Business Solutions to Poverty. Chapter 1 to 7

Ch 4: The author offer 6 reasons why business is ideally suited to fight poverty. What are these reasons? Do you agree?

+Profitable businesses attract substantial capital + Successful businesses hire lots of people +Successful businesses are capable of reaching scale +Businesses can marshal specialized expertise in design, financial management, marketing and admin. +Private businesses are less susceptible to political pressures than governmental and citizen orgs +Prosperous enterprises stimulate economic growth in the communities where they do business... Example?

Poverty can be eliminated by building multi-national businesses that cater to people living on $2 a day or less. What are the characteristics of these companies?

-Transform the livelihoods of 100 million $2-a-day customers within 10 years -Generate annual revenues of at least $10 billion -Earn sufficient profits to attract investment by international commercial finance

Make redundancy redundant.

If a rich-country engineer is asked to design a bridge capable of holding a 10-ton load, he's likely to build it to hold a 30-ton load to lower the risk of a lawsuit, should the bridge collapse. Because affordability is so much more impor- tant in poor countries, the legal risks are so much lower, and many people in the South think those of us who live in the North are nuts to insist on overkill

Durability doesn't last.

If you're offered two products, one costing a little more because it's guaranteed to last for 10 years, whereas the other may break in six months, chances are you'll pay the difference for what you perceive as greater value. But poor people don't think that way. They can't.

Use locally available materials.

In rich countries, designers often indulge the temptation to use imported materials to gain an edge in quality or aesthetics. For example, Apple paid through the nose to import tons of costly Italian marble for the floors of its retail stores because then-CEO Steve Jobs insisted on it. Locally sourced materials were available, of course, but to Jobs the aesthetic effect was paramount. Leave this approach to some future Brazilian or Indian reincarnation of Steve Jobs, and keep your costs as low as humanly possible by making use of locally available materials.

Chapter 1: The five-fold difference

The poor just get by. The poor receive little news. The poor rarely travel. The poor have very few choices. The poor live with misfortune never far away.

Transforming the market.

Think like Steve Jobs or Akio Morita ("I don't serve markets. I create them!").10 Your goal is to put a dent in the universe. A transformative new market will mimic the chain reaction in an atomic explosion, releasing energy to create yet bigger explosions. With success, your business will change economic behavior, create huge numbers of new jobs, and transform the character of villages around the globe.

The poor have very few choices.

We live in a world where the fin- est education, world-class health care, a plethora of food choices from around the world, a variety of safe and secure transportation options, and a functioning legal system are all within our grasp. For billions of poor people, all this is out of reach. They see one out of every five of their infants die of preventable illness. They're vulnerable to whatever else comes along in the village where they live, whether it's inferior health care, substandard food, dangerous transportation, or illegal activities by the police or village officials.

Ch 2: What are the lessons learned from trillions of dollars in foreign aid invested to eradicate poverty in the last 50 years has failed. What are those lessons?

True development rarely comes from outside Giveaways breed dependence an self-doubt instead of change Traditional approaches are ill-suited to fight poverty

The poor receive little news.

We are overloaded with information — an average of 5,000 ads per day,3 plus continual bombardment from the 24-hour news cycle—online, on TV, on radio, and in news- papers. Most of the information poor people receive comes by word of mouth from families, neighbors, and friends, and occa- sionally by radio, filtered through a village culture little influenced by national and global news.

The poor rarely travel.

Like us, you have probably traveled widely, at least within your own country, if not to other nations. Aside from occasional bus trips to cities to visit with relatives, and visits to markets in bigger nearby villages, the poor are likely to live and die in a single place, isolated from most of the world around them. As a result, they're rarely aware of the new ideas and new oppor- tunities that surface so frequently in today's fast-changing world.

Move forward by designing backward.

Often, the most effective way to optimize affordability is to go back through the history that led to the modern form of the technology. For example, today's air- conditioned agricultural combines evolved through a process that went from a sickle to a scythe to a scythe with fingers attached (called a rake), which bunched the grain as well as cut it, to a side-bar reaper, and eventually to a combine. But most farmers in Asia still harvest their small plots of rice and wheat with a sickle. They could put in their next crop much more quickly if somebody designed a modern version of the rake, using modern materials such as fiberglass to replace the wooden handle.

Ch 3: The author claims that foreign aid from rich nations to poor ones have been only been effective in two areas? What are they and why do you think that's the case?

( Health and Education)

How are we different?

~The poor just get by - they live in the here and now and not in the future ~ The poor receive little news - most comes from word of mouth and occasionally radio, filtered through a village culture "little" influenced by national or global news. ~The poor rarely travel and are isolated and rarely aware of new ideas or opportunities ~The poor have very few choices ~The poor live with misfortune never far away

The poor live with misfortune never far away.

All of us live with uncer- tainty every day of our lives: economic disruption, climate change, political conflict, natural disaster, the threats of war and terror- ism—any one of which has the potential to upend our lives. But for those who must get by on $2 a day or less, the uncertainty is far more personal, and more immediate: How will our family survive on one meal a day — or less — if the rains don't come early enough? Will the medicine from the "doctor" cure a son's latest bout of diar- rhea? Will the price of rice remain high enough come harvest time to assure the family a profit? Under these circumstances, planning ahead is a challenge at best. Because poor people must ask such questions, they suffer not just because their income is limited but because what income they receive is irregular and unpredictable.

Ch 5: Why do the author say: What are the 7 guidelines for beginning a new business and what does each of these mean?

1. Begin at the end with your goal? 2. Theory of change 3. Consider how your business can transform the market 4. Design for scale 5. Pursue ruthless affordability 6. Design for the last-mile distribution 7. Incorporate aspirational branding

What are the five reasons why business should become involved with Poverty?

1. Huge Market Opportunity 2. Crowded home markets for products 3. Disruptive forces 4. Growing interest within big business 5. Access to scarce resources

What are the 12 guidelines for achieving ruthless affordability?

1. Identify the heavy hitters 2. Put your product on a radical weight loss diet 3. make redundancy redundant 4. avoid bells and whistles 5. move forward by designing backward 6. make it as infinitely expandable as a LEGO set 7. Use locally available materials 8. Streamline the manufacturing process 9. interchangeability lower cost 10. durability doesn't last 11. right-size your product 12. make the last-mile delivery ruthlessly affordable

What are the eight keys to solving poverty?

1. Listening 2. Transforming the market 3. Scale 4. Ruthless affordability 5. Private capital 6. Last mile distribution 7. Aspirational branding 8. Jugaad innovation

Ch 3: What are the recommendations for govt priorities

1. Upgrading the legal system 2. expanding physical infrastructure 3. improving business conditions 4. simplifying procedures for registrations and regulations for businesses

Huge Market Opportunity

A virtually untapped market numbering 2.7 billion potential customers is simply too big to overlook. The emerging economies of the Global South, not even counting China and Russia, collectively generate $12 trillion, or nearly one-fifth (18 percent) of the world's total economic output.1 Remarkably, these trillions of dollars of purchasing power do not reside solely among the elites and the limited middle class of these developing nations: "In developing countries, more than 50 percent of the purchasing power resides in the [bottom of the pyramid] segment."2 These fig- ures reflect current reality, but as today's poor move into the mid- dle class, their purchasing power will multiply.

Make it as infinitely expandable as a LEGO set.

After miniaturization and affordability, infinite expandability is an essential factor in designing on the cheap. Initially, if a farmer can afford a drip system that irrigates only a sixteenth of an acre, design it so that he can use the income it generates to double or triple its size the next year by expanding the system he already has and not be forced to buy a new one.

Avoid bells and whistles.

Companies in rich countries typically com- pete (and persuade customers to "upgrade") by offering lots ofadded features that are often of dubious value. We're not just referring to software (such as the absurdly bloated program called Microsoft Word, which we're forced to use to write this book). This approach is also used to move buyers up to higher-priced models of cars simply by retaining a model's name while add- ing a few tweaks and jacking up the price during the next modelyear. When designing your product for $2-a-day buyers, be sure to include the features they want—and avoid the bells and whis- tles. If doing so allows you to leave out one or more superfluous components, all the better.

Ruthless affordability.

Design and implement ruthlessly affordable technologies and supremely efficient business processes, offeringprices not just 30 to 50 percent less than First World prices but often an order of magnitude less, or 90 percent.

Private capital.

Design for a generous profit margin so that you can energize private-sector market forces, which will play a central role in expanding any venture — drawing from a pool of trillions of dol- lars in private capital rather than the millions typically available for philanthropic or government-sponsored programs.

Last-mile distribution.

Design for radical decentralization that incor- porates last-mile (even "last 500 feet") distribution, employing local people at local wages in a marketing, sales, and distribution network that can reach even the most isolated rural people.

Scale.

Design for scale from the very beginning as a central focus of the enterprise, with a view toward reaching not just thousands or even millions of poor people but hundreds of millions. Scale isn't mysterious; it's fundamentally a mechanical process. You begin with a pilot project in, say, 50 villages. With success, you roll out to 50 villages per month, then to 250 per month, and later to 500 or 1,000, building on what you learn as you go.11 You always keep in mind that you've set out to design a global enterprise — a profitable and sustainable working system, not simply a product or service.

Identify the heavy hitters.

Determine which are the key contributors to the current cost of the product, and design around each one of them by finding trade-offs acceptable to poor customers.

Crowded home markets for products

Dig a little below the surface of many of Europe's and America's biggest multinational companies, and you're likely to find that a large and growing percentage of their profits comes not from their traditional homelands but from the emerging markets of the Global South. Increasingly, the world's leading businesses are coming to realize that establishing them- selves firmly in these new markets is a matter of corporate life and death. Notwithstanding the environmental problems caused by relentless industrial growth, the inescapable fact is that the trans- national companies that already dominate the world's economy feel they must find ways to extend their reach among the bottom billions. The world's 2.7 billion poor people are, for global busi- ness, "the New Frontier."

Listening

Don't look at poor people as alms-seekers or bystanders to their own lives. They're your customers. Always set out by purposefully listening to understand thoroughly the specific context of their lives — their needs, their wants, their fears, their aspirations.

The poor just get by.

Dreams aside, truly poor people can think about little more than simply surviving from day to day. You and we are free to indulge ourselves with luxuries—which most of us do to an immoderate extent—and a majority of us are able to set aside savings to attain future goals. They're forced to live exclusively in the here and now, without giving much thought to the future.

Ch 7: Step buy step analysis of zero-based design in practice

How to begin the process How to test the first prototype How to introduce a working system into a new country

Disruptive forces

Even a cursory reading of business history quickly leads to the realization that business is volatile and subject to fre- quent, sometimes disruptive change. One day General Motors is coasting along, the largest industrial corporation in the history of the world — and the next day Toyota is eating its lunch, selling millions of smaller, lighter, cheaper cars that respond to the Ameri- can public's growing appetite for fuel efficiency. Now Toyota itself faces a challenge from Korean and Chinese automakers, which are beginning to invade its markets. In business, life is change. No well- managed corporation with global aspirations can afford to over- look new market opportunities.

Traditional approaches are ill-suited to fight poverty.

Even the most prom- ising and cost-effective conventional development projects fail to make real headway against poverty because there is never enough money—either from governments or from philanthropists—to take them to scale. Both government officials and philanthropists typically want their names attached to high-visibility projects. They tend to shun the long-term, behind-the-scenes efforts required to foster changes in fundamental attitudes among the poor. (In some cases, particularly in authoritarian governments, attitude change is the very last thing they want!)

Make last-mile delivery ruthlessly affordable.

Once you've designed a ruthlessly affordable product or service, how can you deliver it profitably to the millions of $2-a-day customers who live in scattered and remote small villages of 300 households or fewer? After all, an enormous portion of the world's poor still live in such places, rapid urbanization notwithstanding. By the time a company pays for a small motorized vehicle and a person to drive it, the small volume of goods delivered in each village puts the company in the red. But there are ways to batch both the delivery of goods and services and the collection of products from far-flung villages to dramatically lower the cost of both last-mile delivery and last-mile collection. We'll have more to say about this in chapter 12.

Giveaways breed dependence and self-doubt instead of change.

Philanthropy isn't the answer, either. Despite the severely limited funds available, they're squandered on a great diversity of uncoordinated, small-scale efforts to address every problem under the sun. We can't donate our way out of poverty. Even Bill Gates, with $70 billion at his disposal, has referred to his wealth as a drop in the bucket in our $70 trillion global economy.4

Ch 2: How do you define poverty?

Poor people as we have come to know them in the Global South typically experience un- or underemployment; encounter barriers to oppor- tunity based on their gender, race, ethnicity, or religion; lack some or all of the basic human needs, including clean water, nutrition, health care, education, clothing, and shelter; and, all too often, lose hope and lack even the most basic self-esteem. To date, pov- erty in these terms is still the defining circumstance in the lives of nearly two out of every five human beings on Earth. Surely, some- thing can be done about this! some who live on $2 a day

Access to scarce resources

Poor people happen to live right next to a surprisingly high proportion of the world's natural resources, and their hands-on participation is required to gain access to these resources. Let's look at gold in the Amazon basin as an example, where tens of thousands of poor miners are participating in a renewed gold rush and polluting the planet in the process.5 Here's an oppor- tunity to create a new market that helps millions out of poverty — while sharply lessening the environmental damage by introducing more sustainable methods.

Right-size your product or service.

Small is still beautiful. E.F. Schumacher was right on target by writing beautifully about smallness, even though (in our not-so-modest opinion) he didn't focus enough on affordability and marketability. A modern combine doesn't even provide room to turn around on a typical quarter-acre plot of a poor farmer, much less to harvest the plot. Seventy-five percent of all farms in Bangladesh and India consist of less than five acres, and in China less than half an acre. Since most of these small farms are further divided into quarter-acre plots, this is the gauge against which any new technology for small-plot farmers must be evaluated.

Growing interest within big business

Some large corporations have already successfully demonstrated that an established company can move significantly down market and make a profit, while steal- ing a march on competitors. For example, Walmart now operates in 27 countries, including Mexico, Argentina, Brazil, and much of the rest of Latin America; most of southern and eastern Africa; and both South and East Asia.

Jugaad innovation.

The Hindi term jugaad connotes improvisation, working with what you have, and paying unflinching attention to continuous testing and development. A cynic might call it simply ingenuity.

Aspirational branding.

This is even more critical for $2-a-day markets than for those serving the top 10 percent. Without aspirational branding that generates in buyers' minds an appreciation for its most widely appreciated benefits and attributes, Coca-Cola is justflavored, fizzy sugar water, and a Mercedes is only a high-priced car. Branding convinces us that paying a premium for these prod- ucts will make our lives more rewarding.

Streamline the manufacturing process.

To gain the greatest cost advantages and bring maximum economic benefit to the local economy, you'll probably want to outsource manufacturing locally, at least at first. This will require that you identify available production facilities at any early stage and factor into your final product design their capabilities and procedures — and their advice about how to gain optimum efficiency. With labor costs so much lower in the Global South than in the rich countries of the North, it's sometimes far cheaper to substitute a simple manual step in the production process for one that's been carried out in a rich coun- try using expensive machinery — and this can result in employing more people, which is another plus in an effort to fight poverty. (For a discussion of techniques that can save money in the pro- duction process, please see chapter 10.)

Ch 5: Why do the author say: What does the author say is the biggest challenge?

To meet the biggest challenge in development — scale — your enterprise must aim to transform the lives of 5 million customers within 5 years and 100 million during the first 10.

True development rarely comes from the outside.

Top-down development programs administered by governments, international agencies, foundations, or big NGOs rarely work because they're so vulnerable to government corruption, bureaucratic inaction, the distance between the planners and the supposed beneficiaries, and both distrust and a lack of interest on the part of people who live at the grass roots.2 True development, as evidenced by meaningful, community-wide lifestyle changes, comes almost exclusively through the mechanism of the market, as growing numbers of individual poor people make conscious decisions to take advantage of new products, services, and ideas that they come across at the grassroots level—and as they take what they produce to sell in the market to rich and poor customers alike.3

Ch 6: Is there room for large multinational companies who only market high-priced products for the rich?

Yes. The development of a proof-of-concept prototype for a rich- country market may cost hundreds of thousands or even millions of dollars. Manufacturing a limited run of the product may cost hundreds or even thousands of dollars for each unit. Obviously, only when you can begin to produce a product at scale will it lower the cost per unit, which will continue to make your product more affordable as your business grows and volumes mount. You may well be able to negotiate a large-quantity price per unit with local manufacturers early in the process by guaranteeing large volumes once your pilot project proves successful. So—big surprise!—there is an intimate connection between scale and achieving the ultimate in pricing: ruthless affordability. Exactly the same process holds true for the costs and pricing of products for poor customers, except that dollar costs are much less at each point in the process. The first proof-of-concept proto- type for the low-cost drip system, for example, cost about $200. There's nothing magical about the process involved in rede- signing a $100 tool so that it can be sold profitably for $25

Put your product on a radical weight-loss diet.

You can cut the cost if you can find a way to cut the weight.

Interchangeability lowers costs.

You can design a hammer in countless ways — but there's only one way if you want to produce tens of millions of hammers at the lowest possible cost and ensure that a hammer produced a year ago in one country can be used in place of one that was lost this year in another country. And not only must the hammers themselves be interchangeable, but the individual parts they're made of must also be identical, since one part might be produced in one factory and another part somewhere else.

Ch 5: Why do the author say: Poor people have to invest their own time and money to move out of poverty

You have to offer products and services that poor people want and are willing to pay for. They've become your customers, not recipients of charity or unsolicited advice. They're in charge now. The simple truth is, you can't talk people out of poverty, and donating stuff to them usually won't make a lasting difference either.

Ch 3: Why are the authors skeptical about microcredit?

evidence is quickly mounting that many for-profit providers, as well as some nonprofits engaged in the $70 billion microcredit industry, practice fraud, demand usu- rious interest rates (sometimes even greater than those of mon- eylenders),18 and in at least two celebrated cases have made huge fortunes for their investors at the expense of their clients.19 In some countries, the results have been tragic: poor people overloaded with debt and nothing to show for it—and even, in one extreme case in India, a wave of dozens of suicides brought on by aggres- sive debt collectors. Worst of all, the expectations that micro- credit would bring about a renaissance among the poor, spawning new businesses that would provide a great number of jobs and lift millions out of poverty, have proven overblown. In fact, the overwhelming majority of microcredit loans are used not for busi- ness development but for consumption—as many as 90 percent,