Lucie Klarsfeld is a Senior Project Manager at Hystra, a strategy consultancy focussed on social enterprises targeting the Base of the Pyramid. We talked to her to learn more about the social enterprise sector as a whole, and particularly the role of technology.
Could you give us a brief overview of what Hystra does?
We’re a strategy consultancy company that specialises in social business and so-called Base of the Pyramid (BoP) markets. By a “social business” we include anyone that uses market mechanisms to address social issues.
Historically, this focus comes from our founder, Olivier Kayser, who previously worked for both McKinsey and Ashoka. At the end of his time there, he could see a lot of synergies between the social entrepreneurs that Ashoka was helping - who were good at finding local solutions, but not necessarily so good at (or interested in) scaling up - and multinational corporations - who are less good at (or interested in) social innovation, but whose entire “raison d’être” are to adapt and replicate solutions that work across countries. So the aim was to try and combine these two worlds, and in particular to figure out how large corporations could help social enterprises to scale.
The first report that we did was on access to energy for the poorest. We’ve kept a pretty similar methodology since then, which is to look at what worked. We try to go in with no preconceptions, and look at what business models there are in a sector. Then we select a representative sample of businesses in the sector, and we visit them to understand better how they work and why they haven’t scaled further.
We then use this research to help specific actors to be more efficient, or to scale better. That is either with large corporations to define how they can profitably work with the base of the pyramid, or with social businesses to help them scale their strategy, e.g. we help them write business plans or raise funds. We also work with other organizations like aid agencies or foundations to help them define their strategy to support social businesses or work with the private sector, in order to achieve their development objectives.
To give you an example of what this can look like concretely: at the end of the energy project, we gave some recommendations to the sponsors. To Total we recommended that they start using their brand and network in Africa to start selling solar lanterns. Back in 2010 the market was very nascent, with a few products out there, mostly of poor quality. When Total brought in their brand and distribution skills, they were able to build much more consumer trust in the product, and help the few quality manufacturers get consistent orders and scale up production. They’ve sold 1.4 million to date, which makes them the largest commercial distributor of this product in the developing world. These are the kind of synergies that we’re looking for.
So the focus is not on starting businesses, but rather scaling them?
Yes, although you could argue that in the case I just mentioned, Total didn’t have any presence in that solar light business beforehand. We’re strategy consultants, so we can start from scratch to build a strategy for a new entrant in the sector!
You publish all your research publicly, on your website?
Yes, that’s a condition for the research we do. It’s also why the entrepreneurs that we study agree to participate, and to open their books to us. Publishing it to the world gives them publicity, and they have full control over the material that we actually publish. We often sign an NDA with them, so they usually give us much more information than we put in the case studies, which we use to create derived statistics or benchmarks that get published in aggregate, not revealing their individual confidential data while helping the sector progress.
How do you prioritise which business models you pick for the report?
We have a set of criteria. We want a project that really solves the issue, which isn’t to be taken for granted! The project also has to have a certain scale. For example, when producing the agriculture report on Smallholder Farmers and Businesses, almost all the projects we picked had over 10,000 customers. If it’s below that, we consider that it’s too new a project for us to be able to draw many conclusions on what works. The project also has to be financially sustainable: we don’t want models that are purely philanthropy; though we don’t necessarily want models that have already broken even, otherwise we would not find much. But we do look for models that have the ability to break even at some point, even if they have not already done so.
In the first phase of our research we read reports and interview the authors, and ask them which projects they think are the most successful given our criteria; as well as to refer us to other experts. There comes a point when we keep hearing the same things from experts who start referring the same projects and people to interview, and then we know we’ve covered most of the ground. We also do our own research, and in total we usually find between 150 and 300 projects per sector.
We’re also looking for patterns of similar projects that emerge, so we can pick representative examples as case studies. In the case of ICT it looked like the business models were either one-way information passing, two-way information passing, or crowd-sourcing/crowd-funding solutions. In each of these clusters we select the best projects according to our criteria.
What sources do you use for the research process?
We try to get input from a variety of sources. We try to talk to the large industry players; large institutions like the World Bank; other successful social enterprises; and some academics.
The report mentions that there wasn’t much work on impact, and people weren’t doing cost-effectiveness research. Do you do any of that work, or do you see others doing it?
The ICT report is a few years old, but even returning to it recently there still isn’t much work on cost-effectiveness. ICT in development is still quite new, and evolving very fast. And it’s really only in the last few years that social enterprises have started to get their ICT systems in order, using CRM or sales force management systems, etc.
It’s also quite difficult to assess the impact of ICT. In particular, I think it would be difficult to single out the effect of ICT on their overall impact of a project. If it’s not primarily an ICT project, if ICT is a tool, which it usually is, then it’s very difficult to say whether it was the ICT that mattered or the other parts of the business model.
Even systems that are very heavy on ICT have other important aspects. For example, one of the reasons that mobile money hasn’t taken off as well in places beyond Kenya is because of the critical importance of setting up an adequately sized agent network for cashing in and out. That’s the part that’s proven hard to replicate!
It’s particularly hard to bring in new, unfamiliar ICT systems, as the benefit has to be quite high in order to get people to buy into what may appear as a new, risky, system.
There is, of course, a role for ICT companies to provide tech services that assist other organization doing more direct development or social business work.
What do you think about the Good Technology Project?
I think it’s needed. Many social businesses would benefit from e.g. ICT volunteers to go and help set up their IT systems. One thing that would be very helpful would be to have some kind of comparison of the available tools. Even now that social enterprises are starting to improve their ICT systems, it’s not easy for them to do it well, design an adequate tool and choose the right partner for it!
What do you think the prospects are for developed world entrepreneurs trying to start social enterprises in the developing world?
I think it’s important to spend a good period of time exploring and learning about what’s already being done on the ground, rather than start from a blank sheet of paper with possibly pre-conceived ideas. Go and work for an existing organization, start to see what the existing models are in developing countries. If they’re entrepreneurial, they’ll spot opportunities to make things better once they have been part of the system.
You can’t start from nothing - there’s no way to avoid understanding the problem and doing your market research! Especially since developing countries are a new environment for developed world entrepreneurs, it’s important to actually be there.
What areas are currently neglected in the ICT space?
ICT is primarily used as a component of a larger system or business model, but in and of itself, it’s proven particularly useful for transferring money in places where that is difficult, and also in bringing information where it is missing and can make a life changing difference (e.g., getting market prices for farmers, or receiving quality medical information in remote communities).
So looking at it from a general perspective, you can look for places where there are information asymmetries, or where there isn’t communication and there should be. Perhaps you can find some opportunities there.