NextBillion.net - Development Through Enterprise - Taking a BoP Venture to Scale, Part 1 - Comments

Insurance for BOP farmers

Paul Rigterink — Fri, 21 Mar 2008 10:33:46 -0500

Thanks Moses. Insurance is considered essential for small farmers in the US and would be of great value to BOP farmers. In particular, Dr. Booker T. Whatley (1987) showed small farmers in the United States how they could make a great deal of money and lower risk by growing “High Value Food Commodities” on “Pick-Your-Own” farms. Whatley’s “10 commandments” for American small farmers need to be restated so that we have a similar set of commandments for helping the extreme poor. Whatley’s (1987) 10 commandments are (note commandment 10 in particular) : “Thy small farm shalt: 1. provide year round, daily cash flow. 2. be a pick-your-own operation. 3. have a guaranteed market with a clientele membership club. 4. provide year-round, full time employment. 5. be located on a hard-surfaced road within a radius of 40 miles of a population center of at least 50,000, with well drained soil and an excellent source of water. 6. produce only what thy clients demand -- and nothing else! 7. shun middlemen and middlewomen like the plague, for they are a curse unto thee. 8. consist of compatible, complementary crop components that earn a minimum of $3,000 per acre annually. 9. be ‘weatherproof’ at least as far as is possible with both drip and sprinkler irrigation 10. be covered by a minimum of $250,000 worth ($1 million is better) of liability insurance.”

Thanks

Moses Lee — Fri, 21 Mar 2008 08:19:40 -0500

Thanks Dr. Rigterink. Regarding business risk, hopefully MNCs and others will find ways to insure BoP farmers. In fact, I believe ITC's CPK program has been exploring an insurance product for its customers in rural India.

Does a business scale?

Dr. Paul Rigterink — Thu, 20 Mar 2008 15:36:47 -0500

For a BOP business to be successful, it must have access to all the resources and supplies necessary for the business to prosper. In many areas of the world this is not the case. I will give two examples which are generally considered "scalable businesses", backyard poultry farms and small produce farms. For a backyard poultry farm (50 chickens) to be successful one will need the following resources: 1 acre lot for growing poultry feed with access to water and possibly micro-irrigation equipment, Miscellaneous farm equipment, Seed needed to grow poultry feed on one acre lot, 1 poultry house with feeders, waterers, nests, brooder, and incubator (see Leonard Mercia, Raising Poultry the Modern Way for sample poultry house), Breeders, pullets and cockerels, Funds for seed, poultry house, feeders, waterers, nests, incubator, brooder, land rental, Veterinary supplies (vaccination against Newcastle disease, deworming for round worm and tapeworms, dusting under wings for irritating external parasites such as lice, treatment for chronic respiratory disease), 150 feet of poultry netting for free access range run, and fertilized eggs. In many locations the chickens will not be properly vaccinated. In addition, the fencing, veterinary supplies, and micro irrigation equipment will often not be available. BOP farmers will have to take huge business risks that often will cause their business to fail. Similarly for a small produce farm, the necessary fencing, fertilizer, pesticides, and micro irrigation equipment may not be available. Again, BOP farmers will have to take huge business risks that often will cause their business to fail. I have focused on the supply-side of the business. A BOP farmer will also have to solve quality control, transport, marketing, and cost control problems. More information can be found in the chapter I prepared on "Microenterprise and Food Security" for the recently published book "Food and Water Security" by U. Aswathanarayana (Editor) (available on Amazon.com) or in other papers I have written.

Decision Makers

Moses Lee — Wed, 19 Mar 2008 17:55:55 -0500

Ryan. Thanks for this comment. I think you're right. I do hope that more decision makers will not only make their rounds to visit/interact with donors, financiers, et al at the ToP, but also make their way to the BoP to get their hands dirty and listen to the voices of the poor. If a CEO can do this, he/she will be a great leader.

Thanks

Moses Lee — Wed, 19 Mar 2008 17:51:19 -0500

Sean,

I really appreciate your comment and your perspective on success. I will be interested in read up more about your organization's work. Also, I think your comment on what is BoP and what is not would be a great discussion to have. Perhaps a discussion to have in the near future!

With reference to challenges of scaling

Ryan Baebler — Wed, 19 Mar 2008 13:19:19 -0500

In the research that I have done on the subject, business treatment of its own social and environmental initiatives has more to do with the degree to which the business is exposed to the environment that it helps to create than simply the scale of the business. Scaling social impacts is very important because of its implications for potential effect. However, the single greatest challenge that I have found (which was aluded to in the mosquito net example) is the responsiveness of a large enterprise to its external realities. Many times, as their reach extends and their business's stakeholder numbers grow, decision makers in large enterprises are insulated from realities on the ground. That having been said, when you can scale an enterprise while facilitating real time communication with the needs of ALL of its stakeholders you will have your cake and be able to eat it too.

defining BoP andscale

Sean Kline — Wed, 19 Mar 2008 10:50:17 -0500

Greetings Moses,

I think your post touches on two important themes. That is, what is BoP and what does scale mean? It helps to define BoP by indicating a focus (a) on poor people and (b) on positive impact. These two points are arguably, what differentiates a BoP lens from a simple business lens that sees poor people as simply another market segment (e.g., Hindustan Lever’s Fair and Lovely skin cream, etc.).

Though it may be best left to another post, I would challenge the notion that most ventures defined as BoP, including microfinance, are, in fact, BoP. I would argue these are middle of the pyramid (MoP) ventures; that we actually have very few ventures reaching the bottom of the pyramid. Anyone who thinks this distinction is splitting hairs has not looked carefully at who is being reached and the difference between absolute versus relative poverty status.

On scale, the definition you’ve put forward seems a good, simple one: "increasing business transactions that positively affect the lives of the poor".

The three measures of success Freedom from Hunger uses to judge its B2B and B2C franchise initiatives, as well as its support for microfinance institutions in 16 countries are:

1 - Scale
2 - Sustainability
3 - Impact

All efforts must balance these three. We've found this discipline pushes innovation and clarifies whether new efforts are worth pursuing or not.

Cheers,
Sean
http://www.freedomfromhunger.org/programs/mamasante.php

do it local

Moses Lee — Tue, 18 Mar 2008 19:13:05 -0500

Paul,

I completely agree with you. I think A to Z, an Acumen Fund venture, does a good job of this.

complexities and challenges

Moses Lee — Tue, 18 Mar 2008 19:12:25 -0500

Michel,

I think in agriculture, there are two major constraints/challenges for BoP ventures: production (supply) and transactions (demand). By production, I am talking about farming inputs, quality, productivity, etc. By transactions, I am talking about distribution channels, access to outside markets, networks, etc. I think you should take a look at the e-choupal model at ITC. Also, Ted London from WDI has put a lot of thought into this as well.

Think Local

Paul — Tue, 18 Mar 2008 16:11:23 -0500

Moses, I think that business will need to focus on more than just selling ‘stuff’ to the BOP. In order for them to really bring true benefit to the BOP, they should be focusing on keeping as much of the supply chain (e.g. sourcing of raw materials, production, distribution, marketing etc) as local as possible. This will keep the money recycled in the community as opposed to it being sent back to the companies headquarters thousands of miles away in the developed world. Business still needs to make a profit of course, but that will come as this scalable supply chain grows and more people and profit are added. Paul

Challenges & strategies for scaling a BoP venture

Michel — Mon, 17 Mar 2008 01:20:07 -0500

Thanks for your contribution, Ben! I'm actually working on the issue of how BoP ventures can be scaled as part of my master thesis and am therefore highly interested in the subject. You mention that scaling a BoP venture is "loaded with complexities and challenges". That's exactly the question I'm looking into so I wanted to ask if you - or anyone else on this blog for that matter - has any idea what those challenges might be and how they could be addressed (on a generic level). I'm currently looking at successful BoP ventures in the Indian agri/dairy sector to explore that question and will post my insights as soon as have any relevant findings. In the meantime, if you have any ideas or references I should look into, they would be highly appreciated! Last but not least, I agree with your definition on scaling a BoP venture but want to raise the question if the "up-side potential", i.e. scaling up to higher markets, should be included, as I'm sure that this is a very relevant issue for most companies. So should the definition be limited to improving the lives of the poor or can it also go beyond that?

economies of scale

Moses Lee — Fri, 14 Mar 2008 13:09:17 -0500

Thanks Ben for your comment. I think there are a lot of BoP models out there trying to use various economies of scale to further impact. I recently had a conversation with the founder of Scojo and think their scaling strategy is quite interesting and effective. Hopefully we as a field can put more thought into which scaling models are working the best -- and then replicate them!

Economies of scale

Ben — Fri, 14 Mar 2008 08:27:46 -0500

Thanks for the article! Regarding the definition of the words "scale" or "scaling": changing the size of an object (here a business or organisation) without changing its shape. This directly leads to your interpretation and therefore I agree with it. What I thought would be interesting to find out as well: what kind of "economies of scale" for BoP ventures will come to light, and who will benefit from them.

Taking a BoP Venture to Scale, Part 1

Moses Lee — Thu, 13 Mar 2008 15:21:34 -0500

"How are we going to scale this enterprise?" "What is our scaling strategy?" "What are the building blocks needed to take our concept to scale?"

If you have ever sat in on a board meeting of an organization, either for a for-profit or non-profit, I am sure you would have heard the above questions or some derivative of them.

Scale is a word that is often thrown around, but what is scale? In the business world, scaling an enterprise basically means optimizing resources to sells more goods or services in order to grow top-line revenues and finding ways to improve cost effectiveness to drive profitability. Simple, right? Or not. Not all businesses are created equal. Some business models are inherently more scalable than others. For example, an online retailer is much easier to scale than a brick-and-mortar store.

Defining scale in the for-profit world is relatively straightforward. And its importance is also clear: shareholder maximization. But what about in the BoP world, where measurement is not necessarily in dollars and cents and the goal is not wealth maximization? Can we simply take scaling strategies from the for-profit world and apply them to BoP ventures? I think most of us would say no. Therefore, it is important for us to look at scaling a BoP venture through a different lens.

In this post and the next, I'd like to open up the discussion on scaling a BoP enterprise. In this entry, I am going to attempt to bring some definition to the idea of scaling a BoP venture. In my next post, I will try to tackle the importance of scaling BoP ventures from a macro level.

(This post continues past the break; click "Read More" to continue)