Who knows BOP?

If you are a Social Entrepreneur, you are helping people find their way in the global economy for the first time. Many of these people are participating in their national economy for the first time. Social Entrepreneurs may be providing education, venture capital, internet access, or one of many innovative means to help people build their own corporate ladder or find the first few rungs of an existing ladder.

As I stated in my last post, there is an untapped market of 4 billion low income consumers known as the BOP: the Base Of the economic Pyramid. There is an increasing demand for the labor and talents of the BOP, which means that they are beginning to receive money that they will spend on life's necessities. Moreover, many of these people will have money to increase their quality of life, which can be an especially lucrative market at low margin but high volume (see: Wal-Mart.)

If you are fiscally responsible for an enterprise that might be able to serve the demands of the BOP, then you should begin to research the BOP market now. In the near future, you will either compete in this market or miss out on a lot of activity. On the other hand, if you blaze a trail today and reap the return tomorrow, you will have fulfilled your responsibility. You may have even saved your enterprise.

This new global economy is not going to wait for you, it will be filled with nimble, hungry, elusive, and innovative enterprises which will consume your market share while you’re on vacation. While you are making the turn for the back nine or on a retreat, they will be eating your lunch.

How do you enter this enormous market with so many pitfalls and political obstacles? Look for the unreasonable men and women who are already blazing a trail, and step in their tracks. Better yet, ask them to lead you through the minefield. Without metaphors, what I mean to say is that if you find the Social Entrepreneurs and imitate them and/or partner with them, you will be establishing yourself in a market with lucrative potential.

As John Elkington and Pamela Hartigan point out in their book The Power of Unreasonable People the Social Entrepreneurs are going to know the BOP well. They can help you innovate your approach to this market to ensure your success. They can guide you around the political obstacles and help you avoid the pitfalls and dead ends. Best of all, they can help you build a reputation in a market that will initially regard you with suspicion. In fact, the greatest benefit that you can gain from Social Entrepreneurs is their marketing potential. The BOP will probably regard any traditional efforts at marketing with disdain. However, by participating with Social Entrepreneurs and NonGovernmental Organizations (NGO's) who are raising the standard of living for the BOP, you will change the market’s perception of your brand name before you pay a single dime/peso/etc on advertising. If you scratch the back of the BOP, you may find 4 billion people scratching your back in return. Even 1% of that market will be 200 million fingers (4 million people using one hand) on your back.

Lucrative Profits: Where? BOP!

In The Power of Unreasonable People, authors John Elkington and Pamela Hartigan discuss the BOP: Base Of the (economic) Pyramid. The authors state that the BOP consists of 4 billion low-income consumers. What if you could generate $1 of profit from 10% of that market in a year? I’m not a natural at math so correct me if I’m wrong, but I expect that you’d make $400,000,000 in a year. That would be a good living for a small company or an attractive division in a multinational corporation. It may be possible to pull from more than 10% of that market, or to generate a larger profit from the 10%. Bottom line: we’re talking about lucrative potential here.

For those who are not inclined towards the language and methods of Capitalism, allow me to add a disclaimer here. I am not talking about exploiting poor people and robbing them of the little wealth they may hold. That is what we expect from Check Cashing companies and liquor stores. Through the magic of the internet, free markets and trade agreements, and a growing global market, the BOP is beginning to receive a trickle-down of profits. The BOP in Brazil, Russia, India, and China (also known as the “BRIC”) for instance, are receiving orders for their lower labor costs. In exchange, they receive wages in place of government handouts or agrarian/village life. In other words, billions of people now have or will soon have spending money and will participate in the global market where they once were non-existent. These people will increasingly demand to exchange their wages for products and services that were once surplus supply and/or undemanded. Bottom line: new profit potential for the global market.

Allow me to make one more thing clear, and forgive me if you are up to speed on macroeconomics. You have heard of the law of supply and demand, I assume. Basically, if supply (goods/services offered for sale) is higher than the demand (the number of people willing to buy) then prices are lowered to a point where people start buying. If demand is higher than supply, then you have a group of people with money to spend who are competing to buy products, and that is the reality we are facing if 4 billion people are beginning to spend money in the global market for the first time.

When demand goes up, everyone wins. Prices naturally rise because people are competing for scarce supply. That may not seem like a good thing for the low-income consumers, but I see an opportunity and many other capitalists will too. By using the Wal-Mart model of low margin and high volume, many enterprises will be able to undercut their competitors and prevent prices from rising too high. Therefore, business will customize themselves to reach the BOP and keep prices low enough for the low income consumers to raise their quality of life.

Low prices are only half the win, though. If demand is greater than supply, then intelligent enterprises will raise their production, creating more jobs. Simultaneously, entrepreneurs who may have been prevented from competing previously will now have a chance to meet the high demand. Entrepreneurs create new wealth, make new demands on the economy to spend that wealth, and create jobs both directly through their enterprise and indirectly through their increased demand.

In a nutshell, an increase in consumers leads to increased demand. More demand leads to increased opportunities and profits. More profits/opportunities leads to more demand. Point to the loser in this equation. I can’t find one.

Unreasonable People

I am currently reading a book entitled The Power of Unreasonable People by John Elkington and Pamela Harrington. The subtitle is “How Social Entrepreneurs Create Markets That Change The World.” To introduce the book’s title subject and thesis, the authors quote George Bernard Shaw: “The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man.”

Social Entrepreneurs do not accept the status quo and the traditional system. They are trying to bend Capitalism to also serve the fringes of our economy, where opportunities are scarce and the tradition is poverty. These are intelligent and often well-educated individuals, but rather than spend their ambition climbing a corporate ladder, they spend their ambition on trying to help people get on the ladder who normally wouldn’t. Better yet, they help people build their own ladder. By this last point, I mean enabling impoverished individuals to become entrepreneurs themselves in self-sustaining ventures that the global market will demand.

Social Entrepreneurs are trying to provide money in places where profits do not exist…yet. In my next post, I will share Elkington and Hartigan’s most exciting point: Social Entrepreneurs may be pointing to a very lucrative source of profits: the BOP.