By Perzen Patel
Affordable products, such as solar-powered lamps and mobile chargers bringing energy to previously off-grid communities, are often referred to as innovations for low-income markets. While products are usually referred to as innovations, service models – such as Business Process Outsourcing companies based in rural areas generating local employment through tailored service models – can also be high-impact innovations addressing issues of sustainability.
The common factor, whether it be a product, service, process or technology, is that these innovations can create value for low-income people to improve their lives in the long-term.
While the impact created by such innovations is being increasingly demonstrated by several enterprises in India focused on low-income markets, such as lifestyle enterprise Mother Earth, rural hospital provider Vaatsalya, and solar energy company Barefoot Power, more relevant innovations must become mainstream in order for their impact to be truly maximized. These innovations must be able to realize scale not only geographically but also across markets and be made available to the masses.
However, within India’s evolving startup ecosystem, mainstreaming innovations with strong social impact – especially those for low-income markets – while rendering a venture financially viable is often challenging.
Consider this, a startup providing rural homestays in remote villages of the Himalayas and providing additional revenues to resident low-income families has the ability to setup enriching and memorable tourism experiences. However, the entrepreneur may often struggle to implement small, inexpensive improvements to create the added willingness to pay an increased tourism fee. Without this added business expertise, the long-term profit and scalability of the enterprise cannot be maximized.
In scenarios such as the above, Rohit Luthra, Managing Partner, PVC Partners and a mentor at Ennovent, suggests, “A mentor who has had good exposure in global travel could add value. A mentor could not only convey industry knowledge but could also enable the enterprise leverage added resources through his or her mature networks, thus deepening the business impact and profits.”
While both the mentor and the mentee could benefit by connecting with each other, with the former potentially receiving milestone-based equity in exchange for expert mentorship to the latter, the Indian ecosystem for mentorship is arguably weak.
Where relevant incubation for low-income market focused businesses does exist, the emerging business models are the result of a silo approach. The result is often early-stage businesses that do not have adequate strategic partnerships in place, rendering them more high-risk from the point of view of an investor.
Karan Gupta, India Investments Manager at Insitor Fund notes, “Yes, these incubators provide mentorship and in some cases access to funding. However, they need to focus on building strategic partnerships so that entrepreneurs can connect to hospitals and run pilots for affordable healthcare models or academic research centres to facilitate product design R&D. Currently, without these partnerships, the investors have to undertake higher risk which ultimately limits the number of ideas that can be successfully taken to market.”
In India – especially in low-income markets – there is also a significant distinction between urban and rural ground realities, which results in challenges to mainstream innovations for low-income markets. One need only move 50km away from a metro for everyday urban accommodations – such as 24-hour access to electricity, safe drinking water or affordable healthcare options – to change.
Therefore, when evaluating how an enterprise focused on low-income markets can realize scale, both entrepreneurs and investors alike must consider how local realities can impact consumption, production, distribution and operations. Moreover, how those realities may change swiftly between rural communities should be considered.
To put the challenges of funding innovations for the mainstream into perspective, Luthra mentions, “There are enterprises I know that have been in business for over 10 years and are only just turning over a revenue of Rs 40 - 50 lakh annually. However, these enterprises are impacting over 300 families.”
Due to the fact that the financial revenues or profitability demonstrated by low-income market focused ventures can often act as an antithesis for mentors and investors alike, entrepreneurs often find it hard to source the correct type of funding required for their venture to scale. For example, the amount of funding required by a growth stage venture in rural India is often the same amount of seed stage funding required by an R&D-focused urban enterprise.
Therefore, when sourcing funding, entrepreneurs should highlight the social return on investment to enhance the value proposition to investors. Conversely, investors should utilize an additional layer of matrices when conducting due diligence for these enterprises. It is only when stakeholders are able to adequately relate to the context in which these businesses operate and what ‘scale’ means in the particular market, can important seed and early-stage funding be raised to mainstream the innovations.
It is clear that for innovations to become mainstream, a multi-pronged approach is required to create and leverage the significant opportunity India presents as a market. While governments continue to focus on long-term ecosystem development, it is up to ecosystem players working with many stakeholders to create platforms that provide flexible support to entrepreneurs on multiple levels. It is through this holistic, yet tailored approach that both commercially and socially viable innovations can become mainstream and improve the lives of those in low-income markets.
Perzen Patel is a communications and events professional that proactively supports the strategic development and execution of Ennovent's marketing and communication campaigns. Perzen started her career as Events & Marketing Coordinator at AUT University in Auckland, New Zealand and has a strong interest in all things entrepreneurial. She is also a regular contributor at NextBillion, SocialStory, Ecopreneurist and The Rodinhoods. Ennovent aspires to accelerate and mainstream innovations for sustainability in low-income markets through the Ennovent Circle – a global group of entrepreneurs, investors and mentors that work together to grow operations, provide funding and scale impact.
Ennovent is an innovation accelerator. We provide services to accelerate for-profit innovations for sustainability in low-income markets in developing countries. We specialise in helping clients discover enterprises with novel solutions, develop business models to start-up enterprises, provide finance by facilitating early-stage investments and grow operations to scale profit and impact. Since 2008, Ennovent has worked with over 4,800 Network members, 15 Circle members and 10 Solution clients to accelerate over 80 innovations in 10 countries.