Derek Newberry

Guest Post: The Dilemmas of Scaling BoP Ventures

apoorvaGuest blogger Apoorva Shah, a recent graduate of Rice University, is currently a Wagoner Scholar working with Ashoka: Innovators for the Public to research the influence of social entrepreneurship on public policy. Currently in S?o Paulo, Brazil, he wrote this post from Colombo, Sri Lanka.

Moses Lee’s recent post on scaling BoP ventures raised the important and complex issue of defining “scale” in cross-sector approaches to development. What happens when “increasing business transactions that positively impact the lives of the poor” means that BoP businesses begin to enter the realm of government?

For example, many businesses work in fields traditionally relegated to the public sector – public health, education, environmental protection, electrification, etc. To scale, should the BoP venture work with government or proceed without it, and what are the subsequent consequences?

In Sri Lanka, Ashoka Fellow Lalith Seneviratne works with a network of local entrepreneurs to provide small-scale biomass gasification systems to rural villages inaccessible to the national electricity grid. The systems are fueled by the fast-growing Gliricidia wood, which is endemic to Sri Lanka and can be easily grown by villagers. Because the process of entering the national grid was slow and bureaucratic, local private actors such as Seneviratne decided to act independently to provide an environmentally friendly source of energy to rural citizens.

Yet in the past five years, the government electricity grid has expanded by 13% to reach 80% of the country’s population, and according to Seneviratne, only about 5% of Sri Lankans will ultimately remain off the national grid. So how should Mr. Seneviratne define scale for his venture? He has two options:

  1. Continue to improve and implement more of the independent, small-scale systems that currently require extensive upkeep and are limited in terms of capacity and duration of service.
  2. Work towards designing and promoting larger capacity biomass gasification systems that would be more efficient and reliable and could contribute power to the national grid.

It is important to note that the larger plants would continue to buy wood from rural citizens, providing an extra source of income in addition to more reliable energy service. Nevertheless, communities who do not yet have small-scale systems would have to wait for electricity until the grid reached them. How does an entrepreneur approach such a trade-off with substantial external social and economic consequences?

ashoka fellowIn the second option, the larger biomass power plants would contribute to the national grid, so Seneviratne would have to work more closely with government in order to scale. Part of the uniqueness of BoP ventures is their ability to achieve social change while operating in the private sector, bypassing the bureaucracy of government and the fundraising limitations of non-profit organizations.

In the case of Sri Lankan electrification, Mr. Seneviratne has to determine the value of sacrificing such independence for scale. Contributing power from large gasifers to the national grid means re-entering the bureaucracy of government decision-making and adjusting to a timeline determined by forces external to the venture, yet success would mean Sri Lankans would receive more reliable, environmentally friendly electricity and the venture would earn more money.

How does an entrepreneur approach this scaling challenge? Is it a natural and inevitable progress for many BoP businesses to transition to “public-private partnerships” in order to grow? Are there other options?

Currently, I am studying how the organizations and businesses of Ashoka Fellows in Brazil are working with and influencing government at the local, state, and national levels to scale their impact. Do you know of other BoP cases that face such issues? Are there examples of successful relationships between BoP ventures and government?