit. Does it solve the right problems for customers? Who will provide installation and maintenance, if needed? Is the business model sustainable after initial excitement fades? And can it be executed with a positive ROI—or are there more impactful ways of spending money to achieve the same goal?
For business students and professionals willing to ask these and other questions, there is an opportunity to add real value in the social enterprise sector. The knowledge, techniques, and intuitions learned in our business and engineering classrooms can be applied to real-world markets. In the long run, applying these tools is the way social entrepreneurs can make money and create positive change. It’s a new world and we need a new way to think about it!