Monday
June 2
2014

James Koch

NexThought Monday – MNCs, the Grassroots and the Future of the BoP

Editor’s note: This is the first in a two-part post. The second article will we explore how to strengthen of incubators and accelerators and other coordinating funding sources for base of the pyramid enterprises.

Among the chief takeaways from the Incubation to Acceleration track I chaired at Michigan’s 2013 BoP Summit was a singular notion: conventional business wisdom has limited applicability at the BoP. That insight stood in stark contrast to the assumptions that underscored the 2003 Networked World Conference at Santa Clara University. The purpose behind the latter conference had been twofold: to engage technologists, inventors and entrepreneurs in alternative future scenarios, and to spark Silicon Valley potential to develop solutions to urgent global problems, including poverty alleviation.

What can we learn from what did – and what notably did not – transpire in the decade between the two gatherings?

In answering that question, it’s important to consider how we might strengthen some of the lessons learned, to frame, as Peter Buffet wrote in a “New York Times” op-ed, “… a new operating system. Not a 2.0 or a 3.0, but something built from the ground up. (A) new code” that “truly creates greater prosperity for all.”

The 2003 Networked World Conference at Santa Clara University

The late C.K. Prahalad delivered the April 2003 keynote at the Networked World Conference – a conference coordinated with Santa Clara’s launch of the Global Social Benefit Institute (GSBI®). Prahalad reiterated the assertion of his 2002 Harvard Business Review article, “Serving the World’s Poor Profitably,” co-authored with Al Hammond, that, “Serving the lives of the billions of people at the bottom of the economic pyramid is a noble endeavor. It can also be a lucrative one.” Moreover, he argued, “Multinational companies should lead this market driven paradigm.”

Why Didn’t MNCs Lead the Way?

Since those early days, Hammond has worked to catalyze the BoP movement at a variety of levels. While my efforts have focused on teaching and mentoring social entrepreneurs, including nearly 200 GSBI ventures, we’ve collaborated in a number of areas such as the development of a sector approach to scaling innovation. Independently, we’ve observed that the BoP market development efforts of major corporations have been greatly eclipsed by grassroots innovators.

Bill Davidow, co-founder of Mohr Davidow Ventures, offered discussant comments following Prahalad’s keynote. In retrospect, they proved prescient. Among them he suggested:

  • Corporate infrastructure is not equipped to do the job.
  • BoP markets are risky and fragmented, and the needs are very different. Social customs are different, politics are different.
  • Unique markets require special attention and understanding. Large organizations like to do things that are homogeneous.

Davidow concluded, “I believe the opportunity is to create lots of entrepreneurship and inventiveness. I have lots of faith in that messy process.”

What Can We Learn from Social Entrepreneurs at the BoP?

The Michigan summit was an opportunity to reflect on the experiences of the GSBI ventures, but also to learn from other conference attendees, especially the individuals who joined my New Venture Development panel: entrepreneurs Donn Tice of d.light and Radha Basu of Anudip; Nancy Wimmer and her meticulously documented study of Grameen Shakti’s transformative rural business model; and Saurabh Lall, director of Research at the Aspen Network of Development Entrepreneurs and recent coauthor of a major study of BoP incubators and accelerators.

Four recurring themes emerged. First, the BoP customer has been poorly understood. Second, customer needs may exist, but market demand for products that meet the need may not. Third, vertical integration is often a necessity. Fourth, depth and breadth approaches offer alternative paths to scaling impact.

The BoP Customer Has Been Poorly Understood

Only recently has the “one-size fits all” myth been rejected. For example, the renewable energy success story of Grameen Shakti grew because it embedded its customized products and after-sales services in rural villages. Even at the BoP, consumers want choices, and may prefer to invest in aspirational goods that give them a perceived higher quality of life rather than goods that directly benefit their health (e.g., cell phone applications like mobile banking versus clean cooking stoves).

Customer Demand Must be Created

While a consumer need may exist, market demand for products that meet the need may not. For example, before d.light could sell solar lanterns, they needed to educate consumers about the product to generate market demand. Similarly, Anudip needed to overcome self-limiting, culturally-based concepts of women’s roles in Muslim society to stimulate demand for its market-based skills training; and Grameen Shakti leveraged the trusted “brand” of Grameen Bank and pragmatic agency of village engineers to create customized use-case solar solutions fitted to the needs of rural households and future cash flows of micro-enterprises.

New Businesses are Often Forced to Become Vertically Integrated.

The actors in the supply chain are commonly in formative stages or simply do not exist. Distribution channels must be created, often to penetrate low-density markets that characterize the rural poor. This was the case for both d.light and Grameen Shakti. Becoming vertically integrated from product design, to manufacturing, marketing, distribution and after-sales service strains the integrative capacity of new ventures and requires increased attention to organizational culture, systems and talent. Because of this, the flat portion of S-curve market cycles stays flatter longer. A great deal can be learned from the practices of organizational development in severely resource-constrained environments.

Depth Scaling

Influential players including investors and funders are often guided by incorrect assumptions. Conventional business wisdom holds that ventures are most likely to scale through a narrowly focused product or service strategy, or by doing a few things well. While the economic rationality of this approach is frequently compelling in large established markets, many BoP ventures find that becoming embedded in local ecosystems requires that they seek a more significant level of social and economic impact through a depth-scaling approach within a community or narrower geographic context. Key in Grameen Shakti’s becoming the world’s largest solar home system provider to the poor was the ethos of its founders – if the village does well Shakti does well.

James L. Koch is the Don C. Dodson Distinguished Service Professor of Management. He was founding director of Santa Clara University’s Center for Science, Technology, and Society, and a co-founder of the Tech Museum Awards, as well as the Global Social Benefit Institute (GSBI®).

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Base of the Pyramid, NexThought Monday, research