When, why and how does inclusive business really work?

(Caroline Ashley) #1



40 companies, nearly 4 years of collaboration with the Business Innovation Facility, the last 4 months crunching data from an excel file too big for my machine to handle. Have we learnt enough to answer some really big questions that we all have about the reality of inclusive business?

Let's share five conclusions of the BIF team and see what you think:

1. It's all about the business model. Businesses that engage in Base of Pyramid markets cannot pluck models 'off the shelf' so success is all about the process of getting the business model right. But that takes longer and more innovation than expected. It's not a one-off recipe. It's about building a jigsaw with moving parts.

2. Models that engage the BoP as consumers or as producers are very different. Consumer models need to build demand, the market, and distribution channels, aside from an affordable product. Producer focused models need not only a manageable smallholder product and production system, but have to work out how to build in credit and a role for intermediaries. It may sound easy but it's not. A few things are common to both however, particularly the need for pilots to adapt the model, partners to go outside company competencies, and perseverance to adapt when it does not work.

3. The journey from inception to scale is about a decade. It's not just a bit bumpy, due to inevitable things going wrong; it is zigzagging because testing a model on the ground will lead to new information, upheaval of the model, and a new direction.

4. A good share of the businesses should reach viability, but the vast majority achieve only a fraction of their initial projections on time. On track to their destination may be, but not on track against targets. Only some have built in mechanisms to truly scale. Successful consumer focused businesses could reach hundreds of thousands or millions of BoP households, but even the most successful businesses that source from producers may reach 10,000 farmers.

5. Business leaders are showing it's worth it for them. They have strategic reasons to invest and are staying on the train despite slow progress at times. The BIF experience also shows it's worth it for donors. On the one hand external support can make a difference to business - the technical assistance from BIF had relatively high added value. On the other, inclusive business can make a real contribution to solutions to poverty. No panacea, but a massive boost for low-income households that gain access to markets, goods and services, while potentially the business models that work can influence behaviour of others players up and down the value chain or far away. And yes we think the 'BoP' really does include those living on less than $2 per person per day.

Does any of this resonate with reality of others, or is it different from where you sit?

Editor's Note:

This discussion is part of a series with the Practitioner Hub on Inclusive Business.

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(Practitioner Hub) #2

Find out how the panelists Mark Bennett and Srinivasu Pappula have put their inclusive business ideas into practice and are transforming lives at the BoP.

In-depth case study reports on iSchool in Zambia and TCS' inclusive business venture mKrishi can be found here.

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(Ekanath Khatiwada) #3

All the case studies are very encouraging and very inspiring, I am always curious on the inclusive business models that what makes the business inclusive? Is it income sharing or equal participation ? or there are more other broader perspectives that makes the business more inclusive ?

Dear All panellists:

could you please highlight your perspectives from your current practices ?

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(Zunaed Rabbani) #4

Compared to established firms, is it easier to encourage start-up businesses to take up inclusive business model? They may not reach scale soon enough but as we acknowledge "the journey from inception to scale is about a decade", we could look into supporting the new ideas, not necessarily from the established companies with proven business model, but of fresh, new ideas who are keen to make a mark.

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(Zahid Torres-Rahman) #5

Welcome to this online written discussion! Today we are going to be exploring "When, why and how does inclusive business really work?"

We are delighted to be joined by a great panel that will get into some of the detail around the findings of the Business Innovation Facility pilot.

Can I suggest we aim to run through each of the lessons. Please share your thoughts and any specific examples as we go through.

So the first lesson was: It's all about the business model. Businesses that engage in Base of Pyramid markets cannot pluck models 'off the shelf' so success is all about the process of getting the business model right. But that takes longer and more innovation than expected. It's not a one-off recipe. It's about building a jigsaw with moving parts.

Thoughts?

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(Caroline Ashley) #6

Thanks Zahid. When we looked at the business models used by companies in the Business Innovation Facility, we found they all used some element of previous models, but all had to innovate, not just once but several times and several parts. They had to update the product, and the distribution model for example. I think Mark has good examples to share from Ischool. But other companies did too.

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(Srinivasu P.) #7

Dear Ekanath,

For the mKRISHI-PRIDE model, it is both. The farmers are shareholder members of the PRIDE and share in the profits. In addition, they are also involved in the running of the PRIDE at various levels. Another aspect of the inclusiveness is from the credit perspective. BoP farmers who were previously refused credit by the Public Sector Banks and were forced to depend on the money-lenders at exorbitant rates of interest are now able to avail of credit due to the "power of numbers". The PRIDE entity standing behind the farmer makes it easy for the PSBs to now lend without any issues.

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(Caroline Ashley) #8

We give other examples in our report on the 4Ps of Inclusive Business (bit.ly/4PsofIB ) such as Stanbic IBTC Smallholder Finance scheme, which has been innovative across the value chain, from land preparation to harvesting, as well as finance which is of course the main function of Stanbic IBTC as a bank.

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(Zahid Torres-Rahman) #9

That's interesting Caroline. Can you give some examples of business model innovations (without naming companies). For example, anything around distribution models?

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(Juni Sul) #10

Very interesting reports - thanks to the BIF team. I particularly welcome the first lesson's focus on the process for getting the business model right. This can take a long time and very significant effort and patience from all sides - good to see BIF openly acknowledging how difficult it can be. Similar lessons come out of our (Oxfam's) work on smallholder value chains.

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(Suzanne Dagseven) #11

Hi all and thanks Zahid for the question.

One of the best examples of this from Innovations Against Poverty was Nuru Energy, a company that had developed a hugely successful business model for lighting systems in Africa and then took this to the Indian market. They faced a range of challenges to the business model that meant they had to go back to the drawing board and find a range of new partners, develop their products, and pilot new approaches. All of the 4Ps that are in the BIF report.

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(Zunaed Rabbani) #12

Caroline, I have a question. Do they run two (their already existing, established model and inclusive) business models, side-by-side? Is there a decent number of companies that completely changed their existing business model to adapt to IB model?

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(Caroline Ashley) #13

That's a really good question. In BIF we worked with MNCs and with start-ups and expected to find big differences. There were of course differences in the challenges they faced, but there was much less difference than we expected. The scale and pace of the 'inclusive business initiative' (meaning that bit of the MNC that was doing something inclusive and supported by BIF) was not that different to the scale of small businesses that are set up just to do an inclusive business model. They all took more time and plenty of innovation than expected. There were some real innovators inside the MCS.

Of course the MNC models are more oriented to scale from the start. But some of the smaller firms are too - Mark's Ischool has plans for regional expansion.

The problem of finance was different for them both: one needed internal while start-ups struggled even more with external finance.

But in terms of success so far, we could spot no difference (in our sample of 40) between type of business nor country.

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(Nadia Weigh) #14

I was just wondering what the panellists thoughts are on the best way for donors such as DFID to encourage and support inclusive business models? Is it through challenge funds (which we are currently seeing many coming out in the pipeline) or is there another, more effective, way?

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(Suzanne Dagseven) #15

Hi Juni, we found this in Innovations Against Poverty as well (a similar project to BIF but financed by Sida). The main finding when we looked across all the projects was that there will always be delays, changes and other unforeseeable events that mean things rarely go to plan!

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(Zahid Torres-Rahman) #16

Juni - thanks for sharing that. Can you tell us a bit more about your research? Is there a link you can share?

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(Caroline Ashley) #17

Sure Zahid, and can even name companies because they all had to approve the text in our 4Ps of Inclusive Business report!

Hindustan Unilever has long distributed Pureit water filter through MFIs but has been developing new channels to reach rural areas not so well covered by MFIs, finding rural organisations that already have links with farmers for their agricultural produce.

mKRISHI, which Srini runs, was first looking at village entrepreneur models when BIF started a conversation with them, but as he says, now work with farmer organisations called PRIDES.

Distribution turned out to be an area where companies really struggled so took to partnerships - detailed more in one of our Insiders: bit.ly/PartnershipInsider

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(Ekanath Khatiwada) #18

Thanks @Srinvivasu for sharing a PRIDE model. loos inspiring , In your model how long it takes to develop such kind of creditworthiness among the BoP farmers? It most be quite challenging part in your business model

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(Suzanne Dagseven) #19

Hi Zunaed! This is something that Sida's Innovations Against Poverty was set up to do. We found that start ups were an excellent source of innovation and can often move more nimbly than the bigger companies and in my view, perhaps more willing and able to take risks and forge new ground. But I think established companies have more resources to bring to the table and therefore may have it easier to take good ideas to scale. What do you think?

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(Caroline Ashley) #20

Another good question! Yes, on the whole if it's an established company diversifying into an inclusive business model, the IB model is initially run in parallel. Over time, it becomes more mainstream, but it is still not the only business of course. For example, Stanbic IBTC still does its normal business, but its Smallholder Finance Scheme began as a pilot, last year was another pilot - successful - and will scale up further. Eventually it could become a core way of doing business in rural areas, not just in Nigieria (bit.ly/CaseStudyStanbic).. Universal Industries continue to source lots of normal products for their snack production, while sourcing fresh cassava from smallholders for their new HQCF initiative.

So they don't completely change their models, but gradually grow the new inclusive approach.

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