'creaming off' the easy to reach BOP?
So social businesess are selling to the not-so-poor 'base of the pyramid' not the true bottom of the pyramid. It's obvious. But it's thought-provoking.
"Where is the BOP healthcare fortune?" by Andy Thornton in Stanford Social Innovation Review, states what we probably all already knew, but with clarity. That social enterprises segment their markets, and they prioritise those that are easier to reach: generally those on $2 per day and above, not the 50% below.
As the article says: The market is getting carved up, and early front-runners are accessing the easiest profits, not necessarily serving the highest need. I don’t believe this system is intrinsically a problem—quality healthcare services to any part of the BOP are innately valuable. However, market builders and funders must be clear about which segment of the BOP their activities are benefitting, and they should innovate to ensure that those at the very bottom do not get left behind.
We encounter this issue constantly in BIF and IAP. Last week in Nigeria we were discussing whether customers who buy a $30 stove with micro-finance count as 'Base of the Pyramid' because they are MFI clients, or if they run micro-businesses are they 'above the BOP'.
Whatever the answer, most inclusive businesses are increasing access to income, goods or services of people who had limited access before. That's great. It makes a difference to them and it 'counts' for us. But few reach the poorer segments. Is that a fact of business, or if donor funds are being used, is that a problem?
One the one hand I think we do have to be realistic. Businesses have to find a model that works. And donors should know what business can and cannot achieve. The biggest mistake in the hype around inclusive business is to forget that it is just one tool. Mistaking IB as a replacement for other development interventions and an all-pervasive solution to poverty is the biggest risk to the whole idea. I recently read a paper that examined how imperfect IB was against strong social and gender criteria and after several pages the final sentence drew its conclusion: 'The growth of private sector actors in development can only ever be complementary to foreign aid rather than its perfect substitute.' Blimey, really? That sentence should be the starting point for us all; none of us should need an academic to tell us that.
So the realist in me says that if inclusive business can deliver cost effective solutions that truly scale at the $2-3 a day mark, opening up options for people who certainly need them and previously lacked them, then that is fantastic. If someone who did not have access to healthcare now does, then who am I to complain that they are not 'poor enough'. The government programmes and aid money can then focus on the lower levels that IB does not reach.
But the questioning part of me still wonders. Is there more that could be done? If business models reach the better-off BOP first, will they reach down to the truly poor over time? Or do they need to innovate to those markets from the start? If that means more risk, slower time to market, higher investment, what are the implications for inclusive business, social enterprise and donor input? Is there a smart way for donors to cover the 'extra cost' of reaching down the pyramid, but still avoiding subsiding business models that just aren't that good? Can donors reach where investors cannot?
I don't have a solution, but I do think a helpful first step is to be clearer on which segments of the BOP are being reached by which business model. For many companies (though not all) this is difficult. Which brings us back to the useful evidence in Andy's paper and the related reports, and our emerging attempts in BIF and IAP to understand who is who. At least armed with information choices can be made. Trade-offs can be made if we choose to make them - between how many are reached and who is reached, how reliably and rapidly we expect results or want to take risks on tougher innovation.