The Poor are Human too!

Why did I choose a picture of shoes?

If you're shopping in an Indian metro, a pair of shoes will cost you ~INR 2000. If you buy your shoes on the street-side stall they'll cost your ~INR 200. Given how ubiquitous these stalls are, you'll find access to a massive selection at almost any market, and you'll never find it hard to get personal service. In fact, if you happen to look like a tourist, you'll likely be mobbed by stall owners selling their wares, with deep discounts on offer if you know how to bargain. If you're 1 of India's poor billion, you likely shop here.

Inversely, if you walk into the middle-class malls in Indian's growing urban centers, you'll pay a fixed price and choose from a limited inventory. You might find 2-3 sales people, who depending on their salary structure may have little incentive to lavish service on you. If you're looking to distinguish yourself as the middle class, then you might shop at such a store.

What's the dichotomy here?

If I'm interpreting this correctly, the street side stalls offer more convenient service at a faction of the price of the name brands. The material might not be as soft, and perhaps the fit not as snug, but if you (like any poor person) are price sensitive, then who cares? The mall has nothing to offer you. There is no clear motive to move upmarket. So why do so many development-focused firms pretend that there is?

What does this mean for Walmart?

Walmart might the latest foreign investor to try its luck in making money at the bottom of the pyramid. Since C.K. Prahalad published his ground-breaking article in 2004, hundreds of companies have taken the bait. There have been some inspiring success stories; most notably the telecom revolution led by Reliance in India and others elsewhere.

But the critical reason that Reliance succeeded where others failed might be due to an absence of alternatives. Cellphones never competed with land-lines for the poor. Cellphones never competed with a postal system or telegraph geared to serve the poor. Cellphones were a disruptive marketing-making technology that changed lives.

This is not the Walmart story. Walmart will be competing with every local food and grain vendor in India for market share. If Walmart plans to make its fortune selling to India's huddled masses, then it must do so by undercutting the local street stall. Inflation and rising food prices might help Walmart out, but only so far. Eventually, Walmart must sell food that meets a certain standard and pay its employers a certain wage. It must pay accountants and HR and marketing and any number of overhead expenses. The street side competition faces no such constraints.

If the battle is for price, then Walmart's outlook might be grim.


What does this mean for the Poor?

The fundamental flaw is that we make products for the poor but forget to actually market to them. We forget that, just like us, they have a slew of options they are choosing from and preferences that shape their decisions. The challenge is that their decision set might be a far cry from ours. You can create sanitation systems for the poor that eliminate disease and increase life expectancy. But as long as the systems costs more than taking a shit on the road-side, what incentive do they have to change?

Our problem might be than in our rush to help the poor, we treat them at "the poor". They are not "the poor". They are humans who happen to be poor. Yet they are capable of the same complexity of decision making and choice as the rest of us. The goal is NOT to make a "Fortune at the Bottom of the Pyramid". The goal is to make a Market.

Figure out their wants and needs, their set of alternatives and preferences, and then you might stand a chance of making a sale.

For more on this topic read: The Problem with the Poverty Premium

Guest Post: Thoughts on Turkey and my trip to Istanbul

Authors: by Edem Seshie
Source: Guest Post

Darden's Global Business Experiences (GBE) are an incredible opportunity to experience a new country with a group of peers. This past spring students from Darden visited countries ranging from Istanbul to South Africa and gained value experiences and insights. We asked First Year student Edem Seshie to share a bit about his experiences and what he learned during his trip to Turkey.

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The sense of new hopes rising out of old gloom is as palpable and obvious as the new architecture and skyscrapers rising out of the ruins of ancient Constantinople. There is such enthusiastic optimism among Turks about the future of Turkey, and so much of it cast in the light of Turkey returning to its former glory in a modern world, that you might just be left feeling like most people recall the glory of the Ottoman empire from memory rather than envision it from history.

But it is not hard to see why! Circled by what is left of the Roman walls that used to protect Constantinople from invaders, Istanbul is an orchestra of old and new tones; Timeless monuments and their stumps blend rather comfortably with modern glass as dual carriage roads run under roman aqueducts and turn unexpectedly into narrow pavements that were probably made for horses and carriages but now serve as shortcuts around traffic for knowing locals.

Within walking distance of each lie the exaggerated magnificence of the Blue mosque and the underestimated mystique of the Hagia Sophia, while the engineering genius of the Justinian cisterns offers a practical contrast to the celestial aura of such iconic religious edifices… But Turkey is not all about old monuments and new physical structures. I went to Turkey as much to see what an emerging market looked and felt like while it was still emerging as to see the vestiges of an ancient civilization. 

Turkey is probably better known today for Turkish airlines than for its rich history.

Turkey is doing well for itself, recovering from successive financial crises of its own, it has not failed to learn the lessons that come out of a crises; in fact some thought leaders hold the opinion that those crises saved Turkey from itself. I agree.

Today Turkey holds itself to and meets the Maastricht criteria while most of the countries that developed it are yet to follow. It also has a very well regulated banking sector. The state is exiting most of the businesses it controls even though it still retains some interest in most. At a nominal growth rate of 7.4% in 2012, Turkish GDP continues to grow fast and incomes have nearly doubled in the last decade.

The banking sector remains a large component of Turkish GDP, with private sector credit at nearly 70% of GDP in 2011 according to the WorldBank. Agriculture remains the largest employer, accounting for roughly 30% of employment, and while economic institutions are credited with doing a good job of monetary policy, Turkey's reliance on oil imports means there are powerful exogenous pulls on inflation beyond monetary policy. 

Women are a very active part of Turkish economy; the largest bank in Turkey has more female employees than male employees, and not just in low to middle management positions.

Some of Turkey's bolder ambitions include replacing Dubai as the new financial hub of the Middle East. It also includes a new international airport at a cost of 7 billion Euros and a capacity of 90 million people initially, to eventually rise to 150 million passengers a year. Europe's busiest airport (Heathrow) currently handles roughly 70 million people and the busiest airport in the world handles less than 100 million people. On the other hand, traffic at Turkey's main airport, Ataturk international airport rose by 20% to 45 million people last year alone. As to whether these are achievable ambitions or illusions of grandeur, only time will tell.

Turkey's institutions of state are now more solidly civilian and there's every reason to believe that Turkish democracy will thrive, even if the long and unending trial of some top military officials is a black box that even the most educated in Turkey are unable to see through. Things are looking good for Turkey, with a very young demographic (about 60% of the population is younger than 35), it has the second largest army in NATO and is now a more important trading partner to the USA than Russia (even though that may be due mainly to airplane imports).

With Europe mired in debt and hardly growing, most people have wondered how it benefits Turkey to join the European Union, and Turks have started asking themselves the same question; but the answer probably has more to do with politics and prestige than economics.

It seems to me thought that modern Turkey is almost all in Istanbul; this is not lost on the decision makers either, and there appears to be real efforts to extend development and education to all parts of the country. 

Maybe when one day I return to Turkey, they will be a highway from Ephesus to Istanbul and a high speed train from Istanbul to Ankara…which is the capital of Turkey!

Oh!, but that high speed train is already underway and expected to be finished in 2014.

Bye now, time for a boat cruise on the Bosphorus and a dinner with the Usman's later!

Ottoman is the western European mispronunciation of Usman that stuck with the empire.

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Edem is an entrepreneur with experience in investment management. A native from Ghana , he is a poet and a quant, and plays a mean game of chess.

Are MBAs a bad fit for start-ups?

Authors: by Chirag Jain
Source: Emerging Markets Development Club

WSJ recently posted an article by Vivek Wadhwa, a professor at Duke University, title Why I don't advise startups to higher M.B.A's. The thrust of the article was that the skills and frameworks that these programs encourage are a bad fit for the current climate of rapid evolution in the start-up space. While the logic seems reasonable and the arguments occasionally ring true, this begs a far larger question.

Why do I see so many existing and aspiring entrepreneurs in my MBA classes?

Have these students been deceived? Are they sinking massive sums of money based on false promises? Our culture is replete with a pantheon of entrepreneurial rock stars who have ascended corporate america without a masters on their resume. One can argue that reality is the best teacher, and the best and cheapest education we can find is the failures and successes of trial and error. From Malcolm Gladwell to Socrates, we have seen the value of practice and real-world experimentation in driving true learning. So why enter the ivory towers of a 2-year degree churning institution? If you want to start an enterprise (socially driven or not) just do it! How many avid entrepreneurs have entered an MBA program, only to be lured by the fat compensation offered by larger corporations?

While hardly a comprehensive response I'll offer one thought that might content the above sentiment.

  "Learn from the mistakes of others. You can't live long enough to make them all yourself"

- Elenor Roosevelt

The best things you'll learn during your MBA will come from the hard won experience of your peers and faculty. More than a deep curriculum, it is the deeper insights of a collaborative institution that will make you a more complete leader, and in some ways a more complete person.

I'm not saying that an MBA is the best option, and perhaps here is where all you current entrepreneurs  BVIP and Incubator entrants and EVCC members can chime in. I'll ask you to read a post by our Dean Bruner that includes his own thoughts on this topic. 

If you had to do it all over again, would you do anything different?

What helped? What hurt?

What can we do better?

Disruptive Development: Just Give Money Away?

Authors: by Chirag Jain

Source: Emerging Markets Development Club

I'll confess that I'm still fairly new to the aid and development game, but there are some age-old maxims we are all taught as we enter the fraternity of caring. DON'T GIVE MONEY AWAY.

I heard it first when it came to dealing with people on the streets of D.C. You can buy goods or services, or give a gift, but never give money. We've heard the horror stories of aid based dependence and how free money distorts free markets and stunts future growth. So why is there a new social start-up whose entire business model is based on pure transfer of wealth. The program takes money from donors, and promises that 90% of that cash will arrive directly in the hands of the needy.

So why was this particular firm featured on the HBR blog? Its because in an age of preachy storytelling, loosely linked aid goals and a healthy dose of skepticism, GiveDirectly is attempted to back its claims with the numbers.The money arrives with no strings attached, and evidence is gathered to support the merits of the program.

• Cash transfers have show to benefit children by decreasing both physical and psychological stresses. A study in Uruguay showed a significant impact on low birth weight. Schooling and child labor are also positively impacted.
• Cash transfer create long term wealth. One study found that 5-years later, annual income for the group of men had increased 64-96%
• The poor don't abuse cash. Their studies show no increase in spending on alcohol or tobacco, nor a drop off in hours worked.

A decade of micro-finance experience also seems to back up the fundamentals behind a cash transfer. Inconsistent cash flow and low access to credit styme efforts for the poor to exit subsistence and a cash transfer can provide critical liquidity to invest as they see fit. However, as in all things, design is critical. South Africa and India are notable in having large government-run cash transfer programs, and both are well studied. There are numerous lessons in proper program design but the fundamentals are still compelling. This year, the Indian government will put billions of dollars in cash directly in the hands of its poor in one of the largest welfare initiatives in history.

But perhaps the most interesting idea is one proposed by Jacquelline Fuller.

"Investments in common goods such as roads, schools and wells are critical in helping people out of poverty. But GiveDirectly has a new concept: What if cash transfers are used as a standard benchmark against which to measure all development aid? What if every nonprofit that focused on poverty alleviation had to prove they could do more for the poor with a dollar than the poor could do for themselves?

In this world, cash transfers could play a role like index funds play for private investors: They could be a sizeable share of your philanthropic portfolio and a benchmark used to evaluate more expensive, "actively managed" investments. We'd learn more about which programs need additional funding and which are falling below the "direct to the poor" mark."

In a world where it's hard to know if we're really making a difference, then perhaps an organization that is focused on doing something very simple-extremely well might be just what is needed. We need to figure out the value of the bare minimum, and if we can measure what happens when the bare minimum is executed well, perhaps we can get out of our own way, and allow a difference to happen on its own. It might bruise our ego, but perhaps we can hold truly to the notion that it isn't about us.

Why Mobile Ads in Emerging Markets are the Future

Authors: by Zoe Fox
Source: Mashable

There are 5.3 billion mobile subscribers around the world, meaning 77% of the world's population uses a phone. The majority of those users — 3.8 billion or 73% of the group — live in emerging economies. Yet mobile advertising dollars spent around the world do not begin to compete with traditional platforms or Internet ads.

As the Internet spreads throughout the developing world, it's arriving on phones before traditional computers. Some 70% of Internet users in Egypt, 59% in India, 57% in South Africa, 50% in Ghana and 44% in Indonesia get online via mobile phones alone.

This Jana infographic poses a question for advertisers — how will relevant content be delivered via mobile device? One idea: in Brazil, 74% of mobile users said they would like to receive advertisements in their devices in exchange for voice minutes.

What insights can you glean about how companies can engage with the emerging market middle class? What might be the short and long term impacts of these decisions?

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