Building startups in developing countries

I've traveled to many of the countries in Africa, Southeast Asia, Latin American and South Asia, and I want to explore how startups can approach the developing world. How could entrepreneurs and organizational leaders conceive of a startup and then build and lead a team to penetrate those regions profitably? I gave a possible answer to that question in the "movie" framework example I used in my article, A movie to scale corporate social responsibility.

Years ago, I read the book The Fortune at the Bottom of the Pyramid (BoP) by C.K. Prahalad. The book presents the fact that there is a buying market among the 4 billion people who live on less than $2 per day, and if done right, startups could serve them. With that huge population, they have $5 trillion in purchasing power. The book presents many case studies of successful business projects and products marketed. What I did was to try to apply the "Blue Ocean Strategy" framework to this market, and gave a presentation called "Penetrating the bottom of the pyramid markets," as that strategy promotes going into unexpected markets and staying away from direct competition.

Just recently I read the book The Business of Changing the World by Raj Kumar. He tries to bring government sponsored AID, philanthropy and local business startups together to accelerate the reduction in global extreme poverty. He mentions early in the book that most people working in this field don't even feel they are in the AID industry, but healthcare or education. Or they are within some particular institution, like UNICEF. They don't know the overall industry and what is going on outside their specialty. 

One of the key things Kumar tried to do is explain what he calls "social enterprises" which have the core goal of serving people in extreme poverty. Another point that Kumar tries to stress is that good intentions are not enough. Investments of time, energy and resources must effectively and efficiently deliver direct, measurable results. Leaders have to monitor those factors to generate the greatest local, developing world impact.

Up until now, UNICEF, the World Bank and Oxfam addressed the above issues, but as time goes on, billionaire philanthropists, technology disruptors and social entrepreneurs will increasingly get involved. They will play an increasing role in global development, global health, humanitarian aid and environmental sustainability.

The end of charity

According to Kumar, 10% of all the people on the planet live in "absolute" or "extreme" poverty. That means they struggle to stay alive every day. That group is the target "customer" of our startup. This addresses issues like food availability, physical security, environmental destruction, educational access, childcare availability, health services availability, communication ability, community support, and many others, and through a startup, a leader can motivate people to care about those issues.

New startups now have technologies like internet connectivity, biometric identification and mobile banking that can address those issues. By applying those resources, a startup can determine what is working and making the greatest impact to improve lives and what is not. 

Kumar mentions three transitions in the aid industry which leaders should consider: 

1. A move toward more involvement by not just governmental aid agencies, but also by billionaire philanthropists, for-profit businesses, social entrepreneurs and wealthy investors.
2. A shift from an overall distant model of aid to a more granular frontline, localized model. This is where individual needs and detailed activities can be observed.
3. Funds are more targeted and tailored to individuals and communities and are iterated along the way with continual feedback. 

In the future, there will be a shift away from distant, good intentioned charities. Furthermore, in the future, there will be more monitoring and measuring of local impact results. This is where hands-on leadership is required.

Kumar states, "Old aid said: give things away for free. New aid says: where it makes sense, give things away for free but do so in a targeted manner." It is a long-term strategy to get local economies active, working and improving on their own and learn what's holding each local community back. Startup leaders must look at each community very carefully and present what they have learned to their startup members.

Noticing the above, the name the "AID industry" really should be changed to the BoP startup industry. Kumar thinks it should be named the "impact industry," concentrating on results.

Open philanthropy projects

Kumar believes choosing causes is the most important decision philanthropists can make. They should think hard about where their funding can help others the most. To maximize impact, Kumar thinks leaders and investors should prioritize causes based on three criteria: 

1. The importance to humanity must be demonstrated beforehand.
2. They serve human needs that are neglected by official aid agencies. 
3. The funds must be tractable, showing the results in actual data afterward.

An example is Good Ventures, which invest where there is maximum impact.

Return on investment in philanthropy (ROI)

GiveWell has thought about this, as it has developed a standardized rating system, including cost-benefit analyses when it comes to medicines provided that save lives. This information is on their website for all to see. They research where one can get the most out of their donations. If there are no measurable results, they will avoid the investment. 

A results-oriented approach unfolds very differently than just providing funds. To test possible donation results, perhaps pilot projects in targeted communities or to targeted groups with possible randomized controlled trials (RCTs) are required. Then, there should be a review of how those groups were favorably impacted by that test program. Once those results are learned and deficiencies corrected, then the next larger program can be rolled out. Even in the next roll-out, it will probably have to be with adjustments along the way. This is where real-time data dashboards for all to see are important including project tasks, milestones, timelines and degree of targeted improvement goals. Each deployment should be evaluated, tested, and the learnings applied to the next phase.

Never in the past has quality data-backed evidence been available. Now, it is and should be fully applied. Another source is the International Initiative for Impact Evaluation. They can prove what is working and what is not. 

Also, if you are interested in donating, but are concerned with results, Charity Navigator can be helpful. For any donation, look for the Charity Navigator approval logo.

Furthermore, think about foundation transparency. This is where organizations like GuideStar can be helpful. It incentivizes donating organizations to share a large amount of information about their work and how they measure success. 

For financial institutions, there are Development Impact Bonds that allow the investor to pay for results only, ensuring funds are not wasted and the risks reduced.

Just looking through all of those impact evaluators, if I want to establish a startup and build a team, using those measurements can help me convince my team members that what we are to achieve is very important. 

Additionally, for aid workers, Kumar presents a checklist of what makes the greatest impact. Where there are great and successful results, those should be listed high on the list, promoted, branded, amplified and multiplied.

Think investment not donation

If you want to achieve long-term success, you must consider investments and actively get team members and investors involved and interested. Kumar makes this point very simple: "There's lots of investor money out there, far more than there is philanthropic money. Think trillions rather than billions." That is why I started this article introducing the book The Fortune at the Bottom of the Pyramid (BoP) by C.K. Prahalad which looks at business opportunities. He believes investors can get returns from the BoP. Returns are not goal #1, which Kumar mentions throughout his book.

Local involvement

For any project to be successful, the leader must convince local people and recipients to get involved in the decision-making process. They must buy into whatever is decided. Simply, if medicine is provided, the patient must agree to confirm it is being taken.

Whether regarding health issues, education, employment, medicine distribution or any project, in decision-making, there must be detailed, in-depth and constant discussions with those most impacted. To achieve that, possibly training and experiential learning are required to most effectively get local communities involved. This is where the phrase "human-centered design (HCD)" Kumar used comes into play to engage people. It sees those people as stakeholders. One of the ways to do that is through social media. For example, UNICEF is using WhatsApp to communicate with young people, obtaining their opinions, concerns and aspirations regarding schooling, healthcare and a wide range of development issues. Furthermore, regarding political issues, people can turn to U-Report to get reliable information.

Micro financing, personal identities and credit ratings

Where does someone in the developing world go to get very small financing? The famous source is Grameen Bank, which specializes in serving the poor. But, also there is BRAC in Bangladesh who have over 120,000 employees working on health and /nutrition, childcare, clean water and sanitation, not to mention adult literacy. The leaders of this organization have inspired these people to be proud of what they are achieving. Also, someone that has an idea doesn't have to give up because of lack of funding. There are funding methods and those methods should be promoted and exposed.

15% of the world have no registered identity but 50% of the world has internet access. Through internet inclusion, banking, financing, identity registration and credit ratings can all become possible. Almost all people have credit ratings in industrialized countries but only 30% globally. That will change in the future with less costly communication devices. Even in the least developed countries, creditworthiness can be determined. An example of this is Tala loans which developed a smartphone that can determine one's credit risk. This is being used by 1.5 million customers in Kenya, Tanzania, Mexico and the Philippines to date, resulting in lower interest rates. This credit rating and money transfer function have made Kenya's M-Pesa mobile service extremely popular. Now, financial services, insurance and savings are more available in developing countries. Here again, the leaders of both Tata and M-Pesa have given us all great examples of what people in those organizations can be proud of.

Defining the "social enterprise"

Based on Klaus Schwab's book Stakeholder Capitalism, I talked about social impact in my article, Globalization and industrial revolutions. There are public companies that have in their charters a limited profit regulation, with their main attention focused on serving the community. Also, in my article, The corporation board of stakeholders, I recommended a "Board of Stakeholder" to make sure social value is of the highest priority. This is very similar to what Kumar is calling the "social enterprise" with their attention on suppliers, the customers being directly served, the community in which they operate, the local and global environment, the broader society and the organization itself. He believes this social mission must be embedded in the business model itself. 

Kumar gives the example of Hello Tractor which is an app that connects farms to the equipment they seasonally need. It provides farm machinery sharing, that a small farmer could not afford to buy. All this has resulted in farm man-hour requirement reduction from days to hours, vastly improving productivity. 

If an African farmer needs basic agriculture supplies or microfinancing for seeds or fertilizer, he can turn to One Acre Fund. For developing world funding, I have been donating to Kiva for quite a few years. It is now a billion-dollar lending platform, is in over eighty countries and lends to almost two million people. For me, this is a donation. For them, it is a loan to be repaid. When I receive a repayment, I quickly reinvest it into someone else or donate it to Kiva.

Another app is SoilCares. It monitors soil quality to ensure the greatest crop production. Here again, this too greatly improves growth, yield and production.

Still another social enterprise is Water.org that provides clean, safe drinking water to over 55 million people around the world. For people interested in donating to this cause, there is Charity: Water which provides clean drinking water to 8.4 million people as of this writing.

Turning to education, Khan Academy is helping to make learning available where the local governments have failed. This too can be for profit where families have given up on their local schools. Consider this. One reason for poverty is high birth rates. It has been shown that educating women will lower birth rates, lower infant mortality and lower maternal mortality. Therefore, local education of girls is critical.

All of these examples fall in the social enterprise category, not totally for profit, sometimes "not for loss" or public good businesses, but not fully charity either. With this configuration, services explode exponentially. This is what leaders can promote.

Socially responsible business certification

How do you measure if a company serves the overall greater good? One way is by certification. For example, on a global level, B Lab Certification, is one way to confirm a company really cares and leaders should know that when looking for partners. They measure "social and environmental performance, accountability, and transparency." 

Is a company's charter for-profit, nonprofit, a government agency or "something else"? Klaus Schwab calls this "something else" the "fourth sector." Kumar mentioned the scandals that Nike has gone through regarding how their suppliers treat their employees. That has led Nike to create an entire supplier factory monitoring consulting company. They confirm working conditions before doing business to avoid future dishonor.

Some companies not only want to avoid scandals but actually promote global good. Kumar mentioned the company TOMS Shoes, that has a program of giving a pair of shoes to an impoverished child every time shoes are bought. It is not that they have to but want to, as their customers value that.

Investing for the greater good

Transparency in where corporations invest should give us an idea how interested they are in the greater community good. Do they direct their funds in what Kumar called "socially responsible investments (SRIs)? Some fund managers promote SRI companies to their customers. To make this more widespread, what is needed is greater transparency, standards and data regarding environmental impact, social impact and quality governance. To the date of Kumar's book, 93% of the biggest 250 corporations report on their sustainability activities and 43% specifically present how they advance the UN Sustainable Development Goals.

Up to now, we have covered a lot regarding startups in the developing world. With technology and philanthropy greatly expanding, startups will play a major role.