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How to design a company that really helps the poor

Alleviating poverty: Good business

| From the print edition

The Business Solution to Poverty: Designing Products and Services for Three Billion New Customers. By Paul Polak and Mal Warwick. Berrett-Koehler; 264 pages; $27.95. Buy from Amazon.com

ONE of Paul Polak’s first innovations for the poor, back in the early 1980s, was to re-engineer donkey carts for refugees in Somalia, a project he and his colleagues jokingly named Ass Haul International. Their carts, which were more flexible for users and more comfortable for the donkey, cost around $450 and could generate revenues of $200 a month. The increased steady income that the new carts gave those who bought them offered Mr Polak his first proof that innovation and business can be a powerful tool for getting people out of poverty.

Although it was a heretical thought when Mr Polak started out, today the idea that business is better able to help lift millions of people out of poverty than international aid or charity borders on conventional wisdom. Connecting China’s poor to the businesses of the global economy reduced by at least half the number of people living in extreme poverty, less than $1.25 a day, and enabled the world to achieve the Millennium Development Goal ahead of time. Less than a decade ago, the priority of policymakers was to get more aid for Africa; now they promote investing in African businesses, pointing out that the continent now boasts some of the world’s fastest-growing economies.

In this new world aid and charity are criticised for seeing the poor as victims in need of handouts, which help breed dependency. Business, by contrast, treats poor people as workers and customers, empowering them to stand on their own feet. The crucial role that markets and companies can play in economic development has been ignored too often in the past, so Mr Polak’s focus on business solutions is welcome, even if he compares them too starkly against the weaknesses of aid. Both have a role to play: for all the ingenuity of drugs companies, for example, recent progress in vaccinating millions of people in poor countries would not have happened without billions of dollars from foreign governments and philanthropists.

Mr Polak and Mal Warwick, his social venture-capitalist co-author, focus on the particular challenge of trying to reduce poverty by building big businesses that serve the 3 billion poorest people in the world. This idea is not entirely new. In 2004, six years before he died, C.K. Prahalad, an Indian-born academic at the University of Michigan, published a bestseller, “The Fortune at the Bottom of the Pyramid”. But in “The Business Solution to Poverty”, Prahalad’s big idea has evolved into practical advice for anyone minded to take up the challenge.

This is at once inspiring and a bit daunting. A chapter on an unsuccessful effort to create a business making charcoal out of agricultural waste in Haiti is a reminder that great talent and good intentions are no guarantee of success and that, as the authors say, “markets can be merciless”, especially when the customer is poor.

Hence their emphasis on spending a lot of time talking to poor customers as part of “zero-based design”, creating products with the “radical affordability” to appeal to people earning only a couple of dollars a day. (Mr Polak co-founded a non-profit organisation called D-Rev that does just this.) In order to become cost-effective these products need to be sold on a large scale, which means designing and building businesses that are capable of reaching at least 100m customers. Mr Polak, a psychiatrist turned social entrepreneur, has experience of this. Two of his start-ups, Windhorse International and Spring Health in India, are aiming to do precisely that with products such as safe drinking water, biofuels and rural education.

A common failing of people setting up bottom-of-the-pyramid businesses is that they do not start by building in the capacity to scale up. Find a problem that affects at least a billion people, the authors recommend. Design a solution that has universal appeal. Know how you are going to deliver it over the “last 500 feet”, when there is no FedEx or working postal system. “If you don’t understand the problem you’ve set out to solve from your customers’ perspective, if your product or service won’t dramatically increase their income, and you can’t sell 100m of them, don’t bother,” they advise.

But if your business idea looks like it might fit the bill, this book may be just the guide you need to help you on your way.

From the print edition: Business books quarterly

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Thought Readership #1

Paul Polak & Mal Warwick’s The Business Solution to Poverty

If you had one month and a $50,000 budget to tackle any project, what would it be?

That’s one of the questions futurethink founder Lisa Bodell offered in a recent strategy+business post entitled Fourteen Interview Questions to Help You Hire Your Next Innovator. Like many prompts similarly used in interview situations – from “Sell me this pen,” to “Persuade me to book the middle seat on an airplane” – I had no idea how I’d answer it.At least, not until I read Paul Polak and Mal Warwick’s The Business Solution to Poverty: Designing Products and Services for Three Billion New Customers (Berrett-Koehler, 2013).These authors are true thought leaders in the sense that they have taken an issue – global poverty — and shared an actionable, commercially relevant, experientially supported, new way of thinking about it. A fresh point of view that could help inspire other leading thinkers (aka you!) to develop ruthlessly affordable products and services for the almost three billion people around the globe who live on less than $2 a day. 

Sounds crazy, right? Well, no more than what we’ve been doing all these years.

Charity, philanthropy, foreign aid, handouts, to the tune of $2.3 trillion (that’s $2,300,000,000,000, by the way) have been “invested” in the problem of world poverty since World War II. Yet, “there are more desperately poor people today (2.7 billion) than the total population of the world 60 years ago (2.6 billion).”

Why? Because as this article on the failure of the U.S.’ War on Poverty initiative suggests, conventional approaches address symptoms, not causes. Hence the need for a radically different way of thinking about poverty.

The authors’ argument is this: If you can produce a treadle pump costing $25 instead of, say, $100 then more farmers in Bangladesh can afford to buy them. In doing so they can produce much greater yields for their crops, earning exponentially more than they would have otherwise. That extra income not only results in more food on the table and more jobs created for the additional pickers who are needed, but more money for the farmers to invest in their business. Ergo, you help shift not just one family but potentially many out of the lowest income strata and into the middle class.

Curiosity

Polak and Warwick outline what they call zero based design or “assumed ignorance.” This requires all those businesses who’ve glommed on to the trend for jugaad innovation without really understanding what that means, to “assume nothing you’ve done before is suitable to address this new challenge.” Sounds right up a thought leader’s street, doesn’t it?

Here’s part of the recipe, (to get the rest, read the book!):

  • THINK ABOUT and challenge your long held beliefs and perceptions by talking less and listening more.  You’ll discover that the “poor” is an new, untapped market who don’t want crap any more than you do. They are discriminating customers attracted to high quality, aspirational brands. It’s just that their most pressing needs are for clean water, nutritious food, cheaper energy, improved housing, universal health care, and enhanced education.
  • THINK LIKE STEVE JOBS and desire to dent the universe! You’re not serving a market, you’re creating one. 
  • THINK RUTHLESSLY AFFORDABLE: Put your mind to ways to slash costs. So that (as Polak’s iDE team have done in India), you can sell a  conventional drip-irrigation system to farmers with one acre for $200, not $750– potentially offering alternatives relevant to smaller acreages ranging from $3 to $25.

Courage

Aging populations, global urbanization, and climate change are three significant, evidence-backed trends that are useful for understanding emerging system-scale disruptions…The business community has just as much cause to be worried as the rest of society. ~ Eric McNulty, No More Business As Usual

But, you may be thinking, no one’s going to fund your idea when the profit margin is so narrow, right? Wrong! Embracing Polak and Warwick’s philosophy means THINKING A HELLUVA LOT BIGGER than you’re used to. This isn’t about niche markets, or an idea for a product or service meeting the needs of thousands, even millions of customers. The big, hairy, audacious goal here is to create a global enterprise serving hundreds of millions. After all, it’s no different to what companies like Walmart have done, creating huge profits from small margin, large volume sales.

As the authors argue, if you can’t come up with an idea for which sales of 100 million over ten years is entirely possible, don’t bother. There are plenty of people already conducting “business as usual.” But those days are numbered, as Eric McNulty articulated in his recent strategy+business post (see link above).

Creative Confidence

Do you want to sell sugared water for the rest of your life or do you want a chance to change the world? ~ Steve Jobs to PepsiCo VP John Sculley.

Polak and Warwick put this another way, pointing out that “Coca-Cola sells aspirationally branded, carbonated sugar water for about 25 cents a bottle in villages all over India. In those same villages, 50 percent of the children are malnourished.”

What would happen if someone were to come along “selling an appealing and nutritious soft drink at a nickel a pop in millions of villages around the globe, backed up by world-class branding and marketing equal to Coke’s?”

I visit India at least once a year. Many of my friends are concerned about the influence that western products have on their children. Products like Coca-Cola, that they believe is having a detrimental effect on their kids’  health and ability to study. (Personal note: I refused to allow my children to drink sodas when they were little, after just one experience of terrifying hyperactivity in my son.)

So what would I do with a spare $50 grand and a free month? I’d be figuring out how to serve  bottom-of-the-pyramid customers in India with a delicious, ruthlessly affordable, innovatively distributed, high quality drink.  One marketed as brain-enhancing that would speak to the importance that Indians place on education. 

What would  you do?

Thought Readership is an occasional series that reviews books written by people who meet our criteria for leading others’  thoughts. If you have published such a book, please get in touch with details so we can request a review copy, if appropriate. Similarly, if you have read such a book, write us to let us know what it is and why you consider it to be “thought leading.” 

Dr Liz Alexander is co-founder of Leading Thought. Connect with her on Twitter at @Leadthought or @DrLizAlexander

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OUR LATEST REVIEW IN THE APRIL 2014 EDITION OF CHOICE-BUSINESS

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* The Business Solution to Poverty: Designing Products and Services for Three Billion New Customers

By Paul Polak and Mal Warwick. ISBN 978-1-60994-077-5

Reviewed by Publishers Weekly (starred review)
This inspiring manifesto from Windhorse International CEO Polak (Out of Poverty) and entrepreneur Warwick (Fundraising When Money Is Tight) features a comprehensive roadmap for executives and entrepreneurs who wish to address the needs of the “bottom billions” who live on $2 a day or less: clean water, renewable energy, affordable housing, accessible health care and education, and jobs. As Polak and Warwick write, “The poor need to be viewed as consumers, not as objects of pity and recipients of charity.” The authors grimly describe how micro-loan setups have failed, development money has been misused, and development work has been abandoned. Better to establish small-scale businesses, they argue—but only if companies can make a major impact: “If you don’t understand the problem you’ve set out to solve from your customers’ perspective; if your product or service won’t dramatically increase their income; and if you can’t send 100 million of [your products], don’t bother.” The authors’ strategies include delivery to the last 500 feet (recruiting “local people at local wages in a sales and distribution network that can reach even the most isolated villages and homes”) and “Zero-Based Design” (designing products from scratch “without preconceptions or existing models to guide you… operating in a way that’s calculated to transform the lives of all your customers”). Companies have opportunities to produce and sell goods and services in the developing world that the developed world takes for granted: crop insurance, nutritious food, toilets, electricity, schools, and health services. This blueprint should be required reading, since, as Polak reminds readers, “We can’t donate ourselves out of poverty.” (Sept.)
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STANFORD SOCIAL INNOVATION REVIEW: SOCIALLY RESPONSIBLE BUSINESS

A Get-Rich Way to Help the Poor

There’s money to be made by selling “ruthlessly affordable” products to the world’s 2.7 billion poorest people.  

Reviewed by Tina SciabicaWinter 2014

The Business Solution to Poverty: Designing Products and Services for Three Billion New Customers, Paul Polak & Mal Warwick, 264 pages, Berrett-Koehler, 2013

Those of us who work in the field of poverty alleviation understand the immense challenge that we face. We have spent billions of dollars in areas such as education, health care, and microfinance, and we have improved the lives of countless people. Despite our success, however, nearly 3 billion people still live in poverty. Many nonprofits are having real impact, but few of them have the resources to do so on a truly global scale.

In The Business Solution to Poverty, Paul Polak and Mal Warwick present an alternative to relying primarily on the work of nonprofits. “Conventional approaches to end poverty have largely failed, and as Einstein taught us, to continue believing they’ll succeed would be madness,” the authors argue. The solution, they write, is to encourage businesspeople to “tap the mainstream capital markets to fund large-scale, global enterprises that address the basic needs of these 2.7 billion people.”

Polak and Warwick offer a compelling, step-by-step guide for those who want to pursue that alternative. In the book, they advocate an approach that they call “zero-based design”: Rather than adapt an existing product to make it more affordable, assume that no product currently on the market can meet the needs of the bottom 2.7 billion. “[D]etermine what poor people themselves believe will best meet their needs,” the authors write. If you haven’t talked with at least 100 customers about what they need, don’t even think about designing a solution for them.

Polak and Warwick lay out eight guidelines to follow if you want to design products that will truly alleviate poverty on a global scale. A few of them are especially noteworthy.

Design for scale from the outset | Focus from the start on bringing your product to millions—or even billions—of people. In doing so, you will naturally design a production process that allows for assembly-line replication.

Plan for last-mile distribution | To get your product into the hands of the poor, develop a strategy based on radical decentralization. Employ local people at local wages, and create a distribution network that reaches into even the most remote village.

Create aspirational branding | Recognize that the poor are discriminating buyers. Avoid traditional marketing techniques, and instead focus on using local media—Bollywood films, telenovelas, street theater—to build brand awareness.To illustrate these guidelines, Polak and Warwick offer concrete examples of “ruthlessly affordable” products—from low-cost drip-irrigation devices to safe drinking-water systems.

Many of the featured products are ones that Polak has launched, either through his nonprofit organization, IDE, or through one of his for-profit ventures, D-Rev and Windhorse International. (Warwick has an equally relevant background. He is former chairman of Social Venture Network and a co-founder of Business for Social Responsibility.)

Early in the book, the authors issue a warning: If you want to benefit from this bonanza of bottom-of-the-pyramid consumerism, be prepared to go big. If you can’t sell 100 million of your product or service in the first 10 years, then “don’t bother,” they write. That position seems unduly extreme. Setting the bar so high means that a product with the potential to reach, say, 10 million people in 10 years might never be developed—which would be a terrible loss. What’s more, the “don’t bother” principle means that multinational corporations might be the only entities with adequate resources to invest in product development at the required scale.

Do we really want multinationals to become the primary player in the poverty alleviation game? Polak and Warwick acknowledge the limits of such an approach. “A brilliant rich-country executive—or even an upper-class executive from the global South—may be totally out of his or her element working with poor people,” they write. But a company that enters this market, they argue, will have a social mission that differentiates it from most multinationals. That’s not a convincing argument, given the authors’ overall focus on the tremendous profits that await such companies.

The authors also downplay the importance of shifting the social and cultural norms that make poverty so intractable. Consider the norms that affect women, in particular. Because of age-old gender expectations, much of the world’s population remains illiterate and ill-equipped to earn a living or to help educate their children. Products designed to increase the incomes of the poor will have some impact on poverty levels, but they won’t change the norms that keep girls out of school and women confined to their homes. Nonprofits, civil society organizations, and governments are making real progress in this area.

The chance to make further progress is what motivates me in my own work. The best “solution to poverty,” in my view, will involve a combination of nonprofit work and business enterprise. Perhaps in the next edition of this book, the authors will explore how people in both sectors can work together to tackle the challenge of poverty.

Polak and Warwick, to their credit, have proven that businesses can generate sizable profits by meeting the needs of the poor. Let’s hope that this book finds its way into the hands of CEOs who will seize this opportunity—not only because it will make money, but also because it’s the right thing to do. In both of those fronts, the authors show, the opportunity “is simply too big to overlook.”

Tina Sciabica is executive director of READ Global, an organization that promotes education, enterprise, and community development in rural Asian communities. Previously, she served as deputy director of Social Venture Network.

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The Business Solution to Poverty – A no-nonsense, solutions-focused approach to Creating Shared Value: Book Review

By: Don Richardson | Managing Partner at Shared Value Solutions Ltd. | September 8th, 2013

Paul Polak and Mal Warwick’s new book The Business Solution to Poverty is, as Bill Clinton says on the cover note, “one of the most helpful propositions to come along in a long time… original, ambitious and practical.”  If you’re an entrepreneur looking to break into emerging markets, a development practitioner trying to figure out how to harness private sector smarts and local entrepreneurship, or if you are a corporate executive seeking to get beyond glossy “Corporate Social Responsibility” reports and actually get things done that make a difference, buy this book, read it and share it.

The concept of Creating Shared Value has emerged in the last couple of years as an anchor for businesses seeking to make a difference, make profits and scale their offerings for real social and economic benefits.  In their well known Harvard Business Review article from 2011, business thought leaders Michael Porter and Mark Kramer provide us with the conceptual building blocks for Creating Shared Value.  Polak and Warwick provide a practical “how-to” manual for people looking for a no-nonsense, solutions-focused approach to Creating Shared Value in some of the toughest markets in the world.

Three billion new customers are waiting for innovations and business savvy that target their needs and aspirations.  These three billion customers are willing and able to put cash on the table to buy goods and services that they can use to lift their families out of poverty.  They are hungry for products and services that will improve their lives.

The Business Solution to Poverty guides you to better understand who these customers are, how they interact with supply chains, and how you can get to know them better.  It provides key success factors, a brilliant list of 20 “takeaways”, and plain language case studies from the field.  Polak and Warwick are the real deal – seasoned entrepreneurs with the scars and business development mileage necessary to write a book that you can pick up and start using right now to build your business solution to poverty.

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 CSRWire TALKBACK

The Business Solution to Poverty: Can Anyone Survive On Crumbs?

There is a huge gap between the day-to-day concerns of the Western world and people that live on $2 a day today.

Posted: Sep 11, 2013 – 09:23 AM EST

By Joe Sibilia

Editor’s Note: Next week we begin an exclusive series with social entrepreneur, impact investor and author Mal Warwick based on his latest book The Business Solution to Poverty. He will explore the nuances of poverty, why conventional efforts to eradicate global poverty have failed, and why only business can actually end poverty. Stay tuned!

There are 2.7 billion people living on less than $2 a day.

They love their kids.

They want clean water.

They want shelter, food, and recreation. They’re just poor and have to concentrate instead on bare survival.

How can we help them?

Paul Polak and Mal Warwick’s new book The Business Solution to Poverty gives us great advice on how to make some large-scale improvements that can impact millions. Before you think this is yet another parable on how to address poverty and social inequality in the world, just read Chapter 5.

Along with an endorsement from former President Bill Clinton, Warwick’s indefatigable work ethic and Polak’s case studies and reputation combine to create an enriching and compelling read.

Targeting Poverty: Doing Your Homework

Their moment du jour: the chapter that discusses what to do before you launch your business. Every single day, I get a call, email, letter, text, Facebook message, Linkedin request and/or a personal visit from someone wanting to start a social enterprise. Many have great ideas and are extremely passionate but mostly they’re the crumbs – a small effort compared to the scale of our problems.

Taking a closer look, I begrudgingly have to agree with Warwick that the impact social enterprises have had on poverty (an isolated metric) has been ‘minimal at best.’ But, the authors don’t stop at that dismal assessment. They compel us to think BIG.

They want us to start businesses to serve the needs of people making less than $2 a day. They want us to concentrate on ‘building a business that will help transform the lives of 100 million poor customers over the course of a decade, earning annual revenues of $10 Billion and returning generous profits.’

Reading it almost makes addressing poverty sound doable and affordable.

Especially noteworthy is their emphasis on:

  • Ruthless affordability
  • Customer research
  • Having a product that must save or earn three times its costs
  • Insuring the product can be scaled to reach at least one billion people
  • Manufacturing that can be scaled to accommodate the need
  • Sell/deliver at least 100 million of them

The Fertilo: Simple Yet Scalable Solutions

For example, we have some buildings on Gasoline Alley – also the headquarters of CSRwire – in Springfield, Mass., that do not have water or toilet facilities. We’ve researched some composting options for human waste but have not had the courage to embrace any. A brief paragraph in the book outlines a project that led to the Fertilo, an affordable compost latrine for human waste that can create fertilizer. It’s designed to cost less than $100 and is refining its operations in Haiti.

It’s a simple example of a product that can be scaled and used by millions.

When I reached the Chapter titled “The Corporation of the Future,” I thought I was going to get another lesson in Benefit Corporations. Instead, I got a wake up call with examples of what could happen to brands like Wal-MartCoca Cola and Apple if their competitors concentrated on “zero based design and the bottom billions.”

An affordable iPhone for the masses and an inexpensive toilet could disrupt the business of these multinationals or add additional product lines with an ever extended supply chain that empowers many and solves a significant need.

Missing the Context

According to Warwick, however, there is also a huge gap between the day-to-day concerns of the Western world and people that live on $2 a day. Issues of sheer survival confront 2.7 billion people on a daily basis, and it’s helping these people through the conduct of business that continues to inspire him, he said over a phone call.

Warwick also felt strongly about why social enterprises are not scaling. He believes most impact investors are confused about taking more risk for a lesser return. The result: great impact deals are not getting funded. Social enterprises according to Warwick will provide great returns from a profitable enterprise that is actually solving a huge problem. There should be no confusion.

On the other hand, cause marketing has proved to be a value proposition to many multinational companies’ employee engagement programs. But are these sufficiently scalable?

Before I talked to Warwick, I was skeptical about the authors’ attitude toward social enterprise. But after talking to him and reading the book, the authors’ practical advice and the examples, I began to realize that even though we support and applaud social enterprises, we still have a long way to go.

With this book as a guide, we might just get there.

Disclosure: Mal Warwick and Joe Sibilia served on the Board of the Social Venture Network for many years and remain good friends.

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Foreign Policy Magazine 

Curb Your Social Entrepreneurial Enthusiasm

Why the market for the global poor isn’t as big as you might think.

BY DANIEL ALTMAN

DECEMBER 24, 2013

Is there really a fortune at the bottom of the pyramid? C. K. Prahalad’s famous text suggested lots of money could be made by serving the world’s poor, and a new book by Paul Polak and Mal Warwick makes similar claims. But this opportunity isn’t for everyone.

Polak is a legend in social entrepreneurship circles, a former psychiatrist who started designing products for poor communities and has since sold millions of units. I’ve used his writings and speeches in my course at New York University on the role of the private sector in poverty alleviation. His latest book, The Business Solution to Poverty, says that the 2.8 billion people who live on $2 a day or less constitute a multi-trillion-dollar market. But it’s not that simple.

According to the World Bank’s database, there were indeed a maximum of roughly 2.8 billion people living on under $2 a day between 2000 and 2010. Multiply those numbers by 365 days, and they could indeed have spent about $2 trillion a year. It could have been more — some countries did not report any poverty figures — but it also could have been less, as the minimum numbers from the same period cover about 2.2 billion people.

However big the group was, the $2 figure was the maximum daily income to be a member. Many of these billions had lower incomes, but using $2 now allows for some income growth in the intervening years. The problem is that this $2 in purchasing power in a poor country is not the same as $2 in sales for a foreign company. In truth, the $2 figure is a measure of local purchasing power compared to prices in the United States in 2005; a person “living on $2 a day” is actually living on the amount of local currency needed to buy the same goods and services that $2 would have bought in the United States in 2005. Converted to greenbacks, that local cash might be worth far less than $2, since prices tend to be lower in poor countries.

This difference may not matter to local businesses, but it does to foreign firms. And Polak and Warwick’s book, which is priced by the publisher at $27.95, is clearly aimed at wealthy countries, or at least wealthy English speakers. To this audience, the cash equivalent of $2 in local purchasing power in a poor country would almost certainly yield well below $2 in repatriated revenue. Adjusting for both the currency difference and the potential overstatement of the poor population cuts the size of the market in half. For an American company, the actual opportunity might be to get a piece of a market worth a little over $1 trillion.

That’s still not too shabby. If all the poor lived in one country, it would have an economy roughly the size of Spain’s. Moreover, unlike the Spanish, this country’s population would be spending almost all of its annual earnings. That’s not great for families, but it does make the market bigger for companies.

At such low incomes, most families are saving very little. Very few at all have savings accounts, since access to banking is scant at best. Payment of taxes is also minimal, except indirectly. Many poor people work and shop outside the formal economy; in the poorest countries, half the economy may operate in the shadows. Where tax systems are more developed, the low incomes of the poor may still be exempt.

In this respect, the global poor’s buying power is real. Yet outsiders might have a hard time entering some parts of their market. For example, it might be difficult to convince a poor family to buy housing or pay for religious ceremonies and festivals — often two major items in the annual budget — from new sellers. And for other products, from local delicacies to haircuts, families might prefer established local purveyors.

Even if the bulk of poor households’ buying power were still available to new entrants, there would be other possible limits to their consumption. Just how many different goods and services would the households really buy? In rural areas, a local shop might stock 100 different items. In cities, that number might rise. Still, there’s a tradeoff: the more variety a family has in its spending patterns, the less often it will buy any one item.

For a given product — say, toothpaste — the revenue available from poor households worldwide might be on the order of $10 billion, or one hundredth of the total market. In a given country, though, the amount could be much smaller.

Polak’s market spreads across many countries but is concentrated in just a few. More than half of the 2.8 billion people cited by Polak and Warwick lived in India and China. Indonesia had about 5 percent, and only nine other countries had more than 1 percent of the total. In any of the other 100-plus countries where close to one-fifth of the poor lived, the market might offer less than $100 million in revenue for a given industry. In about half of them, it would be less than $10 million.

At this point, the numbers begin to look perilously small. Products sold to poor people usually have low prices, so the margins are low, too. As Polak himself is fond of saying, “If you can’t sell at least a million of them, don’t bother.” But how many companies could sell a million units in a market worth only $10 million, especially if it were costly to enter?

This is the fundamental issue in serving the base of the pyramid. There are low-hanging fruit in some countries and industries, but there are also hundreds of millions of people living in areas where the potential economies of scale are much smaller. The world can make a lot of progress against poverty by picking the low-hanging fruit, but it will need other strategies to reach the higher branches of the tree.

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From Michael Rosen Says, 2013-9-6

Only Business Can End Poverty

Approximately 2.7 billion people around the world live in poverty. Despite the fact that the global economy has grown 17-fold over the past six decades, about three of every eight people in the world exist on $2 per day or less.The United Nations has not solved the problem of global poverty. Foreign aid from wealthy governments has not solved the problem. Charities have not solved the problem.Certainly, millions of people have been helped by traditional assistance efforts. However, a new book suggests that traditional methods and institutions, while not completely useless, have achieved only modest results, at best. And, in some cases, those results have not always been positive or sustainable.Mal Warwick, the legendary direct-response fundraising expert and entrepreneur, and Paul Polak, a leading social entrepreneur, have written the new book The Business Solution to Poverty, to be released on September 9, 2013.The provocative book has been described by Bill Clinton, former US President, as, “One of the most helpful propositions to come along in a long time … original, ambitious, and practical.”In their book, the authors define the nature of poverty. They review what has been done, citing what has worked and what has not. When reviewing what has worked, they also point out the huge limitations of the positive results achieved by traditional institutions using traditional methods. Finally, the authors outline their ideas for dramatically reducing global poverty and the suffering of billions of people.As citizens of the world and as nonprofit professionals, we should all pay particular attention to what Polak and Warwick suggest. If you’re interested in learning more about the book, you can visit the authors’ website. To get a copy of the book and help ensure a successful book launch, you can purchase your copy at The Nonprofit Bookstore, powered by Amazon, on Monday, September 9, the day it is released.One of the assertions that the authors make in the book is: “Only Business Can End Poverty.” It’s a thought that many, particularly those in the charity sector, will find provocative. After all, the authors are critical of the nonprofit sector.———————————————————————————————————————————————————————————-

Paul Polak: How to End Poverty Through Profits

By Auren Kaplan

September 18th, 2013 

Paul4

When entrepreneur Paul Polak sets out to change the world, he has bold intentions. Boldness. It’s one of those qualities that people sometimes shake their head at in disapproval. We are encouraged to stay in line. Know our place.

Paul knows nothing of these qualities, rejecting them for the far superior task of taking persistent, values-aligned action to bring to life the world of his dreams, at a global scale. That world is one of using the power of business – big business – to end the poverty of 2.7 billion human beings earning under $2 per day, and make a substantial profit doing so.

So who exactly is Paul Polak? He’s an entrepreneur whose market methods lifted more than 17 million people out of $1-a-day poverty so far. Why don’t we know about him? Because he’s at the front end of the curve. For the sake of those billions, his story is one that needs to be told – though if he had his way, he would just want the message to get out there. In fact, he encourages capitalists to directly compete with the life-changing businesses that Paul and his team have founded thus far.

As Paul says himself, “There’s nothing mysterious here. Poor people tell us they’re poor because they don’t have enough money – and who knows more about making money than businesspeople?” This is the simple and yet revolutionary premise that Paul has introduced to the world. Paul insists that the world look at those 2.7 billion human beings surviving on less than $2 a day in earnings as customers. Here’s why:

You may have the noblest intentions in the world, and even be selflessly dedicating your time and talent as a volunteer, but you won’t get very far by treating poor people as recipients of charity.

This is a controversial stance. Indeed, there are thousands of global organizations, with tens of thousands of hard-working human beings, attempting to lift these 2.7 billion people out of poverty. But absent some notable success stories, the nonprofit sector has failed to solve the issue of poverty in a measurable, scalable way. If they had, Paul wouldn’t need to be working on ending poverty.

The reason why is that without the market mechanism of profit driving the intentions of individuals at every level of the supply chain – down to the last 500 feet –  things break down. But when people are motivated by the opportunity to earn profit, they stay in the game. The numbers speak for themselves.For example: take a water well, subsidized by the government and installed by a nonprofit. Once that water well breaks, who fixes it? Unfortunately, the answer is usually no one. However, if that well was operated by a small local business in one of the nearly 650,000 villages in India, and it made a small profit by selling that water to the homes of villagers – a service the villagers have asked for and are willing to pay – then that well will be maintained ongoing.

But that is only part of the point. We need big business to tackle the extraordinary challenge of ending poverty. How do we do that? Paul Polak and Mal Warwick, co-authors of the book, The Business Solution to Poverty, have a field-tested and proven system for creating enterprises that will serve the needs of 100 million $2-a-day customers. That includes earning the types of profits that will attract mainstream investors – $10 billion or more. As Paul says, big business is running out of opportunities to increase revenues and profits with its current customer base. The 1.5 billion or so individuals living in the “Global North” (including the U.S., Canada, Europe, Japan and Australia) are a saturated market. We just don’t need more stuff. Even in the emerging economies, these businesses only cater to the new middle classes – ignoring billions of potential customers who could increase sales by hundreds of billions of dollars.

Paul is a quiet revolutionary. I say this because he wants to radically transform the way the world works, on a day-to-day basis. He wants to change how we live our lives. How business gets done. Thankfully for us, he knows exactly what the next generation of big business needs to do: develop market-ready products that appeal directly to the needs and aspirations of the world’s poorest, serve them and all stakeholders along the way, and generate healthy profits at every stage of the business model.

The catch is that if you want to succeed in this enormous, essentially untapped market of nearly three billion people, you must throw everything you know about designing and selling products out the window. Paul and Mal call this “Zero Based Design.” Rather than a mildly altered product, Zero Based Design demands that you start at square one. A clean slate. Want to market your product? Try advertising in print or TV to an illiterate audience without access to electricity. Want to sell a product that a person making only $2 a day will actually buy? Try selling it to them without spending serious quality time with them understanding their needs, and goals, and aspirations.

When a person’s disposable income is essentially $0, they will only buy something if you can show them that it will dramatically improve their lives. And Paul’s methods dictate that the poor person increase his or her earning capacity by 200 to 300 percent within a year of making the purchase of, say, a treadle pump, or drip irrigation, or photovoltaic energy designed to replace expensive and carbon-polluting diesel engines for pumping water out of the Earth.

To be truly successful, you have to design with scale in mind, from the very beginning. What kind of scale are we talking about? If you want to have 100 million customers over 10 years and revenues of $10 billion, then you have to target problems that affect more than a billion people.

Having any trouble coming up with some? Try a billion people without electricity. Or toilets. Or access to quality education. Or health care. Or clean cooking methods that don’t cause respiratory illnesses. Or a house that won’t leak. Or access to nutrition. Or crop insurance for small farmers in the event of drought. Are you starting to see the opportunity?

The point is this: There are a plethora of problems out there that affect a billion people. And if the spread of cellphones throughout the poor is any indication (an example of a business model dramatically improving the lives of poor customers while making substantial profits), you can see that business solutions allow for stubborn and talented entrepreneurs to design with scale in mind, so all stakeholders succeed and so the entrepreneurs make the kinds of profits that will entice mainstream investors. In fact, business solutions seem to be the only way to improve the lives of any meaningful number of poor people.

I know entrepreneurs. I am one myself. And we are the most dogged and self-determined people in the world. We live for a challenge where the odds are stacked stubbornly against them. Especially when the upside is literally billions of dollars in profits.If you are an entrepreneur, a social entrepreneur, or an executive of a multinational corporation, then I dare you to attempt this approach. Paul doesn’t care if he’s attached to it. He doesn’t want the glory. He just wants to see his revolutionary idea succeed. So that billions can benefit.

So grab the glory for yourself. Let the world build statues in your honor. We need you. We are waiting. And we require your boldness.

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Forbes

Paul Polak Shares Tips For Finding ‘The Business Solution To Poverty’

Ashoka, Contributor

Paul Polak was a social entrepreneur before it became sexy to be one. Polak first joined the global community of “do-gooders” in 1981 as founder of iDE, a social enterprise that pioneered foot-powered pumps for poor farmers in Southeast Asia. The rudimentary irrigation technology has reportedly reached 19 million farmers in the world, thanks to iDE’s efforts. Polak went on to create D-Rev, the Bay Area-based design company that concocts new designs (on a budget) for the “other” 90%, he says.

Polak is 79 years old but still zipping the globe to deliver electricity, water, and other basic needs to the world so-called “bottom billion.” His latest book, The Business Solution to Poverty, co-authored with non-profit guru Mal Warwick, looks at the nitty gritty of the social innovation space.

Polak spoke with Esha Chhabra at his Denver residence about the new book, the need to scale, and the imperative changes needed in the sector to get real results.

What do you hope to achieve with this second book, The Business Solution to Poverty?

I want to create a global movement to end poverty for 2.7 billion two-dollar-a-day people. It takes off where the first book, Out of Poverty, left off. It addresses the problem of how to reach scale by creating a new breed of frontier multinational. In the book I describe every practical step required to create a new big business that has three goals: to transform the livelihoods of at least 100 million two-dollar-a-day customers, to generate annual revenues of at least $10 billion, and to earn attractive enough profits to bring in commercial global investors.

What is your advice to people before they launch a business?

Over 25 years in starting and running iDE, I learned that the first step is to talk to people as customers rather than recipients of charity, and to find out what their needs, preferences, and aspirations for the future are. Then you build the technology and the business strategy around what you learn. The process of learning shapes what you do in designing the technology and operating the company.

At what point should a company scale?

At the point at which you have the first idea to do something. You don’t scale anything by creating a project and then tacking scale on the end of it. You accomplish scale by keeping scale in mind from the beginning. I won’t touch anything unless it has the potential—if successful—to reach 100 million two-dollar-a-day customers. That means that you have to do the winnowing process at the very beginning.

To reach 100 million customers, you really need a problem that affects a billion potential customers, because a realistic target is to reach 10 percent of the market. So you start thinking—and it really is a question of thinking differently—what are the problems that have a billion potential customers? Well, there are a lot of them: there are a billion people who don’t have access to safe drinking water, electricity, affordable nutritious foods, education. There are just under a billion people who need eyeglasses but don’t have them. There are probably a billion people who need crop insurance—it can be as specific as that. And the list goes on and on.

When you pick a problem, you plan from the beginning to ultimately reach a scale of 100 million. In my case, I see that happening over a 10-year process.

Do you collaborate with non-profit organizations?

The central operating style is to run everything as a for-profit business, but we will work with other organizations.

For example, in the drinking water business, part of the issue is public education: people in the village have to be brought up to speed on the relationship between drinking bad water and illness. For now, we’re trying to cover that deficit through for-profit, blitz marketing approaches. But in the future, if there are customers we can’t reach by the commercial method, we might work with granted non-profits who help with public education—we’re not against bringing in organizations that can help reach that market.

The question is: what kind of market penetration do you want to reach? We’re shooting for 50 percent; we’re able to reach 30 percent now. Maybe to reach the last 20 percent we’ll need some collaboration with non-profits.

What changes do you want to see as social enterprise evolves?

There are a lot of problems with social enterprise. It’s sort of like saying ‘sustainability’ and ‘green’—it becomes popular and loses all meaning.

One of the biggest problems is that there is a huge tendency for young people to be attracted to self-congratulatory conferences and incubation processes that help them make elevator pitches, write business plans, and market what they’re doing. But unfortunately, it often takes them away from doing the grunt work that’s needed to start a business on the ground.

I think it’s backward. Unfortunately, the charity model is based on having good marketing to raise money to support the charity, and that often puts the cart before the horse. The non-profit development organizations that are successful know how to market, but they often are weak in making it actually work in the field.

I would like to see social entrepreneurs start by going to where the action is, talking to the people who have the problem, listening to what they have to say, and doing the grunt work in the field. And then coming back and improving their skills at elevator pitches.

This story is written by Esha Chhabra and Ben Thurman, brought to you in partnership with Dowser.org, a media organization that reports on social innovation, focusing on the question: Who is solving what and how?

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