Paul Polak, founder and CEO of for-profit social venture Windhorse International, talks to Sara Enright from the Business Call to Action about his work
From The Guardian, September 4, 2014
Paul Polak is the founder and CEO of Windhorse International, a for-profit social venture with the mission of inspiring and leading a revolution in how companies design, price, market and distribute products to benefit the 2.7 billion customers who live on less than $2 (£1.22) a day. He is also co-author of The Business Solution to Poverty: Designing Products and Services for Three Billion New Customers, with Mal Warwick.
The following interview took place recently at the BoP World Convention and Expo in Singapore.
I understand that you previously worked in psychiatry. Would you say that experience influences your approach when developing products for people from low-income communities?
I was considered a bit of a maverick in psychiatry, where I worked primarily with people who suffered from mental illness. The assumption back then was that people were admitted to hospitals where we could treat the mental illness. But, when I interviewed my patients, I came to realise that, in a majority of the cases, my patients were adversely affected by social and environmental factors, which we were not addressing. I’d say that was true of about two thirds of my patients. I learned then that you have to understand in depth the point of view of the patient – you need to talk to them, and to understand their needs in context. Only then can you truly help them.
I think this translates into the work that I do now with our customers.
When I started in development, I determined that I would interview at least 100 people every year who live at the base of the pyramid. This has led me to personally interview over 3,000 people in 25 years. I spend six to eight hours with each family, walking with them through their fields, learning about their markets. I’ve never done that without coming up with at least one transformative project. I now know more about the rural poor than I know about any other population in the world.
I find that many companies try to serve the poor by taking products that they are already selling, cutting the price, making some small adjustments, and then trying to sell. Those businesses will almost always fail. We run a different kind of business, one in which we design our products and services specifically for the 90%, rather than for the wealthy, and we do that by understanding the needs of the poor.
Tell us a bit more about your approach to design. What are some of the methods that companies can take to make their products more affordable and accessible to the base of the pyramid (BoP)?
This is straightforward. Interview your customers, and you will know much more about what to do. And then design your products for those customers, the other 90%.
One thing that we have found is that selling a technology to the BoP market is a loser’s bet. Where you make the most money is selling services related to the technology. It’s like in the telecommunications business: the money does not come from selling mobile phones, it comes from selling airtime, applications, and top-ups. Similarly, selling water purification systems is not as lucrative as selling the resulting clean water.
BoP business is by nature high-touch work; it is very expensive to do marketing for a new product. You need to have a high margin on your products for them to be financially worthwhile.
Do you have a preferred approach to measuring the social impact of your companies?
I believe all enterprises, whether nonprofit or for-profit need to have measures of impact. But, people can over complicate things. A lot of social impact measurement methodologies are too much – you don’t necessarily need such detailed measurement schemes.
My belief is that in an “impact business,” you build the social impact into the DNA of the business. When you have a business model that is designed to achieve social impact – for example, serving people with clean water, which contributes to many healthcare improvements – you can choose a handful of indicators to track the company’s progress and impact. You must be disciplined in finding those key indicators. Then, the real challenge is not in measuring the social impact, it is in making money while doing it.
What are some of your challenges as you look at scaling up base of the pyramid businesses?
In our experience at Windhorse International, where we work to create for-profit businesses that serve the poor, we have found that one of the biggest challenges is raising capital. Investors and banks still find this kind of business to be too risky to invest in. Even so, we have found investors – some of them non-traditional – and we are succeeding in building profitable businesses. I think that once we succeed, it will make it much easier for other companies in these markets to raise capital.
Through some of our projects, we have found that it is entirely possible to create market-price products for the poor that are capable of generating a 300% return. It can be a highly lucrative business.
I think that the next type of emerging market is the customer that makes less than $2 (£1.22) per day. That makes up 40% of the world’s customers, and it is a totally untapped market. Just as with emerging markets, you must develop a strategy to enter the base of the pyramid market. Yet it will be the next frontier. The possibilities of moving hundreds of millions of people out of poverty through integrating them into the formal economy are endless.
I’ve got 10-15 more ideas for base of the pyramid businesses waiting to go. That’s what excites me is trying to create the next transformative business model. Who knows whether it will work or not? The process of trying to make it happen is so fulfilling.