Doing well while doing good

A Business Model Proposition for Self-Sustaining Ventures to Alleviate Poverty in Developing Countries

Getting to know what Social Entrepreneurship is and is not

Contrary to “traditional” business, for which the only bottom-line is measured financially, compensating the lacks of the market through the market implies a double bottom-line: an economical and a social one. It has even been a few years since academics and professionals are evoking a triple bottom-line, alluding to the environmental responsibility.

On the other hand, contrarily to NGOs and charities, Social Ventures do not consider the word “profit” as a dirty word: it is the only way to guarantee the sustainability of the activities (instead of relying on donations or subventions, for instance). Besides, being self-sustaining spurs other entrants to focus their activity on BoP markets, traditionally being the ground of philanthropists and officials only.

The Skoll Foundation, a fund dedicated to provide a financial support to social businesses, defines the social entrepreneurs as the “society’s change agents: creators of innovations that disrupt the status quo and transform our world for the better”.

Social entrepreneurship initially shouldered the metaphor of teaching how to fish instead of giving free fish to people in need. But Bill Drayton, CEO, Chair and Founder of Ashoka, the first organization supporting the field of Social Entrepreneurship states that “social entrepreneurs are not content just to give a fish or teach how to fish. They will not rest until they have revolutionized the fishing industry”

There might not be a “fortune” to be made at the “Bottom of the Pyramid”, as suggested by C.K.Prahalad, but the 4 billion at the Base of the Pyramid certainly form a vast and heteroclite untapped market that companies can serve to create social impact and economic value.

A lack of clear guidance on how to succeed at the Base of the Pyramid

Yet, the limited number of empirical successes and the quite recent emergence of this field ushers to a lack of clear guidance on how to be successful in alleviating poverty through market-based approaches, as claimed by Nancy E. Landrum who deems that the literature needs further research on “what strategic approaches result in success, and what approaches result in failure” for profit-driven ventures at the BoP (Advancing the “Base of the Pyramid” debate, 2007).

What are the key-success factors for ventures willing to achieve social impact through market-based approaches?

Helping entrepreneurs and companies reach their double bottom-line

With a particular focus on Brazil, a research conducted in the remit of a Master’s Thesis at EM Lyon resulted in a framework based on an adaptation of the Canvas Business Model, considered as one the most advanced tools on Business Models hitherto.

Most important key success factors (KSF):

• Key partnerships: Social Ventures cannot alleviate poverty alone. They need to build partnerships with NGOs, MNCs, individuals, the government, local communities.
• Distribution channels: most of the BoP are located in rural (or hostile) areas. BoP ventures must overcome the poor local infrastructure to build strong and widely spread distribution networks. Partnerships can help greatly on this, like CDI Lan who is giving access to internet for the most remote Brazilian regions thanks to partnerships with MNCs such as Coca Cola and Microsoft.
• Cost structure: Given that affordable prices are absolutely necessary, both fixed and variable costs must be minimized. Being on a BoP market implies potentially big volumes, and low margins. Thus, the efforts must mainly be made on variable costs to rely on economies of scale.

Significant KSF:

• Key resources: For BoP ventures giving access to new products or services (or more affordable prices), the KSF is the smart allocation of the resources to cut costs. For ventures considering the BoP as producers, the KSF is its human resource, and the way to help them get out of poverty (better wages, better conditions, greater benefits, etc.). This effort has been intensely made by Solidarium, a Brazil-based social venture who aims at bringing poor regions fair-trade handicraft to higher-end markets.
• Value proposition: Social Ventures must provide products or services that are both affordable and useful in any kind, just as any «traditional» business. Besides, to be considered as «social», they must bestow a real impact on BoP people’s lives. BoP ventures must promote an offer that is affordable to those at the BoP, without reducing the quality. Making uncluttered, simple products is a valued solution, especially if made by famous brands.
• Revenue streams: An affordable pricing is obviously a major KSF to tackle BoP markets, but must never be the only factor. To avoid relying on external financial helps (hybrid ventures), revenue streams must be insured by high volumes, low margins, low costs and low prices.

Other KSF:

• Key activities: Social Ventures must always keep in mind their two bottom-lines (social & economical). Yet, fields of impact are broad: health, education, safety, civil rights, income generation, access to water, to technology…
• Customer relationships: BoP ventures must deliver something that is accepted, understandable and valuable for the BoP. In a spectrum of co-creation or shared value, the customer is fully integrated to the whole process, so building a relationship based on trust is essential.
• Customer segments: Since BoP ventures have a double-bottom line, the segmentation is a double work to identify their needs and the business model that can emerge. The BoP is truly different from one region of the world to another, so a unique business model will never be transposable on all BoP markets, but Social Ventures must find ways to adapt easily their products or services from one country to another.

This framework does not have the pretension to be a universal tool to be used by companies willing to do business at the BoP. Nonetheless, it gives guidance for any entrepreneur or company on what are the main questions to ask before going to these untapped markets, and on the traps not to fall in, the first one being: having erroneous prejudices about people living at the Base of the Pyramid.