Thursday, May 06, 2010

Logistics, Legacy & Large Numbers

I suggest to entrepreneurs that they use a simple matrix to think about scale. Basically, how will they make and market their first 1-10-100-1,000 ... 1 million products? Thinking about scaling up by log steps, basically.

Here is an example I used at IDDS last summer in Kumasi:

This gets people thinking about the next level of bringing a product to market. It is much easier to say "we will sell a million" than it is to plan how to do this.* And I am not sure it gets easier to move up a log as you get bigger. Apple sold 1 million iPads faster than it did iPhones. But will Apple find it easier to sell 10 million iPads than 1 million?

I know at Envirofit, it was hard to do each log step for our reduced emission cook stoves. We have now sold 100,000. But everyone is working just as hard (or harder) to figure out how to reach 1 million. And these aren't just iCandy for the masses. Every stove reduces pollution in a home and improves family health. Less smoke means less respiratory and vision problems (so I guess they are eyeCandy in a way).

Global markets represent very large numbers. Numbers that humans have a hard time comprehending. There is potential for much more rapid dissemination of products and services in emerging and developed markets. However, as one moves to the base of the pyramid, dissemination of ideas and products often still proceed at more "traditional" speeds. Even more successful social enterprise models, such as microfinance, have not seen broad market penetration. Cellphones and a few others are the notable exceptions.

Earlier in my career, I worked on a lot of deals. I found out that many entrepreneurs are motivated by a number. "I raised $x million." "I sold my company for $y million." I suspect that many social entrepreneurs are motived by some other number. "I saved x lives." "I moved y people out of poverty." Rare feats. But worthy goals. And worthy legacies if achieved.

Here are a few numbers that may help you think about log scales, your legacy and the logistics of serving large numbers.

- 10,000. Many products. Even maniacs. But not easy. Means you need to sell 27 a day for a year.

- 100,000. About how many Honda Civics were sold in US last year. It seems like a big number when you are selling stoves. But depressingly small compared to total market of 500 million households that cook with biomass. I can't do the math.

- 1,000,000. Number of iPads sold in April. Number of Toyota Priuses sold worldwide since launch: 1.6 million. Number of IDE treadle pumps sold in Bangladesh: 1.3 million.

- 10,000,000. How many miles George Clooney aspires to get in his latest movie. Nintendo has now sold 10 million Wii's. Grameen Bank has 8 million clients.

- 100,000,000. Annual number of beneficiaries of UN World Food Programme: 90 million. Number of polio vaccinations conducted by Rotary in India in 2009: 200 million. Number of iPods sold, so far: 220 million.

- 1,000,000,000. A billion. Worldwide there are an estimated 3 billion cell phone users. There are about 1 billion people living in extreme poverty. Nobel prize winner Norman Borlaug is widely credited with saving 1 billion lives through the "green revolution" in agriculture. To sell a billion products would mean 2.7 million units... every day... for a year.

My point? To achieve a legacy, you need to work on logistics. How will you serve your first customer? Your tenth? Your thousandth?**
* My bleeps know I occasionally express frustration with oft repeated mantra of the need for "scaling up." I understand the sentiment, but perhaps better appreciate the difficulty. I would observe that "scaling up" has very little to do with talking about it.
** I recently gave a talk at the Unreasonable Institute called "Crux" where I discussed that each point of log scale up may require crux moves (think dropping into a couloir, big wave or Class V rapid) for which an entrepreneur needs to train and practice (or hire people that can do it). It might be changing supply chain to go from 1,000 to 10,000 units, or it might be growing from 10 to 100 employees. Sure there is natural talent, but Chris Sharma didn't start out on 5.15 pitches. You need to think how you will obtain your goals in order to reach them. Hope is not a strategy. (Sorry POTUS)


manoj said...

Did you mean to say 10M iPads? or 1Billion? Number of zeroes indicate a billion (if i am counting right).

As far as scaling up for social entrepreneur is concerned, what we find interesting is how many people (also called beneficiaries) we reached out to. By selling one stove to one household, you are essentially solving problem of a family (i.e. say, 4-5 people).

Logarithmic scaling may look exciting, but it may put a socially oriented company under undue pressure ... more often than not, the logistics involved in scaling such company in rural setting is exponentially higher. While Apple can figure out a smooth supply chain by picking the most established and reputed manufacturers in China/Taiwan, a socially oriented company is inherently limited to local and low cost suppliers. But your argument is quite valid about the fact that as you sell 1 million stoves, you now have money, trust and capabilities to do the next 10 million stoves (you can now go and seek partners for smoothening the supply chain).

Just my thoughts.


Bopreneur said...

Thanks, Manoj.
-Yes, I meant 1 million. Not only can I not truly comprehend large numbers, I can't even write them down. But after reading about yesterday's market meltdown, I guess I may not be alone.
- I agree that BOPreneurs have bigger challenges of smoothly scaling (compared to an Apple). Often changing or adding suppliers may be required as one grows, and that can be difficult (the proverbial trying to build an airplane while you are flying it). And Apple has a well established, scalable distribution system as well.
-Congrats on recent recognition for Husk Power Systems.