This post is the third in a five part series on a radical new approach to scaling BoP business models, what we call a transformative sector strategy. In this segment, I describe how this strategy could transform the health sector in emerging economies.

Last Mile Health Care Delivery

Talk to people in the rural communities of southern Mexico, in the new urban communities on the southern edge of Bogota, or in almost any village in rural Africa about getting decent access to healthcare, and their answer is the same: it usually costs more to get to a clinic, a doctor's office, even a pharmacy, than the cost of the service itself. In Bogota, most of the government-supported health services are in the north of the city, such that it can cost people in these new refugee communities a day's work plus bus fare across town and back to get help. Lack of access defines part of the last mile health care dilemma, and that means distributional business models, such as franchising, can be important.

Talk to Health Stores in Kenya, an enterprise trying to staff small pharmacies with nurses, and another part of the problem becomes clear: the sheer lack of doctors, nurses, and pharmacists in emerging markets. There are not anywhere close to the number of skilled professionals needed to cover rural areas, and these health workers overwhelmingly refuse to live either in rural areas or in urban slums. So technologies, organizational models, and legal changes that enable local diagnosis and remote practice by doctors and pharmacists could play a critical role.

Still a third factor leaps out from the data in The Next 4 Billion report that shows clearly that low-income households spend between a third and a half of their out-of-pocket health care expenditures on drugs. They typically don't go to doctors or clinics or hospitals, but rather to pharmacies or some other source of medicines and seek to self-medicate. That means they often get a guess as to what's wrong with them instead of a diagnosis.

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This post is the second in a five part series on a radical new approach to scaling BoP business models, what we call a transformative sector strategy. In this segment, I tell the story of a rural connectivity pilot project; an example of this new model for development in action.

A Last Mile Model for Rural Connectivity

Son Tay commune, Quang Ngai Province. I was sitting across a table in a remote rural outpost of Vietnam, negotiating (via a translator) with the manager of a local radio station about access to his tower. He asked a series of technical questions and seemed satisfied with the answers, but then he wondered aloud: "Can we get Internet access here?" He didn't just want it for the radio station, it emerged, but for the surrounding small community - even though nobody there yet owned a computer. The manager understood that internet access could help transform their opportunities. And when we agreed to mount a small antenna to serve the community, the tower was ours.

The negotiation was part of a two year long process to pilot a novel approach to rural connectivity. It involved building an advanced, broadband network in three communes (groups of villages) in a very poor province in central Vietnam to provide Internet-based phone service and Internet access. Quang Ngai Province has no Internet access for its million-plus population outside of the provincial capital, and phone ownership is about 3 percent.

But the province does have an AUSAID-funded rural development project (RUDEP) that had built trust by doubling farmer's incomes in many communes, and optical fiber to every district capital (owned by the national electric utility, EVN, which also owns a mobile phone company, EVN Telecom). Ultimately all of these became partners in the effort, as did USAID's Last Mile Initiative, Intel and other equipment providers.

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This post is the first of a five part series on a radical new approach to scaling BoP business models, what we call a transformative sector strategy. In this segment, I introduce the conceptual framework for this innovative poverty-alleviation model.

"It doesn't exactly keep me up at night, but I do think about it a lot." Jacqueline Novogratz, head of Acumen Fund, and I were talking about getting to scale - about expanding private sector business development and investment aimed at empowering and providing basic services to the poor to the point of making a real impact.

I felt exactly the same, and I've had similar conversations with colleagues at Santa Clara University, at Ashoka, at private investment funds, and elsewhere. Ever since we finished our report on The Next 4 Billion, the numbers haunt me. How do you meet the unmet needs of four billion people?

Convincing a dozen multinational companies to take this market seriously isn't enough. Doubling or quadrupling the capacity of the organizations that mentor social enterprises and BoP-serving small and medium businesses won't do it either. Even investing hundreds of millions of dollars in individual enterprises in this sector doesn't guarantee success. I think the goal has to be to transform whole sectors in ways that catalyze mainstream investment in BoP economic activity and unleash market forces. To get there, I think we need a more systematic approach.

A Next-Generation BoP Approach: Transformative Sector Models

In this and subsequent posts, I'm going to suggest one such approach that I and my colleagues at WRI and elsewhere have been developing for several years, and that we are now starting to take into the field. I'm proposing this scaling model tentatively, and asking for feedback and for comparisons to other scaling models.

The approach builds on the perception that there is a growing amount of public and private capital available to fund BoP strategies - almost every month now I hear about a new BoP private equity fund - and the conviction that the bottleneck is a shortage of solutions in the form of investable enterprises. In venture capital jargon, what's missing is the "deal flow." And I'm suggesting that the way to create that deal flow and unleash a rising tide of investment is to focus not on individual entrepreneurs, not on individual companies, but on economic sectors.

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A key concept when operating a business at the base of the pyramid, or in any place for that matter, is contextualization. And by contextualization I mean a deep understanding and embrace of local culture. A simple example of contextualization in business can be observed by comparing the McDonald's menus in Asia and the United States. For instance, it would be impossible to find any McDonald's in the state of Michigan serving a curry burger. Why? Because people in the state of Michigan don't have a taste for curry burgers and wouldn't buy the product. Indeed, it is critical that businesses be aware of local patterns of human behavior – such as lifestyles, tastes, and social involvement – and develop products and services that suit these behaviors.

What I have mentioned thus far is nothing new and probably very elementary to the NextBillion community. However, I would like to suggest that we have left out of the conversation a very important component of culture: religion. It is a subject that is very polarizing and often taboo to discuss in business. But it is important to bring up because religion is very important to people in the communities that we in the NextBillion community are trying to serve.

Recently, this dawned upon me as I listened to a presentation by some MBA students from the Ross School of Business on improving the penetration of insecticide treated nets in Ghana. One recommendation that particularly jumped out at me was the following: leverage the church's influence. The presenters noted that in Ghana, Christianity is widely practiced, and as a result, the church is a very powerful and influential social institution.

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In recent years, the capital markets have infused millions of dollars into the 'development sector.' While we applaud the growing interest in development through enterprise, the question arises: are there enough quality investees? Or, more simply, is too much money chasing too few investments? Let's take a closer look:

Capital:
The novelty of the venture philanthropy model and the (debatable) success of microfinance in particular have helped attract large tracts of new capital to the development sector.

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In my last post, I put forth a definition on scaling a BoP venture: increasing business transactions that positively affect the lives of the poor. In this post I'd like to address the importance of scaling a BoP venture.

Apoovra Shah recently brought up the issue of BoP ventures partnering with governments as a means of scaling. I'd like to take a different spin on this. I'd like to suggest that scaling BoP ventures is critical in order to influence the way governments spend their money on aid. Why is this important? Because according to William Easterly's book, The White Man's Burden, governments have spent $2.3 trillion over the past five decades on foreign aid -- and with little to show for it.

Last month, I was able to spend a week in Indonesia working with a local business owner on a BoP scale-up strategy. Over dinner one night, our conversation drifted to the subject of government aid money. My friend said to me, "Do you think we'd ever get funding from a government agency? No. We don't fit the profile."

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The World Bank recently released the April edition of Development Outreach, which happily addresses head-on the connections between development and climate change. I was pleased to see articles on topics as diverse as development for climate change adaptation and environmental considerations in China's growth, but NextBillion readers might want to check out a piece called "Microfinance: Climate Change Connections" in particular.

I was surprised and maybe even a little disappointed to see that most of the article by CGAP's Katharine McKee focused more on the possibilities of using microfinance to provide renewable energy to BoP households and businesses rather than financing microenterprises working in environmental sectors.

Still, Katharine does a good job of summarizing current challenges and opportunities for creative partnerships that utilize microfinance to expand the consumer base for renewable energy. These include:

• Generating BoP demand for low cost, renewable energy sources and
  
  
• The conflict between the large-scale, long-term investment needed for these projects vs. the short-term, small-scale nature of microfinance.

The article is certainly worth a read and importantly pushes forward dialogue between the microfinance community and sustainable development practitioners.

Guest blogger Erik Simanis is Co-Director of the BoP Protocol project. Erik co-founded the Base of the Pyramid Learning Laboratory in 2000 with Professor Stuart Hart. He holds a BA in Spanish from Wake Forest University and an MBA from the Kenan-Flagler School of Business (University of North Carolina at Chapel Hill); he will soon complete his Ph.D. in strategy at Cornell’s Johnson School of Management.

Editor's note: Simanis' thoughts were initially posted as a comment to Derek's recent post, BoP = 1, SME = Global.  They have been adapted, with Erik's permission, as a full-length post.  NextBillion.net encourages debate on different business approaches within the BoP movement.

By Erik Simanis

Thanks for this post, Derek, and for the reference to our work on a corporate innovation process for the BoP (aka, the BoP Protocol.) I did want to make a small correction/addition to your description of that process. Importantly, the BoP Protcol is NOT about how to do "deep listening," nor simply how to understand the BoP customer's "true needs." We contend that such an approach, which reflects a very traditional corporation innovation process, is (counter-intuitively) the reason why so many of the initial corporate BoP ventures have produced lack-luster results, both for companies and communities. It also leads to weak competitive positions for the company and exposes them to low-cost knockoffs.

The problem, therefore, isn't a lack of "good customer data" or new methods (like co-creation or quick ethnography) to get that data; the problem is the very belief that new businesses (particularly in the BoP) are built on "customer data!" When you do business development with that as the organizing framework, it inevitably leads to a transactional relationship with BoP communities and fosters the view that the company's primary interest is simply to "sell stuff to the poor."

The BoP Protocol, instead, is about how companies can engage in "deep dialogue" with BoP communities and, through that process, to creatively marry each others’ resources, capabilities, and imaginations in forging a new business.

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Guest blogger Apoorva Shah, a recent graduate of Rice University, is currently a Wagoner Scholar working with Ashoka: Innovators for the Public to research the influence of social entrepreneurship on public policy. Currently in São Paulo, Brazil, he wrote this post from Colombo, Sri Lanka.

Moses Lee's recent post on scaling BoP ventures raised the important and complex issue of defining "scale" in cross-sector approaches to development. What happens when "increasing business transactions that positively impact the lives of the poor" means that BoP businesses begin to enter the realm of government?

For example, many businesses work in fields traditionally relegated to the public sector - public health, education, environmental protection, electrification, etc. To scale, should the BoP venture work with government or proceed without it, and what are the subsequent consequences?

In Sri Lanka, Ashoka Fellow Lalith Seneviratne works with a network of local entrepreneurs to provide small-scale biomass gasification systems to rural villages inaccessible to the national electricity grid. The systems are fueled by the fast-growing Gliricidia wood, which is endemic to Sri Lanka and can be easily grown by villagers. Because the process of entering the national grid was slow and bureaucratic, local private actors such as Seneviratne decided to act independently to provide an environmentally friendly source of energy to rural citizens.

Yet in the past five years, the government electricity grid has expanded by 13% to reach 80% of the country's population, and according to Seneviratne, only about 5% of Sri Lankans will ultimately remain off the national grid. So how should Mr. Seneviratne define scale for his venture? He has two options:

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