Skoll Scholar and MBA student Austin Harris gave us this update from Day 3 of the Skoll World Forum.
SPEAKERS: ALEX SLOAN, JUDITH POLLOCK, CAMILLE SAADE, LIZ PATTERSON, HARVEY KOH
When pioneer firms attempt to introduce new innovations into bottom of the pyramid markets, they often face barriers to scaling the business models. Alex Sloan with the Skoll Foundation moderated our panel of speakers who highlighted these barriers and addressed ways to overcome them. The focus was impact through successful scalability, from the individual firm to the entire market.
Harvey Koh with Monitor Deloitte is a coauthor of From Blueprint to Scale, a report on the role of philanthropy in impact investing. Making reference to this report, Harvey discussed the “pioneer gap” in investment and how philanthropic money can be used to create inclusive businesses.
Harvey illustrated that introducing a working product into a market is not enough. Three essential criteria for firms to succeed:
Of these, scalability is the “hardest to crack.” He emphasized that scale needs to focus on solutions rather than the number of companies. Instead of simply focusing on the firm, you must extend to include external elements, such as government and supply chains.
What has become informally known as the “Easter Egg Model”, Harvey showed the links between the firm, value chain, public goods, and government to display all components involved in scaling a business model.
More than One Firm to Make a Market
Judith Pollock with the Shell Foundation added that scaling should be should not just be limited to the firm, but also the industry to expand the total market size. To scale an industry, it is helpful to have your product and service replicated by other firms. She shared the experience of the Shell Foundation in doing clean cook stoves in Asia. One firm was insufficient to tackle the total problem. The foundation sought to reduce the barriers to all firms in the industry, enabling them to get to market. The effort was on lowering barriers in the value chain, using existing distribution as an enabling mechanism, and dealing with financial constraints that limited inventory for merchants. Tackling all these elements enabled Shell Foundation to increase clean cooking stoves in the market from 100,000 to 1,000,000.
Camille Saade with FHI360 discussed his organization’s experience with treating Diarrhea, the second leading cause of death in children after pneumonia. The program in Uttar Pradesh delivered oral rehydration salts and zinc to children suffering from diarrhea. However, after 18 months, they found less than 1% use of zinc in the slums. Though subsidization, the program was able to incentivize distributors, starting at 70% subsidization and waning to 0% over time. They ultimately found 54% of doctors prescribing zinc. Now that the distribution barriers to market were addressed, other brands of zinc followed into the market, totaling 42 brands in the region.
Important Factors for Scaling
Scaling for a firm often entails more than increased production of product. The panelists offered other, often overlooked, factors for successful scaling. Camille emphasized the determination of the entrepreneurs and the long-term vision. Judith stressed the importance of establishing partners with common views and goals, and for reducing barriers of distribution and trade finance. Liz Patterson with DFID focused on the importance of establishing strong relationships between firms and local government.
Where are All the Impact Investors?
Developing markets, otherwise known as global growth markets, have incredible upside potential. However, the investment money is not following this potential. Harvey stressed that many investors want opportunities that already exist. Most investors are not interested in the risk and time in creating markets, which is often necessary in less developed countries.
Liz highlighted that regulations in government have also presented a barrier to investment. Judith emphasized that more success has come with philanthropic investment that is willing to tolerate the high risk space. She stressed that this investment needs to gain scope beyond the firm, and extend to the supply chain to achieve returns.
Difficulties with Push Products
How does one know if consumers in the developing world needs a particular product? Judith stated that there can be different reasons why a consumer does not connect with a product: she does not see a need, she is unaware of the product, or the new product does not fully meet her needs. Judith emphasized the need to get feedback from the target audience to ensure your product is meeting the necessary consumer criteria. Camille added that a focus on ease of access and proper pricing are also crucial when pushing products to consumers.
What Lies Ahead?
Looking towards the next year, the panelists offered how to continue closing the pioneer gap and building firms to build markets. Harvey noted the need to focus on industry facilitation. Camille concentrated on potential partnerships to form inclusive markets and work with competitors to grow the overall size of markets. Judith stated the need to use philanthropic money in high-risk areas to find what needs to be done to gain impact. Liz stressed the need to build investor confidence.
We extend a warm thank you to the moderator and panelists for illuminating difficulties for pioneer firms to get to market and scale. They all provided wonderful insight on the issues currently faced and offered promising methods to narrow the pioneer gap.