Supporting startups in developing countries

In the first part of this article on building startups in developing countries, I mentioned that technology and corporate and personal philanthropy expansion will play a major role. In this article I'll talk about how entrepreneurs and organizational leaders can avoid waste and achieve great results. Hopefully, it will help these startups to spot and determine needless waste.

Direct donations, valuable or wasteful

Is just giving people money with no conditions attached wasteful? According to Give Directly if done right and funds tracked, it can be extremely beneficial. In the first part of this article, I presented that startups could be very effective in developing countries and gave many examples now underway from the book The Business of Changing the World by Raj Kumar. With communication costs coming down very rapidly, funding local contribution and waste tracking are possible. With this technology the past "Old AID" method will change. In the future, a better description might be "Developing World Investing'' or "Open Source AID''. This new environment will require leadership and supervision to track investment value and waste.

Supporting the underserved

As mentioned in the first part of this article, the poor should be considered as customers that are willing to buy what they can afford, need and want. The issue is how to approach, price and serve those customers. C.K. Prahalad in his book The Fortune at the Bottom of the Pyramid makes that exact point and gives countless examples and that there is money to be made for all to benefit. 

Kumar, in his book, gives the example of Wheel, a product by Hindustan Lever that is a clothing detergent designed to wash clothes by hand without much water, and is packaged in a size that is affordable for the poorest customer. It has become the biggest product in Bangladesh. 

Further, other methods to bring the poor into the global economy are being explored by Innovations in Poverty Action (IPA), so you can expect the poor to become more active customers in the future. Now, many of these people can borrow money to lease solar panels and water filters for their homes or businesses. Something never available before. These people have funds and can become paying consumers. IPA has distributed around $100 million from donors such as Google and Good Ventures and has successful local impact. The people they support must be identified, and their needs, capacities, and community reputation learned. Working through the IPA website, both contributors and recipients are connected, keeping costs very low. 

Once an aid recipient receives funding, they can easily report directly to the donor how those funds were helpful and what they were able to achieve with them. That feedback is vital to the success of the program for iterative, ongoing improvements that leaders can supervise. With direct communications, the donors get detailed accounts of results.

Home building funding

The Silicon Valley incubator, Y Combinator, has come up with a new way to provide housing. It is far different from Habitat for Humanity. Their website New Story can offer methods to build a home for around $6,500 using local builders (as of around 2019). This method not only provides a house, but develops skills and a trade for the local community. Furthermore, donors can see the exact house and the family they are funding through videos of its completion.

Getting to scale

The true goal of all global aid program leaders is to come up with scalable solutions that tackle problems like all the UN Sustainable Development Goals long-term. The key to do that is not to rely on donations only but tap into ordinary people in both industrialized and developing countries in the form of loans, remittances, investments and purchasing power. The leaders have to be engaged continually, so it will far surpass the amount raised by donations only. 

Through this process, a key goal in this effort is to enable poor countries to raise enough tax revenue from their citizens to fund their own health, transportation, security and education systems. 

Business models can be developed with today's technology. For example, for a penny a day, 2.5 billion people can improve their hygiene and health by installing available purifying clean toilet systems where open pit latrines that regularly have to be emptied are used today. Just that could generate a yearly billion dollar purchasing power market while saving local people's time and improving their health. The Gates Foundation is making available a toilet system that doesn't require connection to a sanitation system, is closed-looped and treats and purifies the wastewater and then reuses it for flushing. That is just one of several similar systems available. They just have to get people to see the value of these sanitation systems, pay a few pennies, change their habits and start using them. The benefits could be life-saving.

Donors as investors looking for the greatest impact

Leaders should encourage donors to act like investors when considering where they want to offer funds, as there are both well managed, highly productive programs and poorly managed programs. The donors must be persuaded to be results and cost-effectiveness focused. If the donors ask critical questions, even the poorly run programs will improve. One could even consider programs that guarantee outcome per dollar donated. 

“Open Source Aid”

In the book The Business of Changing the World, Raj Kumar presents a new concept, "Open Source Aid," which is somewhere between blind altruism and trial-and-error project effectiveness confirmations. It is all parties coming up with something that everyone agrees works best. It is a culture of local collaboration and transparency in sharing experiences and results, including great successes, marginal successes and outright failures. Furthermore, it moves learning forward and avoids aid agencies becoming defensive and clamming up. This all takes active leadership and hands-on supervision.

Let's compare this with a table. The old aid procedures are on the left and the new open source way on the right.

With the above measurements, leaders must get very directly involved in execution. If they get involved, the old methods will gradually become unacceptable. Open source aid, allows donors and the general public to learn what is making the greatest impact and what is not benefiting the recipients. This impact is not proprietary or centrally controlled. Leaders must make sure everyone is evaluated from the foundation president, to the regional or discipline specialists to the local recipients. With that evaluation and feedback, the community will fully feel the benefits. To make this all possible, leaders must teach collaboration and transparency methods in every project he is involved in.

Looking at those "Old Aid vs Open Source Aid" differences above and considering massive global problems, collaboration among individuals will not be enough. Organizations are required. For example, one is the Development Innovation Ventures (DIV). DIV is USAID's open innovation program that funds breakthrough solutions to the world's toughest development challenges. By focusing on rigorous evidence, DIV impacts millions of lives at a fraction of the usual cost. It tests programs and ideas in terms of risk and cost-effectiveness that no single organization can handle by itself. 

For example, just looking at overall global warming as a problem to address is not enough. It must be broken down into very doable projects and tasks in two broad areas which leaders can manage.

1. Energy production: You have to look at renewable sourced energy, like wind, solar, geothermal, hydro and nuclear power generation for any given region. Also, you have to look at power distribution and sharing. 
2. Energy consumption: You have to look at power use and power waste reduction. 

Within one or both of the two groups above, project, task and goal development ideas can be generated. That is where DIV comes in. They award grants to the best ideas in developing countries of $25,000 to - $150,000 for an initial proof of concept idea. If that initial idea generates interest, a follow-up investment of from $150,000 to $1.5 million grant could be offered for testing and preparing the innovation for the developing world. If there seems to be market potential, it'll award a grant of $1.5 million to $15 million to take the project to scale.

Another example is the non-profit XPRIZE, which more broadly provides prizes in biodiversity/conservation, climate/energy, deep tech/quantum, food/water/waste, health, education and space exploration. These fields could apply in developing countries as well, and are inspiring scientists, healthcare practitioners, students and communities close to where the problems are. 

For just studying concepts, there is the Global Innovations Fund (GIF). They fund innovations with the potential to transform the lives of people living on less than $5 a day. To measure results, they have a rigorous measurement system regarding impact and scalability. They have a video right on their website that details their results.

The real goal of all these programs is to make sure worthwhile ideas have a chance to progress to goods and services that contribute to those in the developing world. Here again, leaders have to get involved, promote their ideas, get funding, build a team to execute those ideas and measure impact.

Supporting startups in developing countries

Kumar gives these four suggestions for steps leaders can take to guarantee successful projects:

1. Start by listening to local people as to their needs and environmental protection.
2. Then, whatever is learned, put what impacts people at the center of any devised solutions.
3. Consider current local customs, behavior and how the program must be modified to improve their lives.
4. Explore a broader overall inclusive system where all benefit.

In the final article on this topic, I'll talk about obstacles to success and offer strategies to address specific challenges in healthcare, education and corruption.