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Tuesday, May 6, 2008

Taking Base of the Pyramid Strategies To Scale Pt.1: An Introduction to Transformative Sector Strate

By Al Hammond

This post is the first of a five part series on a radical new approach to scaling BoP business models, what we call a transformative sector strategy. In this segment, I introduce the conceptual framework for this innovative poverty-alleviation model.

scaling"It doesn't exactly keep me up at night, but I do think about it a lot." Jacqueline Novogratz, head of Acumen Fund, and I were talking about getting to scale - about expanding private sector business development and investment aimed at empowering and providing basic services to the poor to the point of making a real impact.I felt exactly the same, and I've had similar conversations with colleagues at Santa Clara University, at Ashoka, at private investment funds, and elsewhere. Ever since we finished our report on The Next 4 Billion, the numbers haunt me. How do you meet the unmet needs of four billion people?

Convincing a dozen multinational companies to take this market seriously isn't enough. Doubling or quadrupling the capacity of the organizations that mentor social enterprises and BoP-serving small and medium businesses won't do it either. Even investing hundreds of millions of dollars in individual enterprises in this sector doesn't guarantee success. I think the goal has to be to transform whole sectors in ways that catalyze mainstream investment in BoP economic activity and unleash market forces. To get there, I think we need a more systematic approach.

A Next-Generation BoP Approach: Transformative Sector Models


In this and subsequent posts, I'm going to suggest one such approach that I and my colleagues at WRI and elsewhere have been developing for several years, and that we are now starting to take into the field. I'm proposing this scaling model tentatively, and asking for feedback and for comparisons to other scaling models.

The approach builds on the perception that there is a growing amount of public and private capital available to fund BoP strategies - almost every month now I hear about a new BoP private equity fund - and the conviction that the bottleneck is a shortage of solutions in the form of investable enterprises. In venture capital jargon, what's missing is the "deal flow." And I'm suggesting that the way to create that deal flow and unleash a rising tide of investment is to focus not on individual entrepreneurs, not on individual companies, but on economic sectors.

Our approach is to seek to understand deeply the critical problems and opportunities of individual BoP sectors - whether healthcare or housing or connectivity - and identify transformative business models that can be scaled and widely replicated in many countries by many different actors. I think that focusing on the sector - and then either helping existing enterprises to adopt the transformative model or incubating new enterprises to embody it - is a more systematic approach to meeting needs, increasing service delivery, and empowering the BoP. And if the solutions are truly transformative, then supporting the first half-dozen test cases may be all that is needed before the market itself begins to drive the change.

Of course, finding transformative solutions for a sector and implementing them in half-a-dozen countries is hardly easy. I think it will take catalytic civil society actors, skilled entrepreneurs, pioneering investors, and enlightened (or very strategic) corporations working together to make this happen. But let me introduce a couple of examples to make these ideas a bit more concrete.

"Last Mile" Solutions with Real World Impact

TN4B ICTOne example starts with the huge benefits that come from access to mobile phones, and the reality that most rural BoP households still either have no access or can't afford the high prepaid charges (as detailed in this recent NYT piece). Suppose there was a dramatically lower cost way to provide that service to hundreds of millions of people, especially in rural areas that do not yet have coverage, using a technology that is unfamiliar to mobile phone companies.

In fact, there is just such a solution, one that could put modern communications tools - and soon, mobile phone banking services - in the hands of even the poorest and most remote communities at a profit to the provider. So how might we catalyze widespread adoption of this solution? Our approach has been to pilot this new "last mile" model for rural connectivity, which we have marketed to leading mobile phone companies in developing countries.

A second example is a franchising concept that could provide a similar "last mile" solution for rural and peri-urban healthcare - in effect, filling in key missing pieces of national healthcare distribution systems and bringing better service-or even eventually world class care, thanks to new technology and "remote practice" approaches - to many underserved low-income households. What is potentially transformative is that the solution bridges the huge gap in functional healthcare infrastructure and the acute shortage of doctors, nurses, and pharmacists in many rural areas, enabling access for underserved communities.

I will be fleshing out both of these examples in subsequent posts this week to show how the potential for this transformative sector strategy is already being demonstrated in practice.

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