Today, social enterprises create products or services that target the bottom of the pyramid (BoP) market – an economic term referring to a group of 2.5 billion people living on less than $2 a day, customarily unserved and underserved by the private sector and as a result, lack access to many essential goods. Distribution of these products and services remain a critical challenge for social entrepreneurs, who have to deal with high operational, customer acquisition, and retention costs.
Last week, I caught up with Ajaita Shah to talk about the BoP. Shah is the founder and CEO of Frontier Markets, a company based in India that works with other social enterprises to distribute quality products to BoP households.
What led you to start Frontier Markets?
I spent 5 years working in microfinance in India (SKS and Ujjivan) testing a combination of product models such as energy and microfinance or health and microfinance, mainly because there was a consensus that loans were not enough for poverty alleviation. I tried models within the microfinance context only to learn that major needs are there, but the model is wrong – we can’t operationally manage such extreme services within the same company.
I also realized through spending time with microfinance institution (MFI) members that at the end of the day, they are consumers who have aspirations, demands, and a preference for quality, but lack the options, knowledge, and most importantly, choice. I wanted to start a company that operationally focused on services, but philosophically, focused on the BoP’s perspective – from their mouth, without bias. I had a lot of support from mentors in the space, from mentors outside of the space, and from friends in the sector. My gut feeling was this could work, but I would only know if I gave it a try. So I piloted a few models, spent my own money, got my team together, and started Frontier Markets (FM).
Microfranchising is proving to be an effective approach to extend essential products to the BoP market. Why is that?
Microfranchising is very challenging. To pick the right entrepreneur, help them grown, manage them, and then ensure you do not lose your brand, value, and mission is very challenging. Nevertheless, microfranchises are an avenue to localize impact and interaction. The more we try to localize, the better the penetration and chances for long term sustainability, and on a cost perspective, a lot less capital exerted on infrastructure. BoP households are very skeptical of outside, “non-local” interventions, and with more local intervention, we are able to create trust, ongoing systems, and accountability on the ground.
Can you name some learning points while working with disadvantaged communities?
The BoP are not naive but savvy, alert, and have high expectations. There are too many surveys, NGO and government in particular, that have left them irritated because there is no context to the questioning. Trust and accountability are very important – no longer do short term projects lead to massive support. Finally, money exists, it’s just finite. They are like investors – they are risk averse and assess value and opportunity cost of investing their money in one thing versus the other. The key is to understand their priorities and values.
What are your future goals for the company?
FM targets the access challenge faced by rural household for quality products. Over half the world’s population uses deadly cooking and lighting practices that kill over 2 million people annually, where half of these deaths are children under the age of 5.
Product solutions exist to fix this staggering issue, but the problem still lies in the education and distribution channel for these products that do not exist at scale. FM targets BoP consumers who have limited access, but high demand for quality and affordable energy products, reside in rural and semi-urban settings, and live in a households that make Rs 2,000-3,500 ($36-$63 USD) per month. These consumers often require a loan product to buy a consumer durable and are farmers, dairy laborers, MFI members, and more. They lack energy and access to markets to acquire products. This is a $2.1 billion market opportunity with a market of 600 million households and target consumers. FM is targeting 50 million households over 5 years.
An increasing number of students are choosing social entrepreneurship as their career choice. What advice do you have for someone wanting to enter the field?
Do not assume that an MBA in social entrepreneurship is the answer – most of us have learned by “doing” not by “reading”. Intern for a start up, learn the space, and do not expect high payoffs for it. The experience is beyond rich. With that said, after “doing” and understanding the space, an MBA is important to refine, reform, and finesse skill sets for the next level.
Be humble. Do not assume that because you’re educated from a “good school” and articulate well, you are better than the locals. They are required for success.
Spend time learning the culture of the country you want to work in. Knowing the language is a major plus.
Finally, do not expect exits and 5-year success stories. Real impact and success in social enterprises take time.
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