SIDA, 2013, From Paper to Practice: Learning from the journeys of inclusive business start-ups, Final project/program report, SIDA, Stockholm, Project: SIDA Innovation Against Poverty (IAP).

2.1 ENABLING ENVIRONMENT

2.1.11 Coordination and sustainability planning

Recommendation: 22. Include in project design the implementation of a fundraising strategy for social enterprises at an early stage so as to give to new businesses better chances to survive. Facilitate the identification of foundations that may be supportive to poverty reducing social enterprises in particular.

Reference: SIDA, 2013, From Paper to Practice: Learning from the journeys of inclusive business start-ups, Final project/program report, SIDA, Stockholm, Project: SIDA Innovation Against Poverty (IAP).

Evidence sample: the evaluation noted that, because of lack of early stage funding, some ideas terminate before they even take off. The report provides several examples:

- Greenway, an Indian company prototyping thermoelectric generators that converts waste heat to electricity, noted that “commercial funding is not provided for undertaking market research and testing prototypes for such social ventures, as such projects carry huge commercial risk. So it is through foundations and other organisational funding and grants that the project can be executed and progress”.

- My Tree, a company exploring the use of internet technologies to promote tree planting and forest stewardship in a number of African countries, summarised the challenge well when they noted that “continually seeking external funding at such an early stage of our project would consume most of the time and energy available, so that actual development of the core business would proceed very slowly. This increases the risk of losing team members to alternative activities, and of encountering competition in our concept type.”

SIDA’s IAP (Innovation Against Poverty) Programme was, however, extremely supportive. IAP directed its funds to new product development and early stage market testing rather than only implementation. IAP Programme has given to new businesses credibility when approaching other funders, investors and partners.

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2.2 DECENT WORK AND ENTERPRISE GROWTH 

2.2.4 Environment and sustainable management and the Informal Economy 

Recommendation: 4. Take into account that activities with regard to environmental protection can succeed in developing value chains and creating jobs. Review and consider the case study of the Ugandan “Eco-Fuel Africa” company.

Reference: SIDA, 2013, From Paper to Practice: Learning from the journeys of inclusive business start-ups, Final project/program report, SIDA, Stockholm, Project: SIDA Innovation Against Poverty (IAP).

Evidence sample: The evaluation illustrates an example from Uganda of a commercially viable business that creates value for poor people at many points.

Eco-fuel Africa is a Ugandan company started by African entrepreneur and TED Fellow Sanga Moses. Eco-fuel Africa produces and distributes ‘green charcoal’; a cooking fuel made from agricultural bio-waste that is up to 20% cheaper than charcoal, emits less smoke, can be burnt in traditional cooking stoves and does not contribute to deforestation.

The company leases low-cost, locally made kilns to farmers in Uganda and teaches them to convert their agricultural waste into char. Eco-fuel Africa then buys most of this char from farmers; some is retained by farmers and used as organic fertilisers (biochar). Biochar is considered to be an effective fertiliser that not only increases yields but also may contribute to carbon sequestration.

At its local processing facilities, Eco-fuel Africa compresses the biochar bought from farmers into green charcoal briquettes. The briquettes are then distributed through retail kiosks, which Eco-fuel helps to establish. These retail kiosks are owned and run by female entrepreneurs, who would often not have any alternative source of income. Eco-fuel Africa provides the building for them to use as well as advice and support on how to run their business. The women kiosk owners are able to sell the green charcoal for a profit. Over time many of the women add to the products and services that are sold at their retail kiosks.

Eco-fuel Africa is looking to scale its operations through a franchising model, where franchisees (rather than Eco-fuel Africa) buy char from farmers and produce green charcoal briquettes. This processing creates further value in the value chain and creates a scalable model that can expand into new markets. So far, four franchisees are in operation with plans for growth over the coming years.

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2.3 DIRECT ACTIONS IN COMMUNITIES

2.3.1 Social Behaviour Change Communications (SBCC)

Recommendation: 10. When working to change attitudes towards local products/services, take into account the usefulness of aspirational role models to change low-income customers’ behaviour. Stimulate production and supply, without losing sight of the need to improve the demand for products and services. Consider that products made by people dependent on the IE or working in newly formalised companies need clients. In many instances the producers/service providers are part of a population group that may also be potential clients. Lack of sufficient information about the usefulness of such products/services may interfere with purchasing them. Growing local markets among the poor who are close to the producers is useful and should be considered. Keep in mind services such as feminine hygiene products and sanitation.

Reference: SIDA, 2013, From Paper to Practice: Learning from the journeys of inclusive business start-ups, Final project/program report, SIDA, Stockholm, Project: SIDA Innovation Against Poverty (IAP).

Evidence sample: According to the evaluation, people living at the base of the pyramid have a limited amount of money to spend and, especially, they have their own logic about what they want to spend it on and it’s not always what companies expect. Target customers may not yet know the benefit of products or services that have not been available to them before. They may not understand what the problem is with, say, non-nutritious food or poor sanitation practices and therefore lack motivation to purchase products with these benefits. Or they may have information about benefits but simply don’t see the appeal.

To create consumer demand for new products or services, project’s grantees have had to develop an offer that is sufficiently compelling for people to part with their limited cash. This is in particular challenging when the benefits and value are not immediate but are realised over time, such as in the case of education or preventative healthcare.

Aspiration has emerged as another important success factor in poor markets. Like any consumer group, low-income customers want to be respected and admired by their peers. They want to have social status, own the latest or fashionable things, and be like their aspirational role models. The evaluation provides two outstanding examples of this typical behaviour:

1) In researching the market for menstrual products, the social enterprise Makit spent a number of months exploring the needs and wants of young women living in Kenyan slums and impoverished rural areas. The market is particularly brand-conscious with strong role models both in popular culture and also societally. Young women living in the slums aspire to be like the wealthier girls living in the city and when opinion leaders in schools and communities adopt a new product, the rest are quick to follow. The market for sanitation products is dominated by one brand, which is associated with rich, educated city women. It is seen as such a sign of status (even given the private consumption nature of the product) that some women would rather save up the extra money for this premium brand – using makeshift sanitary solutions in the meantime – instead of using a less prestigious brand on a regular basis. Makit have realised that aspirational factors are key to creating demand in this market, impacting everything from packaging to distribution channel. This realisation helps them to improve the interest in their product.[1]

2) Waste Ventures has also seen the effect of aspiration in the customer demand in another, very different sector – garbage collection services. The company was pleasantly surprised to find many low-income citizens were willing to pay for Waste Ventures’ waste management services. The reason is that customers saw doorstep garbage collection as a ‘big city’ service and this aspirational factor was cited as a strong driver in their purchasing decision.

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2.3 DIRECT ACTIONS IN COMMUNITIES

2.3.1 Social Behaviour Change Communications (SBCC)

Recommendation: 11. Build local consumers trust in order to orient their savings to fairer and healthier products. In particular, draw upon a precise strategy that could include:

• Demonstrations
• Word-of-mouth
• After-Sale services

Reference: SIDA, 2013, From Paper to Practice: Learning from the journeys of inclusive business start-ups, Final project/program report, SIDA, Stockholm, Project: SIDA Innovation Against Poverty (IAP).

Evidence sample: The evaluation noted that people living on a few dollars a day are very careful about how they spend their money. Since they are so risk-averse, building their trust is critical for any inclusive business. Among the possible strategies to change consumers behaviour by relying on their trust, the evaluation shows the importance of demonstrations, namely showing that the product or service works. For instance, research by consulting firm Hystra9 found that the more visual and tangible those demonstrations are, the better. During its village demonstrations, solar energy company D.light threw its lanterns on the floor to show how durable they are.

Another important marketing tool is the so-called “word-of-mouth”. Base of pyramid consumers trust what their family, friends and respected community members say. Word-of-mouth is consistently shown to be the most influential factor in customers’ purchasing decisions, with some research suggesting that anywhere from 50–92% of consumers make purchasing decisions based on what their relatives or neighbours say.

Because positive word-of-mouth referrals depend on satisfied customers, the most effective marketing happens after the sale. For example, solar energy company ONergy found that customers perceived solar energy to be unreliable due to generally poor levels of after-sales service on solar equipment. When equipment was not used correctly, or broke down, customers were left with the impression that solar energy doesn’t work. ONergy tackled this misperception by focusing on after-sales service as part of its offer: it recognised that by providing this reliability in their products, they will not only increase their own market share but also increase overall demand and grow the size of the solar energy market.

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2.3 DIRECT ACTIONS IN COMMUNITIES

2.3.2 Entrepreneurship: Capacity strengthening on economic activities

Recommendation: 7. Consider all the possible constraints that might lead business pilots to fail to grow including:

• Business models that are not sufficiently commercial.
• Other external factors limit the commercial proposition and ability to scale commercially.
• Market demand turns out to be very limited.
• The business cannot access growth capital.
• Structural or capacity constraints to growing the business
• There is a lack of ambition or incentive to grow
• There are no, or very limited, economies of scale for the business.

References: SIDA, 2013, From Paper to Practice: Learning from the journeys of inclusive business start-ups, Final project/program report, SIDA, Stockholm, Project: SIDA Innovation Against Poverty (IAP).

Evidence sample: The evaluation suggests 7 broad reasons to explain why apparently successful pilot businesses failed to reach scale:

1. The business models are not sufficiently commercial

2. Other external factors limit the commercial proposition and ability to scale commercially

3. Market demand turns out to be very limited

4. The business cannot access growth capital

5. There are structural or capacity constraints to growing the business;

6. There is a lack of ambition or incentive to go to scale

7. There are no, or very limited, economies of scale for the business model

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2.3 DIRECT ACTIONS IN COMMUNITIES

2.3.2 Entrepreneurship: Capacity strengthening on economic activities

Recommendation: 26. Note possible shortcomings of the “village entrepreneur” model. In this model an individual selected from within a community acts as a ‘touch point’ between a business and local customer to strengthen links between supply and demand in local markets. People who are dependent on the IE are often selected to participate in such models.  This model can have shortcomings, however, stemming from difficulties recruiting village entrepreneurs, low investments, and/or scarce local demand.  While the model can be useful, it is important to bear in mind and try to address the possible shortcomings.

References: SIDA, 2013, From Paper to Practice: Learning from the journeys of inclusive business start-ups, Final project/program report, SIDA, Stockholm, Project: SIDA Innovation Against Poverty (IAP).

Evidence sample: The evaluation comments on a model project grantees often use: the village entrepreneur. Also known as a rural or micro entrepreneur, a village entrepreneur (VE) is an individual selected from within a village who acts as a ‘touch point’ between a business and local customers. The company supplies the product or service equipment to the VE upfront and provides additional support to help the VE succeed, such as training and branded promotional materials. In turn, the VE sells the company’s product or service, provides customer support, invests capital, earns commission, and takes risks. 

However, while the model stands, in theory, SIDA’s experience suggests it is not that simple. Two Innovations Against Poverty (IAP) grantees in the energy sector tested the village entrepreneur model: Sunny People in Kenya and Nuru Energy in India. Both had a business model that was based on village entrepreneurs purchasing charging systems that could be used to charge mobile phones or lights. The idea was that village entrepreneurs would buy these systems on credit and then provide charging services to customers in rural and remote locations. This would enable the entrepreneur to earn an income while at the same time providing mobile charging services to communities that were cut off from the electricity grid. The money the entrepreneur earned could be used to pay off the capital investment and after the initial repayment period, would provide a sustainable income source.

Both grantees had entered into early partnerships with Micro Finance Institutions (MFI) with the view that this would enable them to quickly establish a village entrepreneur network, but both ran into difficulties.  Sunny People found it difficult to motivate its MFI partner to recruit and train village entrepreneurs and there was a weak capacity in sales and marketing within the MFI. Eventually, Sunny People hired its own staff to recruit, train and manage rural entrepreneurs and undertake marketing and sales. In some cases Sunny People even took on the role of financier, providing credit to rural entrepreneurs directly. This led to higher overheads, required more time investment than originally expected, and created a much heavier organisational structure as the company took on responsibility for almost the entire value chain.

Nuru Energy’s model was also jeopardised early in implementation as MFIs in India were hit with a credit crisis around that time. Its initial MFI partner pulled out and the company struggled to find another suitable partner that could provide financing to VEs. Eventually an NGO partner took on the role of providing credit, financed through the corporate social responsibility (CSR) programme of a large corporate foundation. To quickly establish village entrepreneur networks, Nuru Energy explored a range of other partnerships including with mobile telecoms companies, consumer durable companies, women’s savings cooperatives and NGOs. After a lengthy process of negotiations, trial and error, the company has since chosen to focus on rural women’s cooperatives and self-help groups as a way to recruit and fund village entrepreneurs and support marketing efforts. This has taken significant time and effort.

In addition to the problems of finding suitable partners in their distribution model, both Sunny People and Nuru Energy faced lower-than-expected levels of consumer demand for charging services. It seemed that customers preferred to buy their own chargers outright, giving them the convenience of charging in their own home as well as added social status of owning their own system.

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2.3 DIRECT ACTIONS IN COMMUNITIES

2.3.2 Entrepreneurship: Capacity strengthening on economic activities

Recommendation: 30. Promote the collection of information and meaningful data about local markets through early-stage project studies. This facilitates the establishment of enterprises at the base of the economic pyramid/value chains.

References: SIDA, 2013, From Paper to Practice: Learning from the journeys of inclusive business start-ups, Final project/program report, SIDA, Stockholm, Project: SIDA Innovation Against Poverty (IAP).

Evidence sample: As the evaluation states, organisations working at the base of pyramid need to learn about the market, the value chains they are entering and the customers they are selling to. There may be little market data available and companies have to find ways to gather insights about what poor people want, believe, and will trust.

To really understand the problem, the entrepreneurs had to conduct first-hand studies, observation and consultations. This early-stage research is essential as it often lays the assumptions on which the inclusive business is then based. Getting it right at this stage – or at least, as right as possible – can save considerable time and money cost later. Malagasy company Elimentaire Sarl, for example, used its small grant for a combination of pre-feasibility studies, stakeholder needs assessments and pilots to assess consumer demand and the most suitable distribution channels for moringa-based fortified food products. Through this process, Elementaire Sarl discovered information on pricing and regulation that challenged their original business model. Without this adequate early-stage research, the company may have invested significant resources into an unfeasible business model. The team is now exploring a different model that starts with integrating the moringa plant in community reforestation schemes first, as moringa is widely known as a nutrient-rich vegetable by the local population. This gives Elimentaire Sarl flexibility to develop new sales channels to Base of pyramid consumers and other consumer markets at a later stage, and secure supply through partnerships with the respective local communities.

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2.3 DIRECT ACTIONS IN COMMUNITIES

2.3.3. Information Technology (IT) and enhancing of livelihoods of people dependent on the IE

Recommendation: 2. Introduce mobile technology when designing IE development projects. They can be very useful to shorten the distance between service providers and local populations.

Reference: From Paper to Practice: Learning from the journeys of inclusive business start-ups, Final project report, SIDA 2013, Stockholm.

Evidence sample: The evaluation notes that the development of mobile money has revolutionised the market and a range of payment methods are now available that make products and services more accessible to the poor. Most Innovations Against Poverty (IAP) grantees currently use mobile money as a key part of their business model or are considering shifting to this approach. For example, Pamoja Cleantech is an IAP grantee that supplies electricity to houses in rural villages in Uganda. Pamoja plans to operate a pre-paid pricing model and their initial idea was to manually collect payments by sending someone to visit each customer’s house. The problems with this approach are multiple: there is a security risk in manually collecting and transporting cash; it causes a delay in payment to the company that impacts on cash flow and can become a risk if there is high inflation; it creates an inconvenient delay for customers between payment and connection to the electricity services; and the approach adds to the company’s administrative costs. They are now using a mobile solution instead. Done well, a payment system can become a strong competitive advantage. In the same way, through IAP support, solar power company D.light has developed an innovative payment system called Pay-GO, which integrates pay-as-you-go consumer-financing technology into its solar power system. The Pay-GO system eliminates the high initial purchase.

[1] http://www.inclusivebusinesshub.org/page/project-profile-makit-menstrua…