Monday
February 17
2014

Caroline Ashley

NexThought Monday – The Real 4Ps of Inclusive Business: Perseverance, pilots, partnerships and passion

We started last September – looking across the entire portfolio of businesses supported by the Business Innovation Facility since 2010. How could we possibly make sense of such diverse businesses, straddling seven sectors in five countries, selling to consumers at the base of the pyramid (BoP) or buying crops from smallholders, ranging from start-ups to new initiatives of multinationals, some enjoying profits and others still lacking a business plan. Wasn’t the whole lesson one of diversity and no blueprint, with the need for innovation and the value of technical support the only common themes?

Diversity? Yes. Blueprint? No. But the more we looked, the stronger the common themes appeared. Most companies ended up innovating more than they expected, in more parts of the value chain. They had discovered which parts of the model needed partners and which parts should not be left to partners. The business models we were assessing in September were quite different to those described in application forms back at the start. All of them except one, or possibly two, were behind on their estimated revenues and reach for 2013. The vast majority were still progressing to their ultimate destination – a business model that blends commercial viability with impacts for people at the BoP.

As we distilled the business model components, mapped the inclusive business journeys, and plotted turnover and BoP reach on graphs, the 4 common ingredients, what we now call the 4Ps of inclusive business emerged until they shouted out as headlines.

Perseverance

Perseverance in the Oxford English dictionary: persistence in doing something despite difficulty or delay in achieving success

That inclusive business is ‘difficult’ seems self-evident. Any start-up business is difficult, but there are characteristics of inclusive business that exacerbate that. It is still fairly new. If models could be taken ‘off the shelf’ then it would already be happening at scale. Finding a model that matches the pockets and demand of people at the BoP with the demand of the bottom line is a real challenge. Leadership, finance and partners are key in any business, but all the more so when innovating at the BoP. Looking across the portfolio we identified the top reasons why things don’t go to plan.

‘Delay in achieving success’ is also evident, but there are a number of angles to this. First, inclusive business simply takes time. We mapped journeys of the businesses in the portfolio, most of which had been developing their plans for some years before receiving technical support from BIF. Our conclusion is that the journey from inception to scale takes a decade. That may still be an overly optimistic estimate, as most are approaching only the half way 5-year milestone. So even if things go to plan, five years to wait for profit and ten years for a return is long. The example of Stanbic’s Smallholder Finance Scheme, currently around year four and just moving from successful pilot to roll-out, is shown here.

But it is not just the length of the journey that requires perseverance. It is the zigzag nature of the journey. In many cases, experience on the ground plus new technology led to substantial changes in the product, aggregation or distribution channel, pricing structure or target market, that it took the business in a new direction. The diagram shows a zigzag route for the mKRISHI™ initiative of Tata Consultancy Services in India. But we saw both producer-focused businesses and consumer-focused businesses take this zigzag journey. Each change of course represents a better business model, leading closer to ultimate success, but also requiring dedication and energy to implement.

The third element of ‘delay’ is that it almost universally takes longer to reach targets than expected. In year one, after the commencement of BIF support, turnover grew by 62 percent, good news. But this was still well below the 190 percent increase that had been estimated. In most cases the businesses were on track to their destination, but not on track for their optimistic targets. Profit targets disappeared even further into the distance.

So in the face of ten or more obstacles, a decade-long journey, zigzag course, and performance that is below projections, what are the businesses doing? In most cases, their managers are persevering to a quite remarkable extent. As of late 2013, 80 percent of the 40 portfolio companies considered to be progressing. The 20 percent that have been put on ice, or momentarily stalled, do not have the right model, finance or senior leadership that they need. But the others are all progressing, undeterred. Trying to understand why this perseverance is so strong, we focused on the strategic drivers. Profit is recognised to be some way off, but most of the companies see this as a strategic direction for the long-term future of their company, increasing competitiveness, productivity, market share or market reach. And in the majority of cases they already perceived some delivery against these goals during 2013.

Pilots

Pilot in the Oxford English dictionary: [AS MODIFIER] done as an experiment or test before being introduced more widely

My favourite of the 4Ps is probably the pilots. Often support from BIF helped companies pilot a model. But it would be a mistake to think piloting is a one-off step. Some companies had already piloted the product, and now were piloting the delivery model, and would move on from one pilot to the next. Sometimes the testing phase is not named a ‘pilot,’ but it is the spirit of learning and improving that matters. Such pilots are integral to the zigzags described above; because inclusive business has to be designed based on realities at the BoP – not market research – the business model has to evolve as a result of testing in the field. One of the strongest lessons to emerge is the importance of piloting not to deliver, but to learn. The experience of ACI in Bangladesh, where the first pilot harvest failed, is a great example of a pilot that succeeds in testing and improving the model.

Partnerships

Partner in the Oxford English Dictionary: A person who takes part in an undertaking with another or others, especially in a business or firm with shared risks and profits: either of two people dancing together or playing a game or sport on the same side.

Companies investing in inclusive business tend to enter into partnerships with players who can bring skills that they lack, or networks that reach into the BoP. Some partner with NGOs who can supply extension services to farmers and provide the aggregation function that would be inefficient for the company to attempt. Others partner with micro-finance institutions, agricultural marketing cooperatives, post offices, or other institutions that have established reach to rural consumers, and are also used to offering consumer finance. It is not surprising that partnerships emerged as a critical component of inclusive business. Two other findings though may be less expected. Firstly, partnerships emerged as even more important for large established companies, than for small ones. The large corporates have more resources at their disposal, but less flexibility in their skill set. Secondly, we saw several examples where partnerships went wrong. The deep dive case studies of Universal Industries in Malawi and ACI contract farming initiative in Bangladesh are quite frank about the limitations of partners in liaising with smallholders. Stanbic IBTC in Nigeria and mKRISHI ™ in India are providing smallholder credit and information in collaboration with a range of partners, but have moved on from some early partnerships. If partnerships are critical, then investing in partnership management and knowing when to move on, are even more so.

Passion

Passion in the Oxford English Dictionary: an intense desire or enthusiasm for something: (in all cases, but particularly this one, the multiple definitions on offer have been selectively quoted)

Passion of social entrepreneurs is well known. But passion was just as evident in the business teams within corporates, where intrapreneurs were devising new ways of working amidst corporate protocols. Passion can be double edged: the most common reason for rejecting or doubting applications at Selection Committee stage was the excess ratio of passion relative to business strategy. Over-reliance on passion also underpins the number one cause of failure or delay: the departure of the champion or leader. A model that relies solely on a passionate leader is not sustainable. But there is no doubt that passion is essential in both a fundamental and a pragmatic way. Fundamentally, inclusive business is breaking new boundaries. Passion is what drives the ‘vision thing’ and spurs teams to set out to show that solutions at the BoP can be delivered through a viable business. More pragmatically, passion is what drives persistence and gets teams through the early years or the inevitable delays, and drives them to find the next zigzag and the better business model.

There are some inspiring innovative models in the Business Innovation Facility portfolio, all of them different. We estimate that a good share will continue to thrive, and as a whole they will reach around 3.7 million households at the BOP within a few years. I cannot foresee a single success story within there that does not combine perseverance, pilots, partnerships and passion.

Further information

The 4Ps of inclusive business: How perseverance, partnerships, pilots and passion can lead to success is the final report from the Business Innovation Facility pilot. It explores business models that have worked – or not – for inclusive businesses that reach BoP consumers, and source from BoP producers. The report presents the commercial and social results seen so far, and the zigzag journeys that companies take. The implications and recommendations emerging from the report are useful for intrapreneurs, entrepreneurs and other inclusive business practitioners. A companion report, Adding Value to Innovation? focuses on the value of donor-funded technical support, and draws out lessons for donors working with business.

The Business Innovation Facility pilot, funded by the UK Department for International Development (DFID), ran from July 2010 to December 2013. It provided practical, hands-on advice and technical expertise, to support companies to develop or scale up inclusive business models. Support was provided through an international network of service providers and a country management team in each country. BIF worked directly with over 300 companies in five countries – Bangladesh, India, Malawi, Nigeria and Zambia. Forty of these companies received intensive support and engaged in the full BIF monitoring system, which provides the basis of findings here. The portfolio of companies was intentionally diverse, varying across size, sector, BoP focus and stage of maturity.

BIF also had the objective to add further momentum to inclusive business development by generating and exchanging knowledge, face to face, in print and on the Practitioner Hub. For a comprehensive look at the findings and lessons learned from the pilot, visit the BIF pilot findings and results page on the Practitioner Hub.

Caroline Ashley is the editor of the Practitioner Hub on Inclusive Business and an independent consultant at Ashley Insight Ltd.

Categories
Education, Entrepreneurship
Tags
Base of the Pyramid, business case, business development