The "three billion customers" in the subtitle of Paul Polak and Mal Warwick's new book is a reference to the 2.7 billion people worldwide who live on less than $2 a day — those at the "bottom of the pyramid" (BoP), to use the phrase coined by C.K. Prahalad in his 2006 book The Fortune at the Bottom of the Pyramid; Eradicating Poverty Through Profits. According to Polak and Warwick, however, only one of the case studies in Prahalad’s book illustrates the successful execution of a business model based on serving BoP customers. Moreover, in the years since the publication of that groundbreaking book, many companies looking to do the same have failed, even as multilateral organizations, donor countries, foundations, and NGOs have spent tens of billions on development aid — with limited success.
In The Business Solution to Poverty, Polak, a pioneer in market-based ventures designed to serve the poor and the author of Out of Poverty: What Works When Traditional Approaches Fail, and Warwick, former chairman of the Social Venture Network and a co-founder of Business for Social Responsibility, describe "a set of ideas that we believe — in fact, we know — can help end poverty for hundreds of millions of families around the world." It's a sort of mantra they repeat in the same declarative, confidently optimistic manner throughout the book: Only "big global businesses launched either by independent entrepreneurs or by existing multinational corporations" can sustainably serve the poor, because they are the only enterprises large enough to attract enough capital to serve the needs of those at the bottom of the pyramid. Accordingly, Polak and Warwick write, each of these enterprises must set "a ten-year goal of building a customer base of at least 100 million, achieve revenues of at least $10 billion or more per year, and realize sufficient profitability to attract both indigenous and international commercial investors while minimizing [their] environmental impact."
Ambitious? Yes, but then they're talking about nothing less than ending global poverty. So how do they propose to do it?
The key, according to Polak and Warwick, is an approach called "zero-based design," which, they note, begins from "a position of assumed ignorance": Instead of thinking of ways to adapt existing product design to local conditions, "you assume that nothing you have previously done will be suitable...and set out instead to determine what poor people themselves believe will best meet their needs." The application of zero-based design to a business that can market an essential product or service to people living on less than $2 a day, in turn, should be informed by eight principles: a thorough understanding of customers' needs and aspirations; transforming local economies by creating entirely new markets; designing for scale as a central focus of the enterprise; implementing "ruthless affordability" technologies and "supremely efficient" business processes; designing for a generous profit margin that energizes private capital and market forces; designing for radically decentralized last-mile distribution networks that employ local people; aspirational branding; and flexible innovation.
Polak and Warwick elaborate on each principle in the middle section of the book, using Polak's experiences with International Development Enterprise — an organization he founded in 1981 that has introduced the treadle pump, low-cost drip irrigation, and new marketing practices to nearly twenty million farmers in South Asia and Africa — and his social venture, Windhorse International. Indeed, many aspiring social entrepreneurs will appreciate the specificity of their recommendations for rolling out an enterprise in "waves" — starting with fifty villages, adding fifty villages a month for six months, then a hundred more villages a month for the next six months — or "laddering" capital investments in the business: one to fund the pilot ($100,000 to $250,000), a second to fund its rollout country-wide ($1 million to $3 million), and at least one more to take it to scale ($10 million to $50 million). At times, however, the book bogs down in tedious repetition; the "Ten Practical Steps to Design for the Market," for example, overlaps with the "Eight Keys to Ending Poverty," which are repeated again under "What to Do Before You Launch Your Business."
That said, the most interesting chapters are built around case studies of how IDE researched, designed, tested, refined, and marketed a low-cost drip irrigation system, first in Nepal and then in India, Zambia, and Zimbabwe; how the D-Lab team at the Massachusetts Institute of Technology created an affordable technology that enabled poor families in Haiti to make charcoal from agricultural waste but ultimately failed to boost their incomes; and how Polak helped launch a company that sells safe drinking water to rural villagers in India — which, by improving their health, also will enable them to work more hours, earn more income, and save on the cost of often-bogus medicines. The chapter dedicated to the latter describes in detail the growth of Spring Health, as the company is called, from its planning stages, to the first and second beta tests, to the rollout, including the composition of the various teams and tasks involved in each phase of the process, as well as the venture's future plans for expansion.
For all their focus on the nuts-and-bolts of business strategy and execution, Polak and Warwick are not free-market absolutists. Despite their insistence that business is best equipped to fight poverty in the developing world, they acknowledge the work of multilateral organizations, donor countries, foundations, and NGOs in improving access to primary education, health care, and clean water and sanitation facilities. If foreign aid and well-intentioned development projects too often have failed in their objectives, they write, its is because such projects are predicated on a "top-down" approach and thus vulnerable to the forces of corruption, bureaucratic inaction, and the absence of trust between planners and the supposed beneficiaries. What’s more, "giveaways," whether from NGOs or national governments, do not engender a sense of ownership among the poor and often create dependence while wasting limited resources on poorly thought-out or uncoordinated efforts. And even the most promising and cost-effective development projects typically have trouble attracting sufficient funds to scale beyond a few local demonstration sites.
"We can't donate our way out of poverty," Polak and Warwick conclude. People are poor because they lack money, so the most direct way to address poverty is to help poor people earn more money — something the private sector does best. Indeed, Polak goes so far as to suggest that only investments in products and services that enable customers to increase their income by three times their investment within the first year are worth pursuing.
Where does that leave the public and philanthropic sectors? Because support for indirect approaches to poverty alleviation — combating preventable diseases, strengthening healthcare systems, and expanding access to primary and secondary education — have met with some success, they write, support for such efforts should be doubled. The public sector also has a key role to play in strengthening legal systems and the rule of law, upgrading physical infrastructure, and improving business conditions with an eye to facilitating private-sector investment. Meanwhile, the nonprofit and philanthropic — or "citizen" — sector should function as a watchdog that monitors and exposes government corruption; polices predatory business practices; pioneers innovative, market-based service delivery models; and works to build and strengthen civil society. More generally, Polak and Warwick call for a shift in mindset from one focused on "service delivery" to one that emphasizes building the "capacity of poor people for self-governance by collaborating more closely, by pooling...widely scattered resources through joint efforts on a larger scale, and by taking direct action to support the emergence and replication of scalable, market-based solutions."
The book concludes with a description of four companies Polak himself has incubated — in part because he couldn't find, back in 2010, a social enterprise to invest in that met his criteria. ("The mobile phone came closest, but that industry was not lacking for capital," he writes.) This seems an astonishing statement, given the increased focus on, and buzz around, social enterprises in recent years. But perhaps, as Polak and Warwick suggest, too many social enterprises are overly modest in their ambitions. "Don’t fall into the trap that snares so many social entrepreneurs: focusing on one village, one region, or even one country," they write. Still, while they praise organizations such as Partners In Health, CARE, Grameen Bank, and BRAC, their focus on Polak's own enterprises comes off as a bit self-serving; after all, the four companies have yet to definitively prove his concept, and the authors take pains to point out the many risks and challenges such enterprises invariably face.
While proponents of traditional foreign aid, development professionals, and multilateralists are unlikely to run out and buy Polak and Warwick's book, it's an interesting read that will inspire many a would-be social entrepreneur to rethink both the scale and scope of their ambitions. If, down the road, that leads to fewer poor, sick, and hungry people in the world, then its authors will have succeeded.