Is a business inclusive if its doing business in rural Africa? Why modeling economic capacity matters

Whether a business thinks of itself as inclusive or not, it must consider the sustainability of revenue streams and their expected duration, prior to committing themselves to infrastructural investments in rural locations of the global South.

Those that position themselves as inclusive businesses – regardless of size, must consider the value being created for their target customer audience, in addition to the sustainability of their own revenue streams (Schoneveld, 2020).

But for those who simply see the business opportunity in infrastructure deprived parts of the developing world, in particular, sub Saharan Africa, the concept of value creation is seen as a commercial transaction, first and foremost. We will bring our services to you and you will pay us for it.

The challenge of executing such a simplistic notion is exacerbated by the need to ensure customer retention after acquisition, and often, customer acquisition in the first place. Such businesses resist the notion that they are there to uplift the population or enable the socio-economic development of their target audience preferring instead to focus on the bottomline of returns on their investments in infrastructure for service delivery.

“Inclusive business” therefore could be considered a mindset or worldview of the business choosing to target under-developed regions or less privileged population segments, rather than a default stance adopted due to the target market’s relative development status. Since the focus of this writing is not to dive into the legacy development of the concept of inclusive business and related themes of ‘bottom of the pyramid’ (Prahalad, 2009); ‘doing business profitably with the poor’ (various INGOs); I will pick up the untouched issues regarding this statement of mine in a subsequent post.

For now, I want to explore more deeply the market entry strategy for businesses (Bhan, 2014) that think of themselves as simply doing business albeit in challenging and adverse operating environments. I bring this up because the history of mobile telephony’s development and evolution in the harshest and most challenging environments, such as lower income countries, fragile and conflict ridden contexts, et al, did not begin with the idea that they could impact the ‘poor’ socially, even if they later discovered they did and could do more. Mobile telephony’s enrollment into development and poverty alleviation was an outcome of their growth rates and profitability rather than the reverse.

“Simply doing business”

When the lenses of social impact, development, or various forms of value creation expected of an inclusive business model (Schoneveld, 2020) are removed from the equation, the primary concern for such an entrepreneurial firm is site selection for investments in infrastructure for service delivery. Stripping away the fuzzier concerns that cloud strategic decision making in the boardroom means getting to the heart of the matter:

Can this rural market support the minimum required revenue flows, over the time it would take to pay back the cost of investing in extending infrastructure and services to that village?

I will cover two factors here today – the personal experience of being faced with this situation where the question was posed as a research & innovation consulting project, and some thoughts on the recent experience of economic analysis for site selection in conditions of volatile income streams and inadequate data. I have just recognized that I will not be able to continue working on refining the latter  into a viable tool and/or framework, if I do not first address the former, hence the blog format for this writing.

“Isn’t trying to calculate sustainable revenue flows another word for exploiting the poor?”

To be honest, even though I’ve spent years reframing the informal trade ecosystem in east Africa as a commercial operating environment in its own right and ranting on the need to recognize the professions and occupations of the informal sectors in manufacturing and trade, I was disconcerted when approached to do this project in rural east Africa.

My first response was to push back at the request that I attempt to arrive at a dollar figure for a rural target market – what do you mean you don’t want to offer them services if the village can’t provide you with X thousand dollars a month? What kind of monsters are you that you want to go in and exploit the poor African farmer when they are deprived already of the goods and services you want to bring to them etc etc.

Their pragmatic reply that they weren’t an NGO or donor supported and had to arrive at a realistic appraisal for site selection before investing in market entry led me to agree to give it a try, on the caveat that if my assessment of the village’s capacity to support their operations was in the negative, I would not hesitate to say so. I wasn’t going to betray my own long held values to help them exploit a population who probably did require their services.

The challenge was taken by the company and I sat down to design the mixed methods data gathering study I would need to do in order to best capture information that might enable me to calculate the annual “GDP” of a village. The results surprised me as much as Teresia’s annual investment capacity in goods and services served as the core for my TEDTalk in TEDGlobal 2017. After all, this was a rural context, not an urban one or a bustling border market economy.

Stripping out the non-essentials for ROI assessment

I am not saying that the plethora of social impact considerations that self-categorized inclusive businesses take into account are non-essentials, they are critical and important requirements for mutually respectful businesses. What I am saying is that I discovered that when all these other factors were forcibly stripped out for me, I was able to clearly focus on the business model design and the service delivery components related to pricing and payments in a pragmatic manner that allowed me to address the issue of how to sustain the basic requirements for a business in such a challenging market environment (Bhan, 2014, 2009) without external funding support or eventually abandoning the effort due to lack of revenue flows.

Schoneveld (2020) reframes this aspect as “businesses do not need to make a profit nor should they be a non profit, but they do need to ensure that sufficient regular revenue generation takes place to sustain operations” – I paraphrase his words here but they identify the key minimum requirement in terms of a sustainable ROI for any kind of business, regardless of how it perceives itself.

And, with the plethora of services being delivered through the private sector which were once the concern of the local or national government – utilities like potable water and electricity, and basic services such as education and healthcare – I have come to realize that if economic considerations are not addressed upfront, no matter how chaotic or challenging the informal economic ecosystem might appear, then the longer term social impact is far more negative.

Random testing and frequent iterations harms the company’s efforts and pisses off customers

Full stop.

This is not the first time I have gone into this rural and peri-urban operating environment for a company – Samsung (2008); Village Telco (2011); ToughStuff Solar (2012) – where pricing and product/service design were directly of relevance and interest to the project’s funders, and one big takeaway was commitment (Bhan & Tait, 2008) as a core value for sustainable business design for the next billion customers/bop/whatever you need to call them.

The biggest complaint from customers, particularly rural ones, has long been around far too frequent changes to pricing and other revenue model issues as companies attempt to figure out what works. From the customer’s perspective, it adds an unprecedented degree of volatility and uncertainty in an environment already characterized by high degrees of uncertainty and volatility. When perceptually stable formal economy companies with visible branding and modern technology begin to do this, it pisses people off – I’ll find more tactful words if I ever write this up more formally than my blog. Planning is already a challenge on irregular and unpredictable incomes, and anything that adds to this is viewed with hostility.

This goes counter to all the ‘design thinking’ approaches enthusiastically embraced by entrepreneurial firms looking to serve the poor profitably where prototyping and iteration as a means to discover what works is strongly recommended. From the revenue model perspective, this means frequent changes to pricing and service delivery design. And frequent, in the eyes of the farmer, can mean more than once a year. Under pressure to show results and/or ROI, such firms may test different models and plans far more frequently than once a year.

Ironically, their very efforts to acquire new customers and to retain existing ones might be the reason for the difficulty. Many businesses fail to thrive or sustain operations without injections of grants and donor funding. Many pull out after a few years, littering the landscape with their brands, products, infrastructure, and raising the bar for adoption for new firms entering the same market. It does not have to be this way.

What I learnt from my own recently completed project

Upfront revenue modeling and estimating prior to site selection for market entry is critical for ensuring a customer-centric market entry strategy. It lowers barriers to adoption, and encourages retention of customers.

Ensuring the selected market, region, village, or target audience has the capacity to sustain the business prior to site selection and investments made in service delivery infrastructure benefits both customers and the company. Neither will feel the sudden shock of having to withdraw services or shut down operations.

And, the company is less likely to make frequent changes to their service delivery or revenue model in their attempts to find a product/market fit for sustainable revenue generation and customer acquisition & retention..

Drawing from current research as well as the discoveries over the past decade, I share a few more highlights that can make or break the company’s launch strategy:

1. Rural markets experience significant changes to cash flows depending on the season. This is understandable for agriculture dependent markets when the harvest season, particularly if cash crops are grown, can be a time of surplus and spending. However, it is a factor still overlooked for the most part in project and intervention planning (Devereux, Sabates-Wheeler, & Longhurst, 2013) This factor has not changed since first identified during a multicountry and continent study of rural household financial management behaviour (Bhan, 2009), and to my surprise, mobile money while popularly adopted, has not made and cannot make a difference beyond the wallet’s ability to hold a store of value for short term cash flow management. This is a forthcoming paper.

2. Lack of liquidity still remains an issue (compared to Bhan, 2009) and accommodating this is key to success. A more nuanced understanding of this issue now would be to say that cash flows are not necessarily well distributed over the course of the seasonal year and this factor must inform the upfront market analysis conducted by the potential newcomer business to the region. As Yacine Bio-Tchane, a Beninese economist said to me today when I sounded the ideas in this blogpost off her in a skype call, the idea of profitability seems to have been forgotten these days. Regardless of intent, a private sector enterprise must generate enough revenue to maintain infrastructure and sustain operations.

3. Customer-centric behaviours and marketing. Too often underserved markets are assumed to be so hungry for a plethora of goods and services that even the most socially conscious inclusive business may forget that their target audience are still customers at the end of day, able to choose whether or not to pay for a good or service, and not passive beneficiaries who are beholden to take what they receive. Customer service and respect are also not unrelated to the issue mentioned above of far too frequent product and service design iterations in the name of design thinking and product/market fit.

In fact, the site selection exercise and market survey designed to assess the economic capacity of a location and its ability to generate a sustainable revenue necessary to maintain operations can itself be considered the first step in establishing a relationship with the intended target customer base. There’s a reason why rural regions are underdeveloped and lack essential and basic services that companies are moving in to provide – they have been ignored and overlooked.

A commercial enterprise does not have to think of itself as inclusive to think of people as potential customers and treat them accordingly. Respect and inclusion are two separate things, and often the former is ignored even while the latter is touted in branding and PR.


References:

Bhan, N., & Tait, D. (2008). Design for the next billion customers. Core77 Industrial Design Magazine and Supersite. Core77.com

Bhan, N. (2009), unpublished) Financial behaviour patterns observed among rural BoP households in India and The Philippines: Some early findings and the challenge they may pose to value creation for BoP ventures. Small grant competition award, The iBoP Asia Project & IDRC

Bhan, N. (2014). How Africa is Challenging Marketing. Harvard Business Review.

Devereux, S., Sabates-Wheeler, R., & Longhurst, R. (Eds.). (2013). Seasonality, rural livelihoods and development. Routledge.

Golja, T., & Po, S. (2012). Inclusive business-what it is all about? Managing inclusive companies. International Review of Management and Marketing

Ingenbleek, P. T. (2019). The endogenous African Business: Why and how it is different, why it is emerging now and why it matters. Journal of African Business, 20(2), 195-205.

Khavul, S., Bruton, G. D., & Wood, E. (2009). Informal family business in Africa. Entrepreneurship Theory and Practice, 33(6), 1219-1238.

Nagler, P., Naudé, W. (2014a). Non-farm enterprises in rural Africa: New empirical evidence. World Bank Policy Research Working Paper, (7066).

Nagler, P., & Naudé, W. (2014b). Non-farm entrepreneurship in rural Africa: Patterns and determinants.

Ngoasong, M., Paton, R., & Korda, A. (2015). Impact investing and inclusive business development in Africa: a research agenda. KD Working Paper No 76

Prahalad, C. K. (2009). Private Sector and Poverty: Progress at the Bottom of the Pyramid During 2004-2009. Pearson Prentice Hall

Schoneveld, G. C. (2020). Sustainable business models for inclusive growth: Towards a conceptual foundation of inclusive business. Journal of Cleaner Production, 124062.

Tchamyou, V. S. (2017). The role of knowledge economy in African business. Journal of the Knowledge Economy, 8(4), 1189-1228.

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