I recently spent four months in a small fishing village in the Ecuadorian province of Manabi with my two young children. It was even obvious to my children that most of the villagers were living in poverty and barely making ends meet.
The average income in the village is $20 a day, which is barely enough to feed a family. Although most children did attend school, many didn't have basic school supplies such as paper and pencils. After getting to know people better, many would mention skipping meals when they were low on money, or only being able to afford a bowl of rice. Few people seemed to have money saved for the unexpected. Instead they depend on friends and family during hard times.
Although some nonprofit organizations had a positive impact, there were also businesses that seemed to prey on lack of knowledge of budgeting and financial planning. People, for example, could buy electronics on credit, but they ended up paying double for the items with interest charges after a year or less. When speaking with locals, they didn't seem to understand this fact and were excited by the opportunity to own more stuff quickly.
For this reason, Ted London's new book, "The Base of the Pyramid Promise: Building Businesses with Impact and Scale," struck a chord with me. London explores how to build better enterprises that improve quality of life for the 4 billion people living in poverty in developing countries.
This market is largely untapped and misunderstood by much of the business community, creating an opportunity. In the book, London explores successes and failures of businesses serving the "base of the pyramid" and the importance of understanding the people and the unique challenges.
The book is basically a how-to guide in serving this market, which many businesses have not been able to properly reach. London highlights examples of companies such as Nike and CEMEX (the world's largest cement company). The former only reached the middle of the pyramid on a relatively small scale. The latter, however, created a successful new business model based on understanding the needs and values of local communities after developing long-term, learning-oriented metrics and co-designing a strategy that leveraged local partnerships. CEMEX created a profitable business serving the needs of low-income people, while also providing construction know-how and innovative financing to communities.
London stresses the importance of co-creating opportunities with the base of the pyramid (BoP), based on shared respect and understanding. This often requires insights into the informal aspects of the local business environment, such as social and ethical boundaries that may not be obvious to an outsider. These boundaries create both hurdles and opportunities that may not be initially obvious.
While socializing with some locals in Ecuador, the conversation turned to a new couple in town who had recently opened two businesses. A local business owner made a statement that they didn't understand how things were done in this town. As a result, they were stepping on the toes of locals, likely inadvertently. London has over 25 years of experience in over 80 countries, and that is clear in some of the statements he makes in the book.
"In BoP markets, most economic activity occurs in informal markets where transactions are largely guided by social norms, values, and tradition, rather than by formal rules and legal requirements," he wrote. "As a result, the ability to understand and respond to how economic activities are embedded in the social context is particularly important. Embedding requires becoming connected to, and integrated with, knowledge, resources, individuals, and organizations found in BoP markets."
Keeping true to the potential of serving the BoP, London also explores the topic of impact assessment. This seems like an important aspect, as it is can be easy to lose site of this when conducting business. The book includes an Impact Assessment Framework that explores how constituents are being affected. London takes a holistic approach by exploring not only economic survival, but also quality of life.
This issue of scale arises throughout the book, with several chapters dedicated to the topic. Creating partnerships with organizations in the developing world to leverage scale is one of the strategies presented for taking pilot projects to a larger scale. He takes partnerships a step further with the concept of collaborative interdependence, creating a dynamic web of partnerships that adjusts as the business and markets evolve.
"The Base of the Pyramid Promise" is a timely book, as many businesses look to have a positive impact on the world. Instead of merely helping businesses sell more stuff, the book offers a road map for increasing quality of life for billions of people. This is a must-read for anyone interested in such ventures.
Image credit: Book cover, "The Base of the Pyramid Promise: Building Businesses with Impact and Scale"
Sarah Lozanova is an environmental journalist and copywriter and has worked as a consultant to help large corporations become more sustainable. She is the author of Humane Home: Easy Steps for Sustainable & Green Living, and her renewable energy experience includes residential and commercial solar energy installations. She teaches green business classes to graduate students at Unity College and holds an MBA in sustainable management from the Presidio Graduate School.