When, why and how does inclusive business really work?

Hi Graham, good question. One of the IAP projects,Makit, faced this very challenge when trying to distribute menstrual products to women in Kenya's urban slum areas. Women were not interested in the product when it was first marketed as it was seen as a 'poor persons' product. Women were extremely brand sensitive. Makit have since changed their whole marketing strategy in order to create aspirational value for their brand, even now selling through retail outlets (as well as continuing to distribute in slums) just so women will want to use it.

The value of aspiration was one of the key findings in our recent report From Paper to Practice at http://bit.ly/IAPKEReport13

As for the ethics, that was something that was also raised at our recent IAP conference. I'm not sure we landed in an answer, but Makit's example certainly was more effective in terms of improving women's sanitary practices than comparable 'charitable' approaches.

Hi Graham, good to see you here. I would say, the WASH (Water, Sanitation and Hygiene) sector uses aspirational branding. Something very basic in our eyes, but conceived as a luxury to many poor consumers, for example sanitary latrines.

The zigzags were the best way we could find to describe what seemed so obvious when we looked at where companies were when they first engaged with BIF (2010-2012) and where they went. It's not that the journey is circuitous - it does move towards a clear vision, but not in a straight line. And every so often there is a 'rethink' based on a pilot or new information, that really creates a zigzag.

Mark at Ischool started with laptops that run on plugs and needed nightly connection to a server - very different from today's Zedupads. Mark can you tell us more about how your thinking changed?

and if you look at Paul Polak's iDE's interventions, they are along the lines of what he said. That's where BCC (Behavior Change Communication) comes into play. Ethical??? I don't know but may be somewhere you need to draw the line.

One of the IAP grantees, Sanergy, has been enormously effective in their use of aspirational marketing and powerful branding in their slum sanitation business. I would agree that WASH sector is a good one where the impact of aspirational branding can be seen.

Graham, What we have found is that the BoP poor are as much appreciate of the products attributes as others up the pyramid. It is just that they have to be put in a different context. For example, some of our farmers were using a cheap insecticide whenever they saw insects in the field. When we entered, we first educated them that all insects need not be destroyed as the eco-system gets impacted. We showed them how 90% of the insects they encountered were harmless and could be left alone. We also educated them how the cheap insecticide was in fact destroying their field and for the really harmful insects, we found them to a more expensive insecticide which got the job done more effectively. At the end of the day, the farmer was still saving money substantially. Bottomline - education and awareness are key for creating an appreciation of the product attributes.

Yes, Mark I totally agree with you that innovation should continue based on the technology and consumers tests & demand

If this is true (and it does sound familiar) then what are the implications for funding inclusive start-ups and pilot initiatives? There is so much pressure for quick ROI, investor exits, and impact at scale. Even "patient capital" seems to be patient for about 5 years. But given the unusual challenges in inclusive business models, that may not be enough of a window.

any suggestions where, Zunaed? Graham?

Exactly so Zahid. I think there is not sufficient appreciation of the fact that many companies and entrepreneurs are moving through uncharted territory and taking on the burden of learning about new markets, finding new approaches. It's not something you can find in textbooks (yet) and there is a lot to be tried and tested. We found that only around 7 out of 10 of the organisations supported through IAP expected to be at break-even within four years, and those tend to be optimistic estimates since they're from the entrepreneurs themselves.

Technology poses something of a threat, as things can change underneath you: you had decided on a technology (such as netbooks) and suddenly they are costly and less than desirable! Along come tablets and cut the costs by 70% but also offer a great opportuinity to sell to a new audience and manage with less power, and deal better with lower literacy and portability and so on. So a huge opportunity. But if you aren't willing to keep changing the technology the market may disappear from under you. In our case we have to realise that our real product is learning content, and not the means of delivery, and someone else may finish up delivering the latter, which is fine.

An example of how one of the farmers saved money due to mKrishi's initiative is in the deep dive case study published by BIF - Evolution of mKRISHI®: A technology platform for Indian farmers

I had made this comment even before the webinar started. But I am going to paste it again cause it's more apt to put it under this section.

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.

We found this at Innovations Against Poverty as well. We were trying to find and fund innovative ideas, but often an idea that was revolutionary one year was then commonplace a few years later. This was not only due to changes in technology but also markets. For example, the solar energy market in Africa has gone through a massive change in the past few years, not least through the efforts of initiatives such as Lighting Africa.

That's a fundamental point. I think there are three rather different things going on.

One is that innovation funding is key, and needs to recognise that it takes not just one pilot but more, not just one year but more. Short grants therefore can't judge results based on deliverables at one year.

The other need though is for funding for the 'boring bits' after innovation has happened. I hear from entrepreneurs that have got a good model but are not yet ready for proper commercial investment. Who wants to fund the stage of staff expansion, management, accounting etc?

The third point is a mismatch between typical donor cycles (3 years) and business cycles. I actually think that is the biggest challenge for the government donors who are all so excited about new ways of working with business. I'm just today involved in another conversation about another challenge fund. But yet again, the time horizon is 3-4 years. By contract, investors can look a bit longer. DFID's new(ish) Impact Programme is putting money through CDC into impact investment funds. This programme has a 13 year horizon. YIPPEE! But that is because it is via DFID's ownership of CDC and not from a current DFID budget - so 13 years would not normally be possible for a grant programme.

Ok let's move on to the 4th lesson from BIF: 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.

How does this fit with funder / investor / your boss' expectatons?

for example, in case of drinking clean water (and may be paying a minimum price for it) or using sanitary latrines. In short, for globally accepted good and basic practices, but then again, you could argue, who are we to decide what's good for them?

Hi Lina, it would be interesting to hear what Opportunities for the Majority have learnt from their work in this area. And also your reflections on the BIF report and IAP reports!

Hi Seth, I couldn't agree more. It seems that impact/patient investments are covering a vast space, and risk disappointing expectations. There is a big difference between "incubation" and "validation" stage enterprises. (this was also a lesson from Oxfam's enterprise development programme).

I'm not sure anyone really has expectations or evidence-based expectations of actual numbers of poor people reached by inclusive business . Does anyone?