London, November 2019
We set up Bidhaa Sasa to help rural families to increase their quality of life. For us, this meant setting up a distribution and finance business that targets in particular underserved rural women. In the last three years we have served over 50,000 clients with solar units, clean cooking solutions and agricultural tools. In a recent conversation someone asked us how we chose which products to sell. Why these three categories of goods? How exactly can we “increase families’ quality of life”? Where to start?
The simple answer is: we talk with these families about the problems they want to solve and in which order. Then we decide which technologies or services are out there that can solve these problems and of course we then try to measure (with real transactions or “experiments”) how big will the demand for that particular item be, will clients pay their loans on time and how would the item be marketed.
If you are woman in rural Kenya you probably have to prepare three meals a day for a large family and you most likely will use wood or charcoal and a rudimentary stove. So, of course, the house will be full of smoke and you would try to cook outside if weather allows it. Also, cooking with charcoal takes a long time and it is expensive. Everyone knows that these same families are unlikely to have electricity at home and spend a small fortune in kerosene. Oh, yes, there is also the clean water and sanitation problem. The list keeps on growing.
It gets more complicated when instead of having a conversation about problems and quality of life, one has a conversation about aspirational purchases, something we also do. Guess what ranks high? Smartphones and TVs. So, do we sell smartphones, TVs, stoves or solar lamps, water filters, toilets? All of them?
However, discussing with clients about their needs and aspirations does not help to introduce brand new technologies. Customers do not have an opinion about gadgets they don’t even know exist. So we also need to do our own research and try to find locally adapted new products that have the potential to solve some of our clients problems.
Technology-focus versus customer-focus
As a distribution business, for us it is all about the target market, not the item we finally sell. And we are serving a very tricky market segment. Our clients have low and very volatile incomes and we cannot overburden clients with huge debt that goes on for years. It is unfair on them and way too risky for us. This restrict the final price of the item we would like to sell. TVs: out (they retail for $500 because you need a large solar panel and battery to power it. Note that clients say they want a TV, they do not say they want a large panel and battery).
As we target women the goods must be relevant to them and as we sell everything on credit, whatever they buy must translate into either money or time savings so they can easily meet their instalment payments. Smartphones: out, aspirational but they don’t save money or time.
Our business, like many others in the same sector, struggle to be profitable and it is very tempting to constantly revisit the product offered in the pursuit of higher revenues. Has somebody noticed that in the PayGo solar the goods become bigger and bigger (i.e. costlier) and the pay plans longer and longer (i.e. up to three years to pay a solar TV system) every single year? We believe that chasing revenue by selling more expensive stuff is dangerous as one risks deviating from the real needs of the target market one wants to serve.
In the quest of increasing revenue, many of us in the sector particularly on the FMCG side try to sell as many products as possible. We believe this is also a mistake. Our target market is an emergent class of consumers and offering 3 different brands of the near-identical product (a solar lamp) will only create confusion, it does not add any value to the consumers and it is a logistics nightmare in rural setting where the physical infrastructure is minimal. It also adds confusion to sales reps who are already faced with a growing and diverse catalogue of products.
Productive assets, the latest hype, but what does it mean?
Let’s imagine for a second that you want to set up a new social venture in rural Kenya that will help people to be less poor. You do some research on what’s hot in the donor world in terms of technology and innovation (whatever that means) and presto you have a business. Clearly today you either set up a mini-grid related business or something to do with productive assets, so the clients can “produce” income with the asset they acquire (strangely this sounds very similar to the what has happened for decades with small loans to micro-entrepreneurs – think sawing machines – with mixed results).
In the last year or so many have suggested to us that we start selling productive assets since we are in the business of selling assets (“It seems that there are donors out there willing to pour money into this, so hey why don’t you change your business plan!”).
We aren’t convinced. First question: what is a productive asset? Second question: who is the target market?
Today a productive asset entails investing a large amount of money ($500 or more) into the purchase of some tech that will directly generate income, examples are solar water pumps to irrigate land and hence increase yields, a grinder to grind and sell maize to many, equipment to set up a barber shop, etc. There is a clear link between the asset purchased and the income generated, right?
We sell lots of LPG cylinders and charcoal stoves that are used at home – consumer goods. So clearly we do not tick the “productive assets” box in the application form. But here is a little story: by chance we met one of our clients who had bought a stove and we learned that each day she cooks food that she sells in her local market. Is her stove now a productive asset? Sadly, less sexy than a shiny new solar water pump though. Donors love their tech!
The conclusion is that simple definitions, and boxes in applications, are often tricky and even unfair.
And what about the second question? Who would buy a grinder or set up a barber shop or who runs farms in Kenya that uses irrigation? The answer is not our clients. Our clients are women who have typically one or two acres of land and use it like everybody else. They are also micro-entrepreneurs (who isn’t one here?) as they sell surplus in the local market and pursue any other small business opportunity that their free time allows them to. They don’t have enough land, they don’t have enough money (a pump costs $500), and most importantly they cannot drop everything else and become professional farmers selling out of season broccoli even if they were given all the credit and training in the world.
If you’re selling pumps, shavers or maize grinders you’re in a B2B business and not a B2C business whether you want to or not – particularly from a credit point of view where lending and repayment will be tied to a business plan, however simple.
We believe that as long as an asset saves time and money it doesn’t need to be “productive” for clients to ensure repayments can be made without additional undue burden.
Solar is not the only solution out there
Now, let’s talk about the role of investment funds and the donors behind them (yes, donors: rich countries development finance institutions still provide directly or indirectly the bulk of the money in the “impact” sector).
There is a tendency for investors and lenders to set up “sector” funds as if such a concept (e.g. the industrial sector) was easily defined in emerging economies! I still wonder why they keep doing this when everyone knows that running an “innovative” business in any of these emerging countries often means that one “has to do everything” (often because there is no choice, not because founders are all megalomaniacs). From design, manufacturing to finance to distribution and even software. As an aside: partnerships do not work when you are small, unknown and your business model is still unproven at a scale that is attractive to these large partners (who to be honest are often not very “innovative”).
In practice these funds cluster around a particular technology and as a distribution and finance business we don’t find this helpful. An “Access to Energy” fund usually equals a solar fund, as if energy is only electrons and definitely excludes LPG as a clean fuel because it’s not renewable despite clear net emission reductions; a financial inclusion fund means a new app to lower costs for disbursing loans to microentrepreneurs. And this is when we get lost, which box to tick in the application form, the solar box or the financial inclusion one (sadly there is rarely a ‘improve living conditions’ or a ‘rural women’ box). As said above, funders love their tech.
So perhaps the question to ask oneself is not which products to offer, which brands or suppliers to choose to partner with, the smart question is who do you want to serve and what problem are you solving for them.
Lessons learned
- Deciding on what to sell is not easy. There are many reasons to go one direction of another: “I’ve heard this is the trendiest tech”, “If we don’t start selling large ticket items we will never be profitable”, “I heard there are donors out there interested in this new gadget”. For us the only valid reason to review the product offering regularly is because it helps us to stay laser-focused on who we want to serve and the problems they have and want to get solved.
- Tech-focused solutions and their respective boxes in funding applications are way too common and we understand why; it is easier than trying to describe missions, target markets and the many problems at the “bottom of the pyramid”, but it is also lazy. Perhaps it is time to be innovate and focus less on pushing solutions and more on truly understanding the different market segments and their related opportunities.
Favourite Steve Blank’s Manifesto line: “No Business Plan Survives First Contact with Customers”.