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This blog explores insights for multinational corporations, NGOs, academics, social entrepreneurs and others working at the Base of the Pyramid.

Tuesday, October 04, 2011

With Video: From Strawberries to Solar Lamps, Why Profit is the Only Way to Scale

By Scott Anderson

Paul Polak (left) chats with Matt Bishop at ANDE

Paul Polak's first business was strawberries. Although he was making money picking and selling them, turning in a few packages of strawberries for $10 or so, the enterprise just wasn't scalable. So, Polak being Polak, he expanded his own micro-farm to 7.5 acres. He was 15 years old.

But there's a point to the story, which Polak related during an interview with The Economist Columnist Matthew Bishop (author of Philanthrocapitalism) at the Aspen Network Development Entrepreneurs Annual Conference 2011. You have to think big, even when you're small.  

"If you want to reach scale, the only way to do it is through a profitable business," said Polak, the serial entrepreneur (he's now shepherding four companies serving the BoP) and author of Out of Poverty (check out the review here).

The full video of the conversation is above, but just a couple of take aways. Polak took issue with Muhummad Yunus's view that microfinance and 'social business' as he defines it, should not be concerned with profit. "I totally disagree with that," he said, noting that poor people don't mind if the makers of goods make money off them. They're just tired of being ripped off.

On the other side, if an investor pours money into a venture and after five years basically breaks even, that's essentially a loss considering that money could have generated more interest elsewhere, he said.

But entrepreneurs and the people who fund them need to develop with the idea of scale from the beginning, and perhaps in a different way than in the past.

"Scale to me is how many $2 a day customers have you reached and have you doubled their income," he said in a later session.

Polak used to say don't bother as a social entrepreneur if you don't intend to reach one million customers making US $2 a day. Today, he thinks in terms of 100 million. That edict isn't just for small companies, but the big ones too. Whether you're General Motors competing with Toyota, or Coca-Cola competing with Pepsi, mastering the challenges of miniaturization and affordability is the only way to thrive. Because, as Polak noted, China is well on its way to doing so.

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