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Thursday, March 13, 2008

Taking a BoP Venture to Scale, Part 1

By Moses Lee

Scale"How are we going to scale this enterprise?" "What is our scaling strategy?" "What are the building blocks needed to take our concept to scale?"

If you have ever sat in on a board meeting of an organization, either for a for-profit or non-profit, I am sure you would have heard the above questions or some derivative of them.Scale is a word that is often thrown around, but what is scale? In the business world, scaling an enterprise basically means optimizing resources to sells more goods or services in order to grow top-line revenues and finding ways to improve cost effectiveness to drive profitability. Simple, right? Or not. Not all businesses are created equal. Some business models are inherently more scalable than others. For example, an online retailer is much easier to scale than a brick-and-mortar store.

Defining scale in the for-profit world is relatively straightforward. And its importance is also clear: shareholder maximization. But what about in the BoP world, where measurement is not necessarily in dollars and cents and the goal is not wealth maximization? Can we simply take scaling strategies from the for-profit world and apply them to BoP ventures? I think most of us would say no. Therefore, it is important for us to look at scaling a BoP venture through a different lens.

In this post and the next, I'd like to open up the discussion on scaling a BoP enterprise. In this entry, I am going to attempt to bring some definition to the idea of scaling a BoP venture. In my next post, I will try to tackle the importance of scaling BoP ventures from a macro level.

On Definition

I think most of us will agree that the reason a BoP venture exists is to positively impact and transform the lives of poor people through business. This means that at the end of the day, the success of a BoP venture is measured by improved lives. This doesn't mean, however, that a BoP venture doesn't look at profits or revenues. A BoP venture uses the unique approach of business to tackle the issues of poverty.

Now on scale: when the leaders of BoP ventures say that they want to scale their organizations, what they are saying is that they want to positively impact and transform more lives of the poor! So the first step in thinking about scale is to iron out just what those positive impacts are that a BoP venture seeks.

Take for example the case of malaria bednets (which has been gaining a lot of publicity as of late). Should a manufacturer of bednets in Africa simply seek to sell more bednets? Or should the a bendet manufacturer see malaria prevention as its raison d'?tre? The answer to these questions are extremely critical. And potentially different BoP ventures and scaling strategies emerges on how we answer these questions.

Which brings up the entire issue of identifying and measuring impact. Jon Gertner writes in a recent New York Times magazine article on philanthropy and impact, "By tracking participants over many years in various programs - in early childhood education, for instance - foundations would come to understand whether a program was worth expanding on a larger scale."

Many BoP ventures start out with a hypothesis on how they can positively affect an aspect of poverty. But as Gertner mentions, scaling a program or venture only makes sense if it is actually making a difference. I mean, what good is it if a bednet manufacturer keeps selling bednets if it does nothing to prevent malaria? Now, I don't want go into an entire discussion in assessing and measuring impact, because that would be outside the scope of this entry. (Right now at the William Davidson Institute we are working on developing a more robust approach towards impact assessment. Stay tuned for more on our work.)

But what makes a BoP approach different from other social programs is the use of market-based solutions. As much as we in the BoP world are concerned about impact, we are also looking for repeatable business transactions. And by this I mean everything we learn in business school: product differentiation, porter's five forces, effective pricing models, cost efficiencies, gross margins, etc. I am confident that all of us who are reading this blog are capitalists - we just want to use capitalism to change our world.

So my working definition of scaling a BoP venture is as follows: increasing business transactions that positively affect the lives of the poor. Simple and sweet. But loaded with complexities and challenges.

What do you think? Do you agree or disagree?
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