REVIEW Part II: The Business Solution to Poverty: Designing Products and Services for Three Billion Customers

The Business Solution to Poverty:

Designing Products and Services for Three Billion Customers

By Paul Polak and Mal Walwick

Review By John E. Wade II

Part II

 

Paul Polak, one of this book’s authors, wrote, Out of Poverty.  In it he explained how a market-driven nonprofit organization he founded in 1981, “…had lifted 17 million rural people into the middle class by rigorously applying practices they developed in the field in India, Bangladesh, Nepal, Somalia, Zambia, Zimbabwe, and new agricultural marketing practices—were revolutionary because they were market-driven and designed for and with $1-a-day farmers, and, not incidentally because they worked.”  There are approximately one billion people still living on $1 or less per day.  The authors spell it quite plainly, “…our primary concern in this book: a desire to eradicate poverty.”  I must explain that they are writing about dire poverty, $2 or less per day, not the comparative type of poverty which lingers in developed nations.

 

The authors explain, “…traditionally, capitalist approaches have exploited poor people and done irreparable harm to the environment.  But what we advocate is different: a way to achieve results on a global scale and solve your fundraising challenge without victimizing poor people or despoiling the environment.”  I’m not sure I would agree with the “exploit” statement, but I wholeheartedly agree with this book’s approach and premise of using business techniques to conquer world poverty.

 

The authors make a wonderful point—that this poverty involves “…a horrendous waste of human talent.  How many scientists, physicians, teachers, business innovators, gifted artists, and brilliant community leaders might emerge from the bottom billions if they were freed of the shackles of poverty?”  This poverty causes great environmental damage, which claims the most damage to the poor themselves as they “…over-farm already poor soils, cut down trees for fuel, use local fuels for cooking and heating, and compete for fast-shrinking supplies of water.  Lack of education, high infant mortality, and the need for more hands to increase family income lead to overpopulation, which adds a multiplier effect to the existing pressure that humanity exerts on our dwindling resource base…[with] practically all the projected increase in the world’s population between now and 2050…among people who live on $2 a day or less in the world’s poorest countries.”

 

There is a huge market potential with the emerging economies of the Global South making up approximately $12 trillion or eighteen percent of the globe’s total economic output.  According to the authors, “Global South”  transcends geography and “…refers to the generally less-developed, low-income countries typically classified as ‘developing nations,’ ‘underdeveloped countries,’ and ‘emerging nations—despite the fact that most of India, for example, lies north of the Equator, and Australia and New Zealand, which are by no means underdeveloped, lie far to the south of the line.”  Increasingly, global businesses are coming to realize that their opportunities in developed countries are limited and that it is a matter of corporate growth to seek to serve “…the New Frontier.”  I thoroughly agree with the authors as they wrote, “In business, life is change.  No well-managed corporation with global aspirations can afford to overlook new market opportunities.”

 

To understand the location of the world’s poorest people, the authors explain that most are concentrated in four areas across the globe: the Indian subcontinent (including India, Pakistan, Bangladesh, Nepal, Bhutan, and Sri Lanka)—900 million; Southeast Asia (Myanmar, Vietnam, Laos, Cambodia, Thailand, Malaysia, Indonesia, Papua New Guinea, and the Philippines)—700 million; Sub-Saharan Africa (the dozens of nations that lie south of the Arabic-speaking countries on the Mediterranean coast)—roughly 500 million; and China—perhaps 300 million.  These four areas encompass about 2.4 billion with another 300 million spread around the world.

 

The authors sum up their premise, “The remedy we propose is to tap the mainstream capital markets to fund large-scale, global enterprises that address the basic needs of these 2.7 billion people: needs for clean water, renewable energy, affordable housing, accessible health care and education, and, above all, jobs.”  Their approach is founding businesses with a ten year goal of achieving a customer base of 100 million with revenues of $10 billion or more per year profitably enough “…to attract both indigenous and international commercial investors while minimizing its environmental impact to the greatest extent possible.”

 

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The authors have a definite route that they call zero-based design.  The first element of this formula is to listen to the poor people, not through pity, but as customers.  Think like Steve Jobs and create markets.  Scale is an essential component of this plan.  That is, “Design for scale from the very beginning as a central focus of the enterprise, with a view toward reaching not just thousands or even millions of poor people but hundreds of millions.”

 

“Ruthless affordability” requires designing products and processes “…not just 30 to 50 percent less than First World prices but often an order of magnitude less, or 90 percent.”

 

Another crucial key is “private capital.”  It is important to reach generous margins of profit “…which will play a central role in expanding any venture—drawing from a pool of trillions of dollars in private capital rather than the millions typically available for philanthropic; or government-sponsored programs.”  This is a vital point and the key that’s missing in other approaches.

 

The next element is “last-mile distribution.”  Because so many of these potential customers are in isolated rural areas, it is not only critical to plan for the last mile, but often the “last 500 feet.”

 

The authors’ list “aspirational branding” as the next element.  This one surprised me.  We are used to sophisticated branding in the developed world.  But the authors explain this is perhaps even more important with those in the bottom of the pyramid.

 

The final element is “Jugaad innovation.”  The term “Jugaad” is rooted in Hindu and refers to a creative or innovative idea that provides a quick, alternative way of solving or fixing a problem.  This involves working with what you have, and might even be called ingenuity.  Extensive testing and development are crucial.

 

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Both social goals and profitability are important, “For example, if an enterprise adopts the mission of selling crop insurance to large numbers of poor farmers at an attractive price, embeds that mission into its DNA, and never wavers from it, transformative social impact is inevitable.  The real challenge is earning attractive profits while doing it.”  The authors refer to stakeholder-centered management which means that the business addresses the needs of customers, employees, the local communities, the environment and the owners.