Archive | November, 2009

Is a for-profit model a silver bullet for the Bottom of the Pyramid?

23 Nov

The last few months have been very hectic for me getting things operational, getting the marketing going and also trying to raise funds for operations.

Fund raising for operations is one of the biggest challenges we face and one of the questions I hear very often is why is a not-for-profit and why it isn’t a for-profit social enterprise. I explain that our model is unique, we are pioneering something new to the world, it involves crowd sourcing and support from thousands of microlenders and that a sustainable not-for-profit model or a social business model works the best for us. However, the feeling I get on several occasions is that a large number of social investors, philanthropists and even many foundations nowadays have already made up their mind on the type of organization they would like to support and believe that all social enterprises need to operate in a for-profit manner giving reasonable returns and in many cases lucrative returns to their investors.

For those who can pitch their organizations in 30 seconds indicating how their social enterprise can help mitigate a social problem and also give returns to their investors I think there are a large number of investors willing to lend an ear.

On the other hand, for those who have started non-profits however innovative, I think it is quite hard to raise operational funding. My most recent experience was in a discussion with a billionaire who thought United Prosperity was a great idea. But he simply walked away in the middle of a discussion when I told him that United Prosperity was a non-profit and I had no intention of turning it into a for-profit enterprise in the near future. And in our discussion I had also not solicited any funds.

To me these incidents serve as a cautionary tale of how far mainstream thinking and perception on social enterprises has gone from the actual ground realities. I think there are social enterprises which should be for-profit enterprises, several need to be non-profits and we need many more social businesses. In my opinion, for-profit social enterprises are not a silver bullet for all problems at the Bottom of the Pyramid and an ideological worldview that only for-profit social enterprises can scale and be sustainable can be pretty short-sighted.

My view that there is a huge role for non-profit social enterprises was further re-affirmed when I heard the presentation from Operation Asha at the IDCA Seventh International Conference-Chicago where I was also one of the speakers. Operation Asha is treating Tuberculosis (TB) in the slums of India. Despite the fact that TB is a treatable disease, it has assumed epidemic proportions in India, claiming the lives of 400,000 and newly infecting 2.2 million every year. India has the highest proportion of its population, 3.3 per capita, infected with TB and accounts for one-fifth of the world’s TB burden.

There were several things about their organization which impressed me a lot:

-They serve the poorest of the poor.

-They are very customer centric in their approach. They have outbound health workers who visit patients at the patient’s home and they also have several TB treatment centers close to the slums so that their patients don’t have to spend time and energy or miss a day’s work to visit these centers. While most government centers remain open from 10:00 AM to 1:00 PM, their centers are open from 7:00 AM to 9:00 PM so that their patients can visit the center at their convenience without missing a day’s wage.

-They practice stringent cost control and the cost of the treatment over 7 months was only $15.Interestingly, the patient needs to go to the treatment center about 70 times during the therapy over 7 months. The low cost speaks highly of the operational efficiency despite the extremely high level of transactions.

-The have leveraged the support of the community, corporate and the government very well.Operation Asha has access to free supply of medicines from the government. This takes care of 3/4th of the total cost. Further, with the space and services given by providers for a modest payment, every dollar is leveraged 35 times. Thus, with an investment of $15 only, Operation Asha is able to provide medicines and services worth $350 and treat a patient for the entire period of therapy, which lasts seven months, on average.

-Each of their centers becomes sustainable from operations in two years.

-They have achieved remarkable automation of their operations and were piloting bio-metrics with Microsoft.

I don’t know how hard it has been for them to raise funding, but anyone would agree that the work they are doing is remarkable and in many areas worthy of emulation in so many areas. We are fortunate to have organizations such as Grameen Bank, Brac, Amul and Aravind which have done remarkable work at the Bottom of the Pyramid and transformed lives. Had the ‘for-profit’ filter been applied very early in their lives, we may have never heard of these remarkable organizations.