The Next 4 Billion

The World Resources Institute recently published a report called "The Next 4 Billion: Market Size and Strategy at the Base of the Pyramid." Any BOPreneur worth their salt will want to download this report and study it carefully. Together with Banerjee & Duflo's "Economic Lives of the Poor" published last fall, there is now much better data on how the poor spend their money.

The commonly used "triangle" used to depict the wealth of the world's 6 billion people hides so many individual stories. Knowing that 3 billion people live on less than $3 per day is interesting, but it is not actionable information for entrepreneurs. The numbers are too huge, and the need too ambiguous. Prahalad's work on the "Fortune at the Bottom of the Pyramid" and other related works have been hamstrung by having to jump from this macro knowledge to micro anecdotes. Now, however, we have some intermediary data to help us understand differences in purchase patterns between countries, between rural and urban, and between types of goods and services.

Some of the MNCs and BINGOs had done some market research on specific countries or interventions (for instance, Shell's work on cookstoves, or P&G's work on water purification) but these were also problematic because the context of what the poor spend on other things was not available.

So take a few hours and BOP around these reports. The markets for health, energy, transportation and communications are huge and unserved (or at least quite underserved) and some are starting to change rapidly. All indicators of entrepreneurial BOPportunity.

And read the reports for another reason. Do it so you stop thinking of the poor as a mass of humanity with unlimited problems, and instead see them as potential customers with purchasing power, who want to improve their family's lives. If you can help them do this, you will bring value to their lives and yours. And that is what enterprise is all about.

Here are a few quotes to get you thinking:

"In either case, it is hard to escape the conclusion that the poor do see themselves as having a significant amount of choice, and choose not to exercise it in the direction of spending more on food─the typical poor household in Udaipur could spend up to 30 percent more on food than it actually does, just based on what it spends on alcohol, tobacco, and festivals." Banerjee and Duflo (p 6)

"Many in the BOP...pay higher prices for basic goods and services than do wealthier consumers...this high cost of being poor is widely shared." WRI (p 5)

"A consortium of 19 mobile operators, serving more than 600 million customers... announces a system that will transfer remittances entirely through their phones... predicts global remittances of more than $1 trillion by 2012." WRI (p 104)

Goodall to Great

In this blog, I have written about the role of activists and entrepreneurs as change makers. Jane Goodall and Jim Collins both spoke at CSU recently, and challenged the community on the need for change, and the best ways to pursue such change. Who knew chimps and hedgehogs could lead to so many interesting ideas?

Jane Goodall is an impressive activist role model. Now in her 70s, she is still going strong, traveling around the world, giving 300 speeches a year to spread her message of hope for the natural world. There seemed to be two dominant themes of her talk- the need for humans to be involved in the natural environment and the role of youth for bringing about change for this world. I was also impressed by her use of “enterprise models” and microcredit, as demonstrated in the TACARE initiative of blending sustainable livlihoods around her beloved chimps.

A few quotes:
i) “It is not much good to immunize kids if you don’t improve the environment in which they live.”
ii) “Many of the problems of Africa are tied to the unsustainable lifestyles of wealthy nations.”
iii) “I wonder how such an intelligent species can be destroying the only world it has.”

She continues to be excited about working with people with “bright eyes” that are ready to “jump in.” “There are thousands of problems, and I have never found one that didn’t have someone working on it.”

If Goodall spoke to the large challenges facing the world’s species, Jim Collins spoke more on how one could use a disciplined approach to achieving a great life of meaningful work. He started out asking our business school graduates “what would you ask me if we were having dinner?” He quickly gave them unexpected advice, suggesting that by focusing on picking the right job, they were missing the point. “It is almost certain you will get the wrong job, so spend your time picking the right mentors.”

Collins is now working on two research streams. First, “great” companies that lost it (“Great to Good”) and then companies that have been successful in “less forgiving environments” (analogizing to being high up on Mount Everest). In his view, the post WWII environment was remarkably stable, and that stability is declining.

He emphasized that one fundamental finding in all his research is that “greatness is not a function of luck or circumstance; it is a function of choice and discipline.” He then noted that there was a negative correlation between starting a company with a great idea and success, noting that HP’s story was not one of deciding what they would make, but with whom they would work and how they would do the work.

He also noted the difference between two types of people. Those whose lives are a series of transactions, and who lead "successful" lives. And those whose lives are a series of relationships, who lead "great" lives. Adding to his advice on picking mentors, he shared his story of choosing a personal board of directors (not all of whom knew they were on his board). And suggested that students pick them based on values, not the appearance of success. He also shared the use of his “hedgehog” concept as a way to make decisions on meaningful work at which an individual can excel. [Hedgehog= what are you passionate about? what can you be the best in the world at? how can you make money doing it?]

As an entrepreneur, I most enjoyed his advice to the graduates that “it is much riskier to get a job than it is to start a company.” Collins points out that getting a job is riskier, in that you are putting all your eggs in one basket (business), and putting someone else in charge of the basket. As he put it, there is a difference between risk and ambiguity. The entrepreneurial path is more ambiguous, in that it is less clear what will happen. But can be less risky, since you can have many clients and can adjust rapidly when you see opportunities or threats.

One of the key points of the book the Medici Effect was the innovative energy that comes from overlapping and intersecting fields and cultures. Those in the CSU community had a wonderful chance to hear two great thinkers in Goodall and Collins, and I hope it sparked some creative thinking about the role of entrepreneurship and activism in solving the closely related problems of poverty, health and environmental degradation

Linkage?

A recent poll suggests that many Americans still aren't sure about whether there is a link between human activity and climate change. As Joel Makower states in his blog today:

"a poll conducted by market research company Vizu Corp. and Green Home found that people are convinced the global warming phenomenon exists (70%) and is important (74%). However, the public remains unsure of the cause of global warming and is debating whether the culprit is human behavior (26%), natural climate cycles (26%), or some combination of the two (25%)."

A colleague wrote me over the weekend asking about what I thought established this link. Evidently, as the poll reveals, this person is not alone in asking this question! Here is part of my response:

"I think there is good evidence of a link between human activity and global warming, but I am less sure that that means there are compelling reasons to make it the TOP priority for global economic policy (or even environmental policy). Those are different questions and that seems to get glossed over these days.

Here are two summaries of the science from what I believe are objective groups.
First, the Pew Center: http://www.pewclimate.org/global-warming-basics/ and then the National Academies of Science, which issued a joint statement, stating in part: "It is likely that most of the warming in recent decades can be attributed to human activities."

Bjorn Lomborg, who has been a critic of much of the environmental movement's doom and gloom has stated that climate change is caused in part by human activity. He questions, however, if it is the most important challenge facing the earth and how accurate the predictions are for future disaster. This project, enlisting many Nobel prize winners, is called the Copenhagen Consensus. He recently testified to Congress in March, and you can download his testimony at the site: www.copenhagenconsensus.com Of course, he has been criticized. But I would say that reading Pew, NAS and Copenhagen would give you a pretty good view of the thinking on this linkage."

So, is climate change the world's biggest problem? I'd say I am closer to Lomborg than Gore on this question.

My first concern is that carbon emissions are not the only environmental problem facing us, and that there are many other sources of environmental pollution for which we have the technology to fix them. Fortunately, many of these solutions also reduce carbon. But I question whether our environmental policy should be carbon monogamous. For example, with Envirofit, our retrofit cleans up a number of nasty emissions: particulates, hydrocarbons, NOx and CO/CO2. CO/CO2 are probably the least harmful of 2-stroke emissions for the people living in these cities... but under Kyoto, we only get "paid" for carbon reductions. That is OK, and will help us clean up these other pollutants as well. But it isn't the carbon that is causing respiratory disease in Asia. So pursuing a more polygamous emissions strategy makes sense to me, and when we get to the strategies like carbon sequestration, I am less sure that they make sense (compared to other investments to reduce pollution or improve global health).

Another concern is that the climate change models don't seem to me to properly model the liklihood of technological solutions, and I am not sure they can. While I don't want to be a "naively optimistic" about this, if you look at the pace of technology change for the past 100 years, I see no reason it is going to decelerate. How could we have predicted what we have in 2007 back in 1907? This doesn't mean we shouldn't start acting on reducing carbon, but that the justification should not be all the "disaster" scenarios that are being postulated for a hundred years from now.

I'd like to see the US take some policy approaches to carbon emissions mitigation, because I think that we need to slow the pace of emissions growth. So, for example, carbon cap and trade, or perhaps a carbon tax. It just seems sensible to not keep dumping more into the atmosphere, since we aren't really sure what it is going to do. We do know that it persists for decades, so as a recent article said, the carbon from Model T's is still up in our atmosphere.

Much of the growth in emissions will be from China and India, and it seems that in order to put some pressure on them, the US needs to get on board. In addition, I think coming up with a carbon reduction policy will get the US to innovate in this area... which will drive more technologies that can reduce carbon emissions and be cleaner, more cost effective sources of energy.

So, yes, climate change is an important issue. Is it the TOP issue? I don't think so. Part of an economy is having scarce resources, and as a society, we need to figure out where to invest/allocate these limited resources. I see Climate Change as a top 10 challenge, but feel that not all of the "answers" being proposed are as cost effective as say, malaria nets, clean water, vaccines, etc. So, if I were King of the World, I would be spending resources in multiple areas, where I saw best chances for payback (in lives saved, nature preserved, etc.). Climate change is not in my top 3... but I am happy it is some people's top 1. That is the basis of policy debate... people with different ideas on what society needs to do.

Lastly, I think many in the environmental movement have an aversion to discussing "mitigation strategies" and that this is a mistake. They would rather send out missives about relocating millions of people from flooding, than talk about sea walls, etc. Beyond the simple stuff, like changing light bulbs and more efficient cars, they seem to think that the only answer is wind and solar and doing with less. I don't buy it. That's why I like Lovins, McDonough, etc. and the view that done right, and designed right, there are many solutions that will in the end be better solutions. They will reduce waste, reduce pollution, and likely reduce carbon emissions. But they are going to come from the innovators, not the environmentalists (though I think there are lots of people who are both!).