Rob Katz

Market Creation at the Base of the Pyramid: It Isn’t Easy

Village the Game“…you can have the very best technology in the world, and if you don’t get it out there and market it, if you don’t have a distribution network, then it doesn’t have any impact.”

Martin Fisher, Co-Founder and CEO, KickStart

Creating markets at the base of the pyramid is hard work.? This theme that has resurfaced again and again in my recent work, whether at a gathering of budding BoP-focused entrepreneurs or during a conversation with established social innovators.What do we mean by ’market creation’?? What role does it play in BoP venture creation?? And why is it so often overlooked by entrepreneurs, investors, policymakers and pundits?? In this post, I’ll touch on these issues by citing examples that have surfaced recently in my work, including insights from the Acumen Fund portfolio.

“…dissemination is the difference between invention and innovation–between creativity and making a difference.”? So says BOPreneur and NextBillion ally Paul Hudnut.? This quote is taken from Paul’s talk at the International Development Design Summit, which I attended back in July.? IDDS convenes early-stage entrepreneurs and designers focused on base of the pyramid markets.? Paul’s advice: design is great, but you will probably have to create a market into which you can sell your creations.? Valuable advice, especially when you consider the thousands of well-intentioned but now abandoned development-through-design projects littering Africa, Asia and Latin America.

Don’t take my word for it, but I bet Martin Fisher agrees with Paul.? Fisher, the CEO and co-founder of KickStart, was interviewed by the excellent Britt Bravo on her Have Fun – Do Good blog a few weeks back.? (I found the interview via another excellent blog, David Stoker’s Microfranchising – hat tip to you, David!)

KickStart manufactures, distributes and sells irrigation pumps in Africa.? Smallholder farmers use the pumps to irrigate their fields, which increases crop yields and growing seasons, which leads to increased incomes.? Fisher describes the whole process in captivating detail in the interview, so I won’t go further.? But this excerpt – along with the quote I began this post with – stands out:

we have to set up a distribution network, a private sector distribution network where we have private manufacturers producing these things, wholesalers selling them, and hundreds of retail shops that final retail them, and then, all of this market development.? That’s our challenge. Eventually what will happen, of course, is that these pumps will hit a tipping point where everybody knows about them, and they become as well known in Africa as, say, a sewing machine or a bicycle.

Sounds like market creation to me – and that’s what KickStart needs philanthropic capital for.? This is important – KickStart is, by all accounts, a business focused on low-income customers (base of the pyramid to the core) but it still needs donations to do the kind of marketing, promotion, etc. necessary to reach a tipping point.? David Stoker, of the afforementioned Microfranchising blog, offers spot-on analysis:

It can be easy to talk about social enterprises as if launching a business were easy and success were automatic. Here we are reminded of the reality by one of the most successful organizations at introducing a new technological product at the bottom of the pyramid saying they expect it to take ten years of heavy promotion and reliance on donor funds to tip the market. That strikes me as a much longer time frame than is commonly presented in the industry. We like to talk about sustainability and revenue streams from social enterprises but we must not forget that there is still an incredible market failure in the funding for this market-creation stage.

Amen, David.? Memo to Kevin Jones and the other organizers of Social Capital Markets 2008, an upcoming conference on these topics: don’t sweep the discussion of market creation under the rug.

Among the many interesting people who will be attending the Social Capital Markets conference is Graham Macmillan, Senior Director of VisionSpring.? If anyone can talk firsthand about the struggles of market development at the base of the pyramid, it’s Graham and his VisionSpring colleagues.? When I sat down with them for an interview earlier this month, I heard similar thoughts.? Jordan Kassalow, VisionSpring’s co-founder and CEO, told me bluntly that

[c]reating markets at the BoP is really hard. Back then, we thought it was a distribution and supply chain challenge. But on top of that–and we didn’t know this–it’s a market creation problem. It’s hard to figure out business models that work.

I shouldn’t be surprised by this comment, but I was a little taken back.? After all, VisionSpring doesn’t need to re-design its product – they sell reading glasses to the 400 million people worldwide suffering from aging eyes.? They source the glasses – which are the same as the $10 pair you can buy at a drugstore in the US – from China.? People need to see to work and live, so it’s a clear market demand.

Of course, nothing is as simple as it appears to be.? Creating a market for VisionSpring’s glasses at the BoP requires a combination of marketing, promotions, relationship building and hard work.? Like KickStart, VisionSpring needs philanthropic donors to underwrite the cost of market creation.? How long will that take?? Kassalow, like Fisher, estimates 10 to 15 years.? That’s a far cry from the typical investor timeline of 3 to 5 years before returns.? Uncharted territory…

Like VisionSpring, Dial 1298 For Ambulance is working to create markets at the bottom of the pyramid (they also share a common investor – Acumen Fund – where I work.)? 1298 is an ambulance service in Mumbai and Kerala (you dial 1298 in those cities much like you dial 911 in the United States.)? The difference between 911 and 1298 is that very few people in India are conditioned to calling for an ambulance – they just take a taxi to the hospital.

In order for 1298 to succeed, it needs to create a new market in India – for high quality, quick response ambulance service that serves everyone, rich and poor alike.? Recognizing this challenge, 1298’s management team asked Acumen Fund last year to send them a Fellow.? We did, in the person of Chris Walker.? Chris’ project for the past 10 months?? You guessed it: marketing, promotions and market development.

At the end of the day, it’s important to remember that, no matter how good your product or service, market creation is a key to the success your BoP venture.? Build it into your business plan; expect that you won’t get it right the first, second or even third time.? But overlook it at your own risk.