Friday, June 13, 2008

"Out of Poverty," uncut

Somehow, in my review of Paul Polak's book, a paragraph disappeared from what I thought was the final version, and what ended up in the Stanford Social Innovation Review. I still think it is important, and will share it with my bleeps:

"Though Polak addresses 'designing for the other 90 percent' in the book, he focuses on those living in extreme poverty (on less than $1 per day), 'the bottom 10 percent.' Entrepreneurs interested in developing products for those earning $2-5 per day may need to modify some of his design concepts. Trading off durability for affordability, or avoiding microcredit, may not be appropriate for entrepreneurs developing products for small businesses in urban markets. For example, Envirofit customers, who drive motorcycle taxis in Asia, prefer to purchase a more durable product, and microcredit loans facilitate the purchase. Entrepreneurs would be wise to focus on designing the most affordable solution for their target customer, taking into account manufacturing, transportation, and financing costs."

In other words, Paul's advice on design is good generic advice, but it is better for the specific market segment he knows- the $1/day farmer.

Note: My review of Polak's book is for subscibers only at, but has been posted over at Next Billion, so see it here if you aren't a subscriber. Or better yet, subscribe to the journal if you are interested in this field.

Thursday, June 05, 2008

It's All Good Tidbits

One of my favorite Gifford-isms is "It's all good work" which is intended to remind us that whether our work is protecting biodiversity in Cambodia or working on reducing the waste stream at Wal-mart, we should respect each other's work and not get competitive about who's work is better-more important-more meaningful.

My father had another one, from his school days: "Hands to work and hearts to God" which he usually used to inspire us to keep at it when the task was well beyond its originally announced timeline. (His sons were not always sure what the divine inspiration was for many of our chores and projects.) I inherited (or learned) this inability to properly forecast the effort required for a task... and it is probably an important "skill" for an entrepreneur. Drives my wife nuts, though.

Check out Guy Kawasaki's new service: AllTop. Simple interface, lots of diverse blogs for those interested in business, investments and "geekery." This is a sticky site, and you can spend a lot of time bouncing around to different blogs. Last week, a new category "Good" showed up, and this very blog made the cut. It is "Mostly blogs written by people who are trying to make the world a better place for the rest of us." Thanks, Guy, good work.

I am soon off for a workshop with Amy Smith. To see a recent interview with her, check out this New Yorker conference video. If you know Amy, you know that this type of interview is one of the hazzards of trying to get the word out on BOP work. Her interviewer had very little empathy (or manners) and looked puzzled as to how she could get by on $2/day and still be able to buy her black outfits on Mad Ave. Good thing Amy didn't tell the interviewer that her favorite song was "White and Nerdy" by Weird Al. She did fly the nerd flag proudly with her reference to efficiency gains of a corn hulling device to 5 decimal places. Good work, Amy.

Paul Polak also does good work, and has been very generous giving his time to our program at Colorado State. His book, "Out of Poverty" is well worth reading. If you would like to see my review, it just came out in Stanford Social Innovation Review (Summer 2008). His most recent initiative is D-Rev, a Design Revolution to get more people focused on innovations for the BOP.

In Vancouver last week, I got to spend some time with former BGI student Saul Brown, who has started an ethical and organic gift company. Check it out at

If you are interested in seeing some of the GSSE field work, some of the teams are keeping blogs. Here is one on the small engine in Bangladesh and here is one on the Dhaka weaving co-op in Nepal. Good work GSSE'rs.

Monday, June 02, 2008

Radical, Transformative, Unreasonable, Extreme, Leap Frog, Super-Bad Social Entrepreneurship

Allen Hammond recently hosted a blog series on scaling BOP businesses on NextBillion. In it, he proposed that extra effort is needed to scale social enterprises. It is worth reading. Hammond admits that the “numbers haunt” him when it comes to scaling BOP enterprises. Participation by a few well-intentioned, experimental MNC’s, social entrepreneurs and investors is not going to be enough to change the world. Pace is a problem. What is needed, Hammond says, is strategies to transform entire sectors (health care, telecom, etc.).

Derek Newberry had asked me to join the other bloggers in commenting on this series of posts, but I was unable to do so at the requested time. He got some diverse input from others, and I will try not to repeat what they have already said. It is an important, perhaps watershed discussion. So here goes with three points that may be useful in thinking about this challenge of scalability.

First, scaling is being pushed by those who are impatient for results. Why aren’t these ventures scaling faster, having a greater impact on the world’s challenges? When I first started working in this field five years ago, I had very similar feelings. How could Fabio Rosa and Harish Hande come up with similar business models for solar power for poor households in Brazil and India but not combine them into a global company? Why the many different microfinance institutions working in various parts of the world... Grameen, Accion, FINCA? Why not closer collaboration between IDE and Kickstart on marketing treadle pumps around the world and driving down the cost of goods with higher volume? Were relatively small regional businesses the best social enterprise could offer? Is this a systemic problem, for which there is a systemic solution? Hammond thinks so.

I am skeptical. Moving up the chain, to target transforming entire sectors, just isn’t how innovation works. And there seems little about the BOP that would indicate that it would be more amenable to these approaches. Hammond is a market driven guy, but in this article he comes perilously close to sounding more like one of Easterly's “Planners” than a “Searcher.”

Unfortunately, innovation dissemination takes time. It is SO FRUSTRATING as an entrepreneur to be early… “why can’t people see how wonderful our solution is?” Hammond is wisely designing some of his new ventures with scale in mind, but he is competing with others who also wish to offer telecom services and clean water to these markets. It will be interesting to see if his “transformative” businesses scale faster, or whether they are just as much work as plain old business models.

My second, related point is that scaling varies with the technology. Most of the successful scalable models we have seen to date involve scaling up bytes, services or very fungible items (money). So microfinance and mobile phone service (at least in urban markets) have disseminated relatively quickly (although it probably didn't seem that way to the entrepreneurs). These technologies are driven by less friction for scaling… distribution costs are lower than for physical products and the incremental cost of adding additional users drops at a faster rate. As far as tangible products, it has been much harder (and taken much longer) to get diffusion of pumps, laptops, bed nets, or in Envirofit’s case, motorcycle retrofits. Transportation costs, parts and warranty services, user acceptance all take longer and slow the diffusion of these more tangible products. My guess is even with “new DNA,” Hammond’s transformative energy and water purification technologies will encounter similar obstacles.

How to deal with these obstacles? Well, as Hammond has done, it is important to build scalability into the business model. Even more important, however, may be to make sure you are truly building a business by chosing the right launch site. As I say to my students, you don’t get points for the degree of difficulty in designing an enterprise. This is not Olympic diving. So find the markets most likely to need your product that can pay for it. This really sticks in social entrepreneur's throats. They want to go help the poorest of the poor. The starving, sick children. But that doesn’t necessarily lead to scalable or sustainable ventures. I wish it did. Really.

Envirofit is an example of this. We started the two stroke retrofit business in the Philippines, not because we had brilliant market research, but because we were asked by an NGO and some government officials and we saw the horrible air pollution and its effects on public health. Opportunistic? Yes. Market driven? Nope. Has this hurt the scalability of our model. I think so; and we are trying to take a very different approach with our improved cook stoves business. Hammond’s Next Four Billion report provides a tremendous resource for potential entrepreneurs in identifying markets that are most amenable to entrepreneurial solutions. His tranformative sectors are those markets with high potential.

Much of the work in this area calls for the dissemination of leap frog, innovative technologies. This seems to be the basis of Hammond's clean water venture, and the WiFi Mesh demo in Viet Nam. Some words of caution from Peter Drucker seem in order. “Knowledge-based innovations differ from all others in the time they take, in their casualty rates, and in their predictability, as well as in the challenges they pose to entrepreneurs. Like most superstars, they can be temperamental, capricious, and hard to direct. They have, for instance, the longest lead time of all innovations.” This is a deep chasm we are trying to cross. Perhaps bringing radical new technologies to these underserved markets is what is needed to transform the sector; perhaps it is adding too many "degree of difficulty" points to the entry.

Many of the calls for scalability involve “replication.” They are borrowing a term from biotechnology, where once you have identified a protein of interest, you insert DNA into another organism and “voila” you get buckets of it. Unfortunately, communities and cultures don’t really behave much like yeast, e. coli or Chinese hamsters (biotech's expression systems of choice). They are much more diverse and competitive. One popular idea is “microfranchising” which trains microentrepreneurs to run standardized small enterprises around the world. BYU’s Center for Economic Self Reliance is a leader in this area, and Opportunity International is starting work in this area as well. To date, these have been very simple businesses, such as collecting hair for wigs; or service based, primarily around health care (the pharmacy models in Hammond’s article or Scojo's eyeglasses). Leapfrog technologies have been rare (although Grameen Phone helped with rural mobile penetration for a while).

My last point goes to the title of this post. The theme of most that is written on social entrepreneurs these days is the heroic nature of their toils. Writers focus on “radical approaches,” “catalytic disruptive technologies” and the “power of unreasonable people.” It is inspiring, no doubt. But is it true? The Hero Factor is based on an anecdotal methodology. Look for success and work backward. Not so useful for working forward. Just go find those “one in a million” changemakers and help them out. The not so subtle message to those interested in this work? Don’t bother if you aren’t a hero. Go get a job at a bank instead. But what if it is the work that makes the person special, rather than the person that makes the work special?

I recently asked a class of MBA students if they would rather be "entrepreneurs" or "social entrepreneurs." 47 out of 50 chose social entrepreneur. Either I have a very talented class (I do) or these are at odds with the "one in a million" nature of entrepreneurship. Perhaps I should teach them not to try?

We seem to be borrowing the concept of mythic entrepreneurs from the mainstream, despite the data that reveals their rarity in the field (see Shane, Illusions of Entrepreneurship 2008). That we borrow these myths when we are moving to less developed economies perhaps says more about the impatience of the foundations and academics than it does about the nature of entrepreneurs. Entrepreneurship, at least when it comes to economic development, seems to have more to do with the number of people engaged in the journey than the speed of their trip.

In the end, I am a skeptic about wide scale implementation of leap frog, transformative, radical solutions across BOP markets. I expect they will happen, occasionally (as they already have with Grameen Bank, Aravind Eye Hospital, and treadle pumps). And be celebrated broadly, as they should be. Perhaps it will be Hammond, or Paul Polak or Envirofit. But aspiring social entrepreneurs, would do well to remember the words of Peter Drucker: “Effective innovations start small. They are not grandiose. ... In innovation, as in any other endeavor, there is talent, there is ingenuity, and there is knowledge. But when all is said and done, what innovation requires is hard, focused, purposeful work.” The tranformative entrepreneur may have a grand dream in their head, but every morning they put on their underwear one leg at a time (sorry, I don't know a more cross cultural analogy). We still haven't found Clark Kent's phone booth.

I hope that Hammond’s innovations do transform sectors and rapidly change the lives of the poor. I hope they attract new investors to the sector that make attractive returns. I hope that he has figured out a systemic fix to a systemic problem. But if not, I wish that his ventures, customers and investors benefit from patience, flexibility, humility, resilience and persistence as they work through the many execution problems these markets present to innovators and entrepreneurs.