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
The chapter, “Why Business is Best Equipped to Fight Global Poverty,” starts with a statement that I heartedly endorse, “It’s not just that traditional methods have failed. Businesses possess unique characteristics that are ideally suited to the task of innovating new approaches—and taking them to scale.” The authors explain—and I certainly agree with them—that private businesses encompass three “…overarching and undeniable advantages in addressing the challenge of poverty:
- Profitable businesses attract substantial capital.
- Successful businesses hire lots of people.
- Successful businesses are capable of reaching scale.”
The authors write—and again I fervently agree with them—that there are other factors that enhance the economic power of business as follows:
- “Businesses, especially well-established companies, often can marshal all the necessary specialized expertise in design, financial management, marketing, and other fields that are usually lacking or inadequate in either the public sector or the citizen sector.
- Private businesses tend to be less susceptible to political pressure than governments, multilateral institutions, and most citizen-sector organizations—especially in countries with weak governments.
- Prosperous enterprises stimulate economic growth in the communities where they do business.”
The World Bank estimate of global GDP for 2013 is $75 trillion. Approximately $1 trillion more is invested in the Global South as investors are “…eager to find opportunities for lucrative new investments there.” However, there are dire challenges “…such as loss of hope, caste or class barriers, alcoholism, drug addiction, adherence to self-defeating religious beliefs, the subjugation of women, the lasting effects of childhood malnutrition, and severe physical or mental limitations—not to mention usurious moneylenders and landlords or corrupt and oppressive governments.” The authors spell it out, “While improved education, health, political power, infrastructure, and nutrition all play important roles, we have no doubt that improved livelihood provides the most direct path to the end of poverty.” I fervently agree with this summation.
The authors declare that, “Once you start the process of moving families out of poverty, their neighbors take notice and begin, quickly or slowly, to imitate them.” The authors have decades of experience in the Global South and believe that “…the problems of poverty can be addressed on a large scale only through a new generation of multinational companies built to provide products and services expressly designed to meet the needs of the poor.” Each such company will be able to do the following:
- Transform the livelihoods of 100 million $2-a-day customers within 10 years
- Generate annual revenues of at least $10 billion
- Earn sufficient profits to attract investment by international commercial finance
Zero-Based Design and the Bottom Billions
Recommendations given to launch a business that can transform the lives of 100 million poor people include the following:
- “Don’t take a course.
- Don’t get a MBA.
- Don’t read a book (except this one, of course.)”
First go to the people you want to help and “listen.” “The simple truth is you can’t talk people out of poverty, and donating stuff to them usually won’t make a lasting difference either.” I agree. The “Takeaway” is, “Poor people have to invest their own time and money to move out of poverty.”
Following is the trilogy of “Don’t Bother”:
- “If you haven’t talked to at least 100 customers in some depth before you start, don’t bother.”
- “If your product or service won’t earn or save three times the customer’s investment in the first year, don’t bother.”
- “If you can’t sell 100 million of your product or service, don’t bother.”
Another “Takeaway” was “To meet the biggest challenge in development—scale—your enterprise must aim to transform the lives of 5 million customers within 5 years and 100 million during the first 10.” It is important to design for a generous profit, and one of the best ways to measure profit is by “free cash flow (the amount of money your business has available after paying for personnel, overhead, interest on loans, and any necessary investments in developing new products, purchasing new assets, or opening new markets).” The business must pursue “ruthless affordability” for the poor people who require dramatically inexpensive materials, operations and overhead. Whether the customers are rural or urban, it is critical to arrive at “…last-mile (more accurately, last 500 feet) distribution.” Branding is necessary.
The book makes an optimistic statement worth repeating, and one which I concur, “…globalization has increased intercultural awareness, mobile phones have gone global with astonishing speed, concern has grown about global poverty, corporations are adopting socially responsible practices and policies (or pretending to do so), and young people leaving colleges and graduate schools have been demanding jobs that offer the opportunity for meaningful work.” As for myself, I can’t be classified as a young person anymore, but I have come to the definite conclusion that my calling is calling toward Heaven on Earth. This book review and my recommendation of the book itself are part of this ultimate quest.
One of three examples of ruthless design were outcomes of Stanford’s Entrepreneurial Design for Extreme Affordability. It is “…the Fertiloo, an affordable compost latrine that provides rural families with access to improved sanitation while offering a safe and easy way to contain their human waste and use it as fertilizer for crops. Designed to cost less than $100, the Fertiloo team received a grant from the Bill and Melinda Gates Foundation and is refining its design in the field in Haiti in collaboration with a local partner.”
There is a statement in the book that should be a red flag to major global corporations, “There’s already considerable evidence that major corporations will remain competitive in the global marketplace only by creating vibrant new markets serving $2-a-day customers at scale in addition to serving more affluent customers.” Another such bold comment is, “The corporations of the future will need to serve the bottom-of-the-pyramid customers as well as the rich to stay in business.”
According to the book, “…there are a billion people who never connect to electricity…Another billion people don’t have access to safe drinking water.” They believe there are three reasons that the needs of the bottom pyramid are not being met by existing businesses:
- “They don’t see the profit in it.
- They don’t have a clue how to design the radically affordable products and services that poor people need.
- They don’t know how to design and operate profitable last-mile supply chains.”
As an example of how corporations can move in the direction of solving these problems and addressing the opportunities, the authors point to Walmart and how they have prospered at higher levels of wealth with small margins and large volume. Incidentally, just a day ago I read an Investor’s Business Dailyarticle (December 24, 2013) entitled, “Africa’s Fast Growth Attracts Investment.” One of the interesting investments highlighted in that article was when “…Wal-Mart became one of the first big U.S investors when it paid $2.4 billion in 2011 to buy South African retailer Massmart.” The book states that Wal-Mart and others are not yet reaching that bottom pyramid. But I think they will; and they have to start by entering these Global South countries.
In “The Ruthless Pursuit of Affordability,” the authors sum up a lot, “Products that are attractive to poor customers must indeed be affordable, but they also need to work well and look good. Poor customers are, if anything, more aspirational than the rich. And their demands and need for value are greater, too. When money is scarce, it’s got to be used as efficiently as possible.” An example of such a product is the treadle pump, “…widely regarded in development circles as one of the most successful income-generating innovations introduced to poor farmers around the world.” It “…is operated by an individual using StairMaster-like pedals to draw water from as deep as 20 to 25 feet underground or from lakes or streams….It’s estimated that a total of three million pumps have been put to work on small plots of land, primarily in South Asia and sub-Saharan Africa. These three million treadle pumps are now generating new net income of more than $300 million per year for one-acre farmers who live on less than a $1 a day—not a trivial sum to any but the very largest businesses on Earth.”
Step by step the authors explain how to go about designing such products; I encourage anyone with a practical interest to explore this chapter completely, as well as the rest of the book. The path to prosperity in Heaven on Earth depends on such actions.
The chapter, “Zero-Based Design in Practice: Low-Cost Drip Irrigation” is a case study of how drip irrigation for small acreage was developed. I will not retell the case study—I urge you to read the entire book; but the chapter has this “Takeaway,” “Design for extreme affordability rarely comes easily. Making anything both workable and cheap may take years of careful, incremental adaptation and revision. But it can be quite rewarding. During the past two decades, the area under drip irrigation and other micro-irrigation methods has risen at least six-fold globally, from 4 million acres (1.6 million hectares) to more than 25 million. Gains in China and India have been the most dramatic.”
The “Design for the Market” chapter explains how hard it is to solve the technical problems and has this “Takeaway,” “Designing a branding and marketing strategy and a last-mile supply chain that will put your product or service in the hands of millions of customers is three-quarters of the design challenge.” This chapter explains how the treadle pump was marketed successfully. I encourage all to read the whole of it. “Every key player in the distribution chain has to make an attractive profit…[Paul Polak, co-author] doesn’t work with any technologies unless the customer can get three times his money back in the first year by using the technology.”
The “Zero-Based Design in Practice: A Cautionary Tale” chapter gives a case study of a well-intentioned attempt of a MIT-conceived solution to the use of wood charcoal in places like Haiti. Such use “…results in devastating soil erosion—a major contributor to the hundreds of lives lost every year due to mudslides and flooding—and can also lead to…degradation of aquatic life along the coasts of Haiti…[and]causes respiratory problems in children and increases the risk of cancer.” I will leave this case study to you to decipher, only to say that “The fatal flaw in the project was that no one on the field team understood marketing.” The author gives a final assessment of what might have been done and I agree with them that succeeding in these ventures requires, “…a whole lot of work.” But if you do it right—over time—you can become a pathfinder toward Heaven on Earth.