A few months ago, at the Skoll World Forum on Social Entrepreneurship, Monitor Group Inclusive Markets released a report focusing on market-based solutions to global poverty. Titled “Emerging Markets, Emerging Models,” the report has a special emphasis on India, although case studies from other countries are also included. A variety of examples are given, along with quantitative analysis to help illustrate the state of the field. For anyone interested in working with the base of the pyramid – whether you’re an entrepreneur, funder, or policy maker – the study is a must read. Below is a recap summary:
The report considers the poor as both consumers and producers, and highlights models the work in addressing both functions. There are four business models that engage the poor as consumers:
- Pay Per Use – lower costs for using a group-owned product
- No Frills service – very low prices, but high volume
- Paraskilling – tasks undertaken by workers without specialized qualifications
- Shared Channels – using existing channels for socially beneficial goods
And there are three models to engage the poor as producers:
- Contract Production – involves small-scale farmers in rural supply chains
- Deep Procurement – eliminates middleman to reach the base of the pyramid directly
- Demand-Led Training – training and placing employees for jobs at the edges of the formal and informal sectors
The report also highlights the idea of scale several times. Scaling take more than just a “perfect storm” – there are several key factors that Monitor considers:
- End to end organization
- Use of “soft funding”
- Time to scale
The four models that are used to exemplify scaling are Aravind Eye Care, AMUL, the Microfinance Industry, and ITC E-Choupal. These examples show that it takes over ten years to really achieve mass impact. This section serves as a well-needed reality check in terms of what kind of commitment and time investment is needed to expand an organization.
This only covers a few of the many points, and there are many other gems worth looking at in the report.
The report ends on a note that both instills excitement and offers caution. First, the scope of the field still needs to be discovered, and that means that there is room for others (including you!) to make a dent:
The full ecosystem needs to be developed end-to-end. If Google had needed to invent the (government funded) Internet in addition to a superior search engine technology, would it have been profitable out of the gate?
The ecosystem of market based solutions is just starting to take its shape. However, there are a variety of challenges along the way. Whether the interested party is an investor, funder, entrepreneur, or the government, there will be a need to make adjustments and level expectations. One way that the report puts it:
But we have observed that many of the parties seeking to invest in India and other emerging markets appear to have a more
definite (and higher) expectation of financial returns than specific targets for social returns. This sets up a potential mismatch of expectations.
And that mismatch is what can lead to misinformed approaches. This just points to the overall challenge of aligning the various stakeholders, especially when they come from different sectors and backgrounds.
One of the advantages of such a report is that it parses through the entire field of social enterprise – which seems to be a dime a dozen these days – and focuses on what really works. While it seems that market-based solutions have been around for a while, the reality is that this approach is still quite new and there is a lot of bandwidth to innovate and determine appropriate solutions.
There are several pieces of wisdom that are especially relevant. For example, the importance of understanding that it’s not just about business oriented solutions – it’s about the right business-oriented solutions. What works in one sector or with one issue does not mean much about how it can be applied to another. Both the beauty and challenge of bridging business and social issues is that so many factors vary, and finding the right mix for each situation in order to make an impact and scale up is no easy undertaking.
Market-based solutions to social challenges are still in their earliest days. Relatively few business models are demonstrably successful and many continue to show more promise than hard results.
Another lesson is one that is not as intuitive. Monitor emphasizes the value in really knowing your customers and understanding that sometimes the want drives the way forward more than the perceived need. “Just because they need it doesn’t mean they want it” is a phrase that is probably not taken seriously enough. While providers may perceive that customers really do need items like solar lanterns or insurance, a revealing survey in Andhra Pradesh of microfinance borrowers shows that the items they prefer to buy on credit are gold coins and TVs. Just like any other customer, the poor hold preferences and may not place as much priority on items that they need.
In addition to offering lessons, the report also provides recommendations on how to move forward. For example, a useful page for investors and funders is “Be a Business Model Detective: A Dozen Questions Everyone Should Ask” which suggests asking the “right” questions (and lists examples) to really understand whether an enterprise is employing an effective business model with a social impact.
The study ends with the challenge to continue to explore and determine what models work, and build on those with potential.
The key will be to focus on the development of promising business models that can achieve scale. We’ve identified seven such models for consideration, and we have no doubt others are out there, largely unexplored but with similar catalytic potential. The field must now set about the hard task of validating and refining these models and testing them at scale, to see if they are as robust as they appear to be.
The comprehensive report offers numerous models, lessons, and recommendations for next steps. When you have a chance, be sure to read “Emerging Markets, Emerging Models” and leave your own thoughts about what you took away from the report here.