The Challenges of Going to Scale

1

Margins are too low, or costs are too subsidised for sufficient net profit

• Assess gross margins, fixed and variable costs and pay close attention to hidden set-up costs and other subsidies
• Adapt the model for scale-up so that hidden costs are covered and profits are compelling

Based on its three year pilot in 15 schools across Zambia, Ischool has adapted and expanded its product offer. Adaption: The initial product required constant internet access whilst the current product readily comes with all learning materials pre-loaded. Expansion: Ischool now also offers a home version for higher income families. Both measures are helping to make the commercial launch sufficiently commercial.

2

External factors limit ability to scale

• Check which local conditions and partnerships are business critical and assess their resilience when operating at scale
• Substitute limiting factors with other means, or adapt the model to reduce reliance

With its target to reach one million low income households per year as consumers of its low cost water purification device, Hindustan Unilever aims to reach significant scale after the initial pilot phase. For HUL it was clear from the outset that success of their inclusive business model depended on partnerships with MFIs for the financing and distribution of the product. However, due to a crisis in India’s MFI industry, the need to identify and evaluate alternative partnership models for consumer financing going beyond MFIs became clear. BIF support helped to identify other channels and HUL is currently in the process of forming new partnerships for scale up.

3

Insufficient demand for product or service

• Invest in market analysis, rather than assuming a ‘need’ indicates market demand
• Check whether market awareness investments achieved during the pilot are replicable at scale

In India, the pilot of mKRISHI, an initiative offering personalised and integrated services in local languages to farmers on their mobile phones proved popular. However, it also became clear that farmers wouldn’t be willing to pay a competitive price for the product offering on its own. As a consequence TCS had to adapt the product for something with stronger demand amongst the target group. It is now developing and piloting a more ambitious product with a stronger value proposition for farmers.

4

Lack of access to affordable scale-up capital

• Build a strong business case and a strategy for raising finance as part of planning for scale-up
• Engage partners that lower scaling costs or provide access to finance during the pilot phase

The business model for MEGA, Malawi’s first privately run micro-hydro power company offering access to energy for previously un-electrified areas in rural Malawi, is predicated on economies of scale but commercial returns are not possible in the medium term. Therefore donor grant financing is required and a finance raising strategy is built into the business model.

5

Limited skills and management capacity, or inappropriate corporate structure

• Build outwards from the initial champion and intrapreneurial team to engage all parts of the business: staff, skills and structures
• If internal constraints remain, assess how external partnerships can facilitate expansion

From the very beginning of developing the IB venture, the partnership with Alithea Capital was crucial for the success of Oando’s O-Gas (a gas cooking stove for low income households). Oando realised that success of the product was dependent on an appropriate financing mechanisms. An area of core expertise for Alithea. As the pilot progressed it also became apparent for Oando that stakeholder engagement in the area of social marketing will be key for further scale up of the initiative; an area fairly new for the majority of Oando staff. To address this, training on social marketing and stakeholder engagement was recently offered to a number of employees facilitated through BIF support.

6

Inadequate economies of scale

• Develop an adapted approach – integrating IT or leveraging networks of others – to generate economies of scale

Consumer focused models that engage rural entrepreneurs as distributors – such as JITA’sAparajitas in Bangladesh – face on-going costs of recruiting, training and managing a dispersed and under-educated sales force. This limits economies of scale. In the case of JITA, profits from an expanded operation are sufficient to ensure a return on investment. But to gain further economies of scale from the Aparajita network, management is looking at two further options: (1) deploying data-tracking and hand-held devices to manage information on stock and product flow; and (2) developing new business lines that build on the comparative advantage of the rural-based female sales force

7

Lack of compelling reasons to scale model

• Build incentives within the company to motivate further investments in the model
• Adapt the model to better align with company’s core business

mKRISHI, TCS’ mobile-based agri-information platform had been developing their product for two years at the time of BIF intervention, conducting multiple pilots across India to test the various functionalities and streamline the product, but without testing the commercial aspects. BIF support focused on developing a commercial operating model and testing the commercial sustainability to give impetus to scale.