‘Scale’ in the inclusive business context refers to the significant increase of impact and financial results over time. This increase can be due to the growth in the number of customers served or products delivered and in parallel the increase in the number of low-income people embedded in the business model.
D.light, an enterprise distributing affordable solar energy solutions for households, has so far empowered 49 million lives around the world. In West Africa, Fan Milk today offers unique frozen dairy products, juice and juice drinks to a total population of more than 200 million people inhabiting seven West African countries. More than 31000 bicycle vendors are currently working for Fan Milk. Significant impact, from a BoP (Base of the Pyramid) development angle, as well as from an economic opportunity perspective, can be realized when inclusive companies manage to reach scale – as the examples of D.light and Fan Milk show.
As of to date however just a limited number of such companies managed to reach scale. What stands on the way?
INSIGHTS: A crucial element to scale inclusive business is to understand the key drivers for low-income people to purchase or to get involved. Looking at the BoP, a group of 4.5 billion people, there is a lack of available information of what would drive a consumer in rural Nigeria to buy new dairy products or what drives purchases of solar lamps in Uganda. This easily creates a mismatch between supply and demand; Consequently the value businesses offer is often driven by a basic understanding of needs of the BoP and not by real market aspiration.
CHANNELS: One of the main challenges to scale inclusive business is the incapacity to build large distribution networks due to constraints in the operating environment (physical dispersion of population, poor infrastructure). FanMilk has succeeded, but how to replicate these models to sell nutritious food products for instance? Marketing channels are also often limited to radio or television while below the line marketing is often the most efficient at the BoP.
HUMAN CAPITAL and LEADERSHIP: Getting the right people with IB management skills is very challenging in developing markets. There is simply too much demand for well-educated people and little awareness of IB specific expertise among them. Inclusive business require a set of skills (e.g., brokering partnerships with NGOs) not always available at the company level. It also requires a leadership that is willing to venture into new business models.
FINANCE: For the majority of (impact) investors the risk profile of innovative business models and technology solutions for the BoP markets is too high and with an average 5 year expected exit, they find the time for return on their investment too long. It is also an unproven market where only few exits can provide evidence of returns.
INSTITUTIONS: There is a lack of inclusive public policies addressing bottlenecks of the business environment that would encourage the rise of inclusive business. For instance, enforcement of regulations on the trade of BoP products to deal with inferior copycats could be improved in the energy sector.
These 5 systemic barriers are known and mitigating these would allow more inclusive business to reach scale. It is up to each one of us to pick the one(s) where one can make a difference and unite with others to solve these systemic issues. Via the Inclusive Business Accelerator (https://iba.ventures), BoPInc and its partners are currently building a roadmap to work on these barriers, reach out to us for more information!
This blog post has been elaborated with the support of SNV and Nyenrode Business University.