Ted London delivering on the promise to the world’s poor
January 26, 2016
New book by Professor Ted London details how to build more effective ventures to serve people with low incomes.
The flurry of interest in base-of-the-pyramid ventures since the late 1990s — when the late Ross Professor C.K. Prahalad wrote on the subject — hasn’t yet yielded enough large, sustainable enterprises that serve the world’s poorest people.
But a new book by Michigan Ross Professor Ted London hopes to change that. The Base of the Pyramid Promise: Building Businesses with Impact and Scale (Stanford Business Books), draws upon 25 years of research and study on what worked and what didn’t.
“While we have seen fast growth in the number of enterprises serving the base of the pyramid, not enough have achieved substantial scale,” says London, professor of business administration and vice president of the Scaling Impact Initiative at the William Davidson Institute. “That’s the BoP promise — building businesses that are sustainable at scale. Our biggest challenge and greatest opportunity is to better understand the lessons learned from the past decade or so.”
Reaching scale is critical because the base of the pyramid, or BoP, includes 4-5 billion people — about two-thirds of humanity. Ventures that can impact hundreds of thousands or millions are necessary to spread prosperity and equality across the globe.
London has studied the successes and failures and looked at what predicts performance in this challenging market. The book focuses on providing enterprise leaders and their partners with strategies and tools they can apply in the field. He identifies four critical themes that both existing and new entrepreneurs must consider:
- How to set up the enterprise internally. You don’t have to reinvent business, but many traditional business concepts have to be re-considered or re-designed for low-income markets. The resources you seek, the problem-solving approaches you use, and metrics you’ll need to track progress must align with the context. “You’re operating an enterprise in a market that’s impoverished in terms of both individual incomes and institutional and physical infrastructure,” London says.
- How to grow. Success in scale requires recognizing and applying specific principles at each stage of growth for base of the pyramid ventures. At every step you must understand how to co-create with the BoP and their partners, how to innovate in an impoverished environment, and how to embed to build the capacity to scale.
- Develop a value proposition. London argues that successful BoP enterprises recognize and understand the link between poverty alleviation and value creation. It is imperative for ventures in this market to understand how they’re alleviating poverty, how that creates value, and find ways to enhance positive and mitigate negative outcomes. Only when business leaders truly understand value creation for the BoP can they build a value proposition for the enterprise that enables economic sustainability.
- Build an ecosystem of partners. This is a critical step, and most BoP enterprises will struggle if they fail to develop and execute the right partnership strategy. “While there are actually quite a number of potential markets interested in working with BoP enterprises, business leaders often struggle to organize them into an efficient ecosystem. Different partners bring different things to the table. And ventures likely will need different kinds of partners at different times,” London says. Enterprises need to understand what stage of development they’re in and pick the right partners with the right kinds of goals.
“While we still have more to learn, enterprise leaders now have BoP-specific strategies, frameworks, and tools that they can use to increase the likelihood of their ventures’ success,” London says. “When C.K. first came out with his work on the fortune at the base of the pyramid, it was motivational. He showed us the possibilities for the BoP. Now the challenge has shifted — we have to learn how to execute better.”
Reprinted from Ross Thought in Action