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Thursday, July 29, 2010

A Closer Look at the "Business in a Bag" Model

By Tayo Akinyemi

This post is part of a series that introduces iuMAP, a web-based social enterprise directory developed by Ayllu and launched in media partnership with NextBillion. The purpose of the series is gathering feedback from the NextBillion community as the map unfolds and to share some of the information we've collected and analyzed. You can help triple iuMAP's size by submitting social enterprises and giving feedback. You can also catch up on the series reading the firstsecond and third entries.

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This post is the second entry in a series focused on microfranchising, a common way many social enterprises distribute their products.  There has been some great discussion of microfranchising recently (such as this SSIR article).  This series provides an overview of different types of microfranchising, profile many enterprises that are employing the method, and provide information for both investors and those looking for funding.  The last post gave a general overview of what will be covered in the series.  This post focuses on one of the most common models- the business-in-a-bag.

Business-in-a-bag.  It's a blissfully self-explanatory moniker.  For  VisionSpring, a social enterprise that trains men and women to sell reading glasses to members of their village communities and beyond, the business-in-a-bag contains everything its vision entrepreneurs need to run their microfranchises- eyeglasses, eye charts, repair kits, uniform, marketing materials, forms, etc., "Like Subway has a franchise store, our backpack is our unit of franchise. That backpack has all the contents people need to start their little business," says VisionSpring founder Jordan Kassalow.  The same is true for LivingGoods, a social enterprise in East Africa with a similar model that focuses on the sale of health products, which prevent or treat diseases like malaria and promote family planning, reproductive health and personal care.   LivingGoods was born out of the realization that prevention and treatment for diseases like malaria and diarrhea weren't lacking, but a systematic mechanism to distribute such items to those in need certainly was.  Another example is ToughStuff, which sells solar panels through village entrepreneurs in Madagascar with a 'Business in a Box' model.

Apart from the bag or basket containing the product, many business-in-a-bag models share one or more common elements, including:

  • providing entrepreneurs with ongoing training,  
  • offering financing or consignment models for entrepreneurs' initial inventory, 
  • systematized promotion and marketing strategies, such as branded uniforms,
  • strict protocols that incorporate penalties for rule-breaking, and
  • helping entrepreneurs develop a reputation as authoritative service providers within their community.

However, the key variable for success is aligning entrepreneur profitability with community wellness.  For example, "providing effective, sustainable incentives to village-based health workers is at the core of the Living Goods model. The more profitable the Health Promoter is, the more time she will invest in her work, and thus the greater the health impact she will have."  

Like other microfranchising models, the business-in-a-bag model can be a dynamic system for market creation, which involves translating need for a problem to be solved into demand, finding a workable business model, and distributing solutions in product form.  This generally involves knowledge flowing in two directions, from the social enterprise to the community about the solvability of the addressed problem, and from the entrepreneur and the community about the best methods of reaching them. 

Quite often, many of the issues addressed by social enterprises were unrecognized by the community before the entrepreneur started operating.  As Dr. Kassalow explained to NextBillion:  "[Latent demand] is an organic, physiological need that doesn't get perceived as a need because people don't know there's a solution for the problem. The physiological demand is there, but it's latent because it's not perceived as a problem, nor do they know there's a solution." 

Similarly, many of the distribution methods that have worked well were unrecognized by the social enterprises before they tested them with entrepreneurs.  VisionSpring originally tried to sell its glasses door to door, but eventually learned from entrepreneur feedback that holding 'Vision camp' events in public places where community members can see each other buying is a much better way to stimulate market demand. 

This two-way learning is well described in an article in MIT Innovations Journal by Greg Van Kirk of Community Enterprise Solutions, who developed the MicroConsignment Model used by VisionSpring and CE Solutions: "The... model uses both a bottom-up and a top-down approach to push new products out into the communities... The organization... finds a new product and then looks to the entrepreneurs to assess the need for it, as they are a continuous, reliable source of real-time market knowledge. To succeed, the entrepreneurs must be responsive to villagers' needs-and the organization must be responsive to the entrepreneurs' need to serve those villagers."

The business-in-a-bag concept shares a fair amount with traditional direct selling.  Direct selling, as defined by the World Federation of Direct Selling Associations is "the sale of a consumer product or service, person-to-person, away from a fixed location."  Both the business-in-a-bag model and traditional direct selling address the perceived needs of customers, (e.g. once they recognize the utility of eyeglasses VisionSpring customers demand stylish models), support the livelihoods of franchise entrepreneurs, depend on their ability to learn and manage a new business, and use their sellers as sources of R&D.

These similarities might suggest the business-in-a-bag model could derive good practices from direct sales businesses like Avon.  In fact, LivingGoods founder Charles Slaughter used Avon Cosmetics' direct selling business model as a blueprint for LivingGoods and spent time as an "Avon Lady" to learn the intricacies of how it worked.  Two areas where this might apply are the use of distribution partnerships and mobile technology.  For example, VisionSpring has found that while an entrepreneur-centered model is ideal for product and business-related R&D, it's difficult to scale and make profitable, particularly given the significant on-the-ground presence required.  To that end VisionSpring and LivingGoods have both enlisted the massive distribution network of BRAC, a global microfinance institution founded in Bangladesh to deliver their goods.  In terms of technology adaptation, Avon has recently set up a virtual mobile network for its sales associates, enabling them to call in orders.  Perhaps another approach to business-in-a-bag distribution is to create "phone lady-like" kiosks where customers can buy goods (and make a phone call) while entrepreneurs call in requests for inventory and share ideas for new products and services.

It will be interesting to see how the business-in-a-bag model evolves as more social enterprises use and adapt it, particularly given the fact that many of the items being sold don't require frequent replacement.  Only time will tell.  

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