A Classic Base of the Pyramid Business
The product is something people everywhere need, but is often costly or–for more than a billion people worldwide–simply unavailable. It has to be produced locally on a daily basis. And the market price, in rural India, is less than $20 per household per year. An impossible business? I say no; in fact, I’d argue that this is a classic base of the pyramid business opportunity: low-margin, high volume; leveraging advanced technology; scalable; and potentially very profitable.
I’m talking, of course, about clean water for drinking and cooking. And two of the businesses I’ve been mentoring at Santa Clara University’s Global Social Benefit Incubator have already achieved proof of concept for this market. Environmental Planning Group Limited (EPGL) is a fully commercial entity operating in Gujarat state. The Naandi Foundation is an NGO that partners with the government but operates with business-like efficiency and is already starting to scale in several states outside its Andhra Pradesh base. Both deploy reverse osmosis water treatment plants, primarily in rural villages that do not now have access to clean water.The government of India does provide water to some rural villages, but virtually none of that water is treated to remove mineral, chemical or biological contaminants. More than 200,000 rural villages–200 million people–have no source of clean drinking water, which results in more than 5 million deaths and 100 million workdays lost per year.
Both Naandi Foundation and EPGL are building water treatment units that serve entire villages, using an own-and-operate business model.? Between the two, they already provide services in more than 300 villages; their goal is 8000 villages (30 million people) within five years.? Both charge prices around $.01 per gallon for clean water, which families collect from the treatment center typically twice a day.
However, their infrastructure investments expect to pay back in 3 years or less, and both companies have credible financial projections showing that they will be extremely profitable. Inexpensive technology makes everything possible: the patent on membranes for reverse osmosis has expired, and manufacturing for these units has moved to Asia. As a result, a unit producing 1000 liters per hour (about village-sized) costs less than $8000 (and falling); the other inputs are electric power, some maintenance and the manpower to run the unit. As the numbers of units grow and move beyond the payback period, both Naandi’s and EPGL’s bottom line soars into the black.
Worldwide, the demand for clean water is at least 5 times the size of India’s unmet need. So here is a classic example of the right BoP business model meeting a huge unmet need–and a potentially highly profitable infrastructure business waiting to be replicated.