As Paul Polak and I have made the rounds discussing The Business Solution to Poverty, we’ve been confronted by a question that arises out of deeply held skepticism — or, not to put too fine an edge on it, cynicism. Occasionally, the doubts are voiced. More often, they lurk in the background. Here’s that question in its unvarnished form:
“What makes you guys think these companies you’re writing about will stay mission-driven, focused on the Bottom of the Pyramid, once they’ve started growing fast? Won’t they become just like any other multinational corporation, profit-driven and predatory?”
This question deserves a candid answer.
Obviously, there is no guarantee that any company, or any nonprofit organization, will stick to its mission forever. Mission-creep is all too common in the nonprofit world and, until recently, was rarely considered a problem within the business community despite how common it is. In fact, strategic planners tend to encourage shifting missions from time to time to adjust to changing circumstances. However, there are four factors that Paul Polak and I believe will support the mission-focus on which the companies we advocate are founded:
1. By virtue of their very focus on selling “ruthlessly affordable” products and services to poor people, these companies will present far fewer opportunities for profiteering than do most business enterprises. If you have to design ruthlessly affordable products and services for the discriminating customers at the Bottom of the Pyramid, you’re likely to fail when you try to sell them something different — or raise prices unreasonably. Sure, faulty or overpriced products might sell for a time — but soon the word will get around and the profits will come to an end. People, especially those living on $2 a day, can’t afford to spend money unless they get real value from what they’re buying.
2. The companies we propose to build — and that Paul is building — must hire all their employees locally and be organized as stakeholder-centered businesses. In other words, they must cater to their customers, their employees, the communities where they do business, and the environment as well as their shareholders if they’re simply to survive. Why? Because if they don’t satisfy all the key players, they’re quite likely to be forced out of business either by governments or by popular demand. Rich-country enterprises are fast learning the disadvantage they face if customers perceive they aren’t treating their employees or the environment well; in developing countries, public acceptance of businesses that set up shop locally is even more fragile. They constantly have to demonstrate the value they add to the local society. Every company faces reputational risk when it enters a market — and nothing can kill a brand faster than a widespread public perception that a company is acting badly.
3. As we emphasize in The Business Solution to Poverty, these companies must be designed from the outset to deliver handsome profits. These are high-risk ventures, because they’re entering largely unexplored markets, so any investors that back them will expect higher than usual returns on their investments. And it’s highly likely that the companies’ profitability will rise as they expand, as a result of economies of scale, institutional learning, and refinement of production, distribution, and marketing techniques. In other words, it’s far from certain that the future leadership of these companies will be tempted to veer off-mission and adopt the exploitative ways of so many existing businesses.
4. We don’t envision that these companies will market exclusively to $2-a-day customers in perpetuity — because, if they succeed, their customers’ income will rise, in some cases quite considerably. As customers’ income grows, they’re likely to become interested in higher-value products — and these companies can supply them, capitalizing on the brand loyalty that they’ve instilled among the poor. The result? LIke Toyota captured the economy market with its low-price Corolla and only later introduced more and more expensive models, these companies will grow as their customers become more affluent.
For sure, there is some possibility that one or another of the mission-driven businesses we write about will be forced off the rails by greedy managers or investors. However, we think the built-in safeguards, and the nature of the societies where they do business, will keep such incidents to a minimum.