Creating Confusion

Almost ten ago, I met a brilliant elderly gentleman named Kantisen Shroff - he is an Bombay-settled entrepreneur that built a large industry during his life and caught the sustainability bug well before it became fashion.   He moved back to Kutch, a desert area in western Gujarat (India), from where his ancestors come.   He is the scion of a movement to revive the traditions of Kutch and to bring innovation to the lives of many - through new forms of desert/low-water/saline agriculture, the revival of handicraft, innovations in the collection and use of organic waste, and in micro-scale power.  He has been instrumental in the vision that has helped Kutch rebound from a pounding earthquake in 2001.

It was in a meeting with Kanti Kaka (as he is affectionately known) that I first began to understand the potential of rural, decentralized power.   Many years ago, a ill-thought out plan of bringing salinity saving greenery to Kutch resulted in the introduction of a species of thorny brush, which grew voraciously to cover 40% of the Banni grasslands.  In 2004, Kanti Kaka devised a machine to fix carbon dioxide and use the brush as fuel for a 1MW biomass powerplant - what he called "A way to provide uninterrupted power, generate employment, and bring a reasonable income;" he envisioned one of these plants for each cluster of small villages - saying that decentralization was the way to providing the empowering services that people needed for their access to a better life.  It turns out that the government subsequently banned the cutting of brush because people were also cutting native species of trees at the same time.

Fast forward to today in India, and we're beginning to see the first thought-through enterprises that are figuring out the business models that make this work.  I've been infatuated with the brilliant guys behind Husk Power Systems, a start-up who have received immense fanfare in the past eighteen months - but one of many such enterprises building and operating small-scale powerplants that run on biomass and provide 24-hour electricity to villages who have little or no access to the grid.  I'm told that their plants hit cash-flow break even within a year, and people pay more than they do for state grid power - no small feat.

This is just the very beginning.  As micro-scale technology becomes more reasonable, subsidies for green tech come into play, and subsidies for old fuels subside, such enterprises - providing power from all forms imaginable - wind, biomass, stirling engines, solar, etc will be viable.   All ancillary industries such as power monitoring, smart grids, etc will find rural application if the people develop innovations that are designed for low-cost, low-margin, decentralized operations.

The same is happening in water. 

If there was ever a time to act on some latent interest in such things - it is now.  I just received an email as I was writing this about the Global Social Benefit Incubator's focus on Electricity Solutions this year - worth the look right here at SocialEdge.  If you have the appetite, there are tons of little start-ups looking for great talent - reach out to them and commit to some time as a volunteer - you'll learn more than you can imagine and will likely find your way into the beginning of an industry that might just be your passion.

It has been a little while since I last wrote, but now I have a lot to write about.  I had the great fortune of spending a week in Mysore, India as a TEDIndia fellow at the TEDIndia conference.  Generally wowed by the growing prominence of this thing called TED, and particularly by how the phenomenon has made it to people all over the place, it was a privilege to be there.

I also made a trip to the US for a couple of weeks, largely a personal one to visit family, but it gave me a real chance to talk in depth about what it is that we do at Sarvajal, the water enterprise, and served an interesting purpose as a way to figure out what engages people (outside those who talk about and live within social enterprise circles) and what doesn't on issues of social enteprise.

A decade ago, everyone was talking about microfinance as the social enterprise darling, icon, inspirer of the century.   It obviously deserves enormous praise, but seems to have become a hugely viable business opportunity as well, often now more business than social enteprise - perhaps an indicator of the future fate of the "social enterprise" trend as a whole. 

In recent times, I've heard more and more chatter about the telecom industry as an example of social impact - a notion that I would agree with in India - in terms of how competition and customer needs/demand can lead to democratized pricing and a powerful tool for income generation.  A business that has found ways to go further down the pyramid and has developed products that make a difference.

Both of the examples above continue to perplex my own notions of the spirit behind social impact and its intersection with business, a tension that has helped me grow like few things my recent history.  But one thing is clear, there are lots of things that have social impact and many more people engaged in social enterprise than we often think.

I'm going to try to spend the next few posts talking about the potential of some really powerful ideas I've come across recently - here are a couple I learned more about at TEDIndia that I will discuss in the next couple of post vis-a-vis how they have helped me think differently about my own enterprise:

Reuters Market Light - a powerful idea as an information service on markets and prices customized for farmers;  The impact on income is impressive, and the power to bring transparency to the market downright makes me drool.  They know what they are doing.

Husk Power Systems - people executing on something that many people have talked about for years, small scale power.  They build 50kw to 100kw power plants that run on rice husk in Bihar (one of the most difficult places to work on this in the country of India), and sell metered power to villagers.  They also can sell the silica and biochar byproducts, and are apparently able to break even on cashflow in six months.  Incredible, and run by really able and smart people.

Both of these, to me, are leading examples - in very different ways - of the emerging opportunities in social enterprise.  They are taking the problem really seriously and are creating truly practical solutions - an indication of the future of enterprise with impact as more and more people put their talent in the search of solutions.   I met dozens of uber-able people, just in the group of fellows at TEDIndia, engaged in some of the most creative social enterprises I have come across in a while, and was thoroughly refreshed by the power of what they are doing.

I've talked in a previous post about the struggles of delivering a service rather than a product in a rural/BoP environment, but I feel compelled to expand on the tension this choice continues to create -

For starters, I believe that a product-oriented enterprise *could* be considered far more efficient and manageable - operations are contained to think things you do, you develop a product (hopefully with your users/customers in mind), you manufacture/produce that product, you supply that product and hopefully collect payments at the time of supplying it to someone who might supply it forward (and may take some of the risk).   This is a particularly powerful approach to impact when your product is electronic, and leverages something else people have (such as computers in the case of a web product/service, or and SMS-based service on people's phones). 

In our case, sometimes I wonder what it would be like if we simply made cheaper water-filtration machines and usable dispensing technology, had people pay for them, and ensured that we did what we could to get them out there.  We could spend our energy on creating the tools that make low-cost water possible, and then help the people who could best use them find us.  We could become the middlemen of the get-water-to-people business.

Hmmm.  Then I wouldn't have to be so concerned about finding the right franchisees, feeling responsible when the machines are having major issues, ensuring that our business development people are assisting them month after month,  that people are actually drinking water, worrying about whether or not we will be able to collect payments this month, and more importantly worrying about what happens if a franchisee goes rogue and decides to defy our (due-to-the-state-of-the-country unenforceable) contract and we have to repossess our machine (which works without our permission, and is the franchisees possession).

Every person who has critiqued our model cites the risk of putting assets in the hands of other who haven't paid, and cannot be compelled to pay - in the difficulty of finding village entrepreneurs you can trust/will abide by our terms - the impossibility of enforcing contracts on relatively small amounts when courts and recourse are far more expensive than what you stand to lose.

Therein lies the challenge; to me, that makes this a social enterprise.

There continues to be major tension b/w what is effective, and what is in tune with the purpose we are trying to serve.   By building a business model that is dependent on trustable village entrepreneurs, we are attempting to illustrate that the right sort sort of structure can not only make clean water accessible to people, it can renew faith in the possibility of running a people/service-oriented business on the right values in a place where few are willing to try.

The cost?  Lots of operational details.  Because our own success, and ability to pay for our model, is linked to how many people drink clean water every day, we are inextricably vested in making each entrepreneur's business work.   Instead of supplying machines, we are helping find customers, generating awareness about the benefits of hygiene and water, intalling and repairing machines in the middle of nowhere, navigating local politics, dealing with happy and angry franchisees (our risk-sharing partners), figuring out how not to get ripped off in regular transactions, attempting to change the attitudes of our own people on what it takes to get things done in the places where we make clean water accessible.

This tension - b/w building something effeciently and effectively that does what we want to do, and building something that makes us part of ensuring that it is done the way we want it to - is a matter of believing that there is far more possible than just getting water to villages.

One of our most important challenges at the moment is in finding an answer to what we do with Reverse Osmosis reject water - in many cases the concentration of salts is low enough that it can be used to recharge wells and grow vegetables - but that is no solution.  BUT, we are in places where water is a problem, and the inability for us to directly use every drop of water we extract is an issue that bothers me like a splinter in my brain.

In looking for an answer, we've learned all kinds of fascinating things - the stats are not exact, but will give you a sense of what the situation is:

88% of water use in India is for agricultural irrigation.

EIGHTY EIGHT PERCENT!

Of the remaining 12%, some 8% is for industrial use.  Three quarters of that use is for a single purpose:  Thermal Power Plants.  

Direct human consumption, non-agricultural, and non-industrical use makes up 4% of the total fresh water use in India.

So lets get this clearly - of all water use:

88% Agriculture
6% Thermal Power Plants
2% Industrial Use
4% Everything Else

That suggests that if we want to make a real contribution to water use and management, there is massive need to find solutions that help reduce water use in Agriculture.  I mean MASSIVE need.   I'm told that simply laser-leveling paddy fields can reduce water use by 30%, and paddy is grown in some of the most water-scarce areas in India!

So, back to the point:

One option is to think about dealing with our water reject issue with a water-balance solution, that is, helping save more water in other areas (such as agriculture) near our franchises than we actually reject.   My guess is that this stuff is already on its way to a cap-and-trade kind of answer that will emerge when we actually value water as much as we talk about carbon.   Could be a solution.

However, the real challenge is in looking for low-cost or even revenue-generating solutions to our water rejection issues - ones that actually deal with the water rejection.

I'm open to any and all ideas:  anand {at} sarvajal.com

This issue is not just disposal - to do so easily - we could dilute and let it into the ground or use it for a garden, we could incinerate and boil away the water, there are many ways.

However the more interesting options we are looking at:

(1) Using the water for a pay-and-use toilet / sanitation facility - perhaps co-locating nearby.

(2) Rural laundry/laundromat

(3) Creating a bio-fuel - perhaps growing algae and collecting it, or using reject water as a component of a bio-waste methane generator (somewhat complex in making the logistics work correctly).

Any thoughts?

We recently had an encounter with several franchisees who had legitimate complaints about our work-in-progress services to them.   Most of this was about service and maintenance issues, which we are finally sorting out; however, the surprising part of the conversation - between the lines - was that many of them did not feel like they were earning enough (not really a surprise, I guess!)

Here is the struggle I felt at the moment: many of our franchisees with the greatest desire to grow were jobless young men who were burning time a year ago.  Many of the ones making the most noise are actually our best performing franchises - meaning they are earning a respectable monthly income.  My initial instinct was to say "but you are at least making something right now (while we are losing money as the franchiser)."

However, one of our mentors made a really important point that has continued to play in my mind.   For our franchisees, this isn't a job.  They see themselves as business owners, which comes with an entirely different sense of self. 

In many ways, it was extremely short-sighted for us to think that our franchisees would stay satisfied for long with our basic business case.   In retrospect, our theory was only built far enough along to be a proof-of-concept.

Now: we have successful franchisees who are hungry to grow their businesses, and we are playing catch-up to come up with the kinds of options that keep them within our ability to control standards, price, and our social mission -  and concurrently increase their opportunities to generate income.

We are looking at many options: (1) allowing successful franchisees another installation (which we will have to do as we expand), (2) helping generate further income through opportunities such as chilled water in desert areas, and (3) helping increase volume sales by technology like our upcoming water ATM which will help reach smaller villages with less work.

The cost of us "collecting", that is getting money owed to us by our franchisees can be an insane percentage of what we actually collect.   Many times, we have to make 4-hour and 6-hour trips to franchisees only to be told "come back tomorrow."  We often have no choice, as our machines are in their posession and operate whether they pay us or not, and the enforceability of small contracts through non-brute-force means is questionable.  No wonder most other people trying to do what we do cover their capital costs up-front (we are attempting a model that recovers capital through the cash flow of water sales, therefore vesting our interests in the performance of our franchises).

As we are obsessed with finding innovative ways to make our model work (behind a fixed price-point for our end product), we are realizing that our greatest ally is a technology that has immense power, the mobile phone's SIM card.

Our first move has been to develop a remote monitoring system for our machines in rural areas - they send us text messages everytime they turn on and off - giving us all kinds of information on the health of the machine, input and output water quality, and more importantly on how it is being operated and how well our franchisees are doing.   The kick, however, is that we now have the ability to shut it down and change operating parameters from afar.

Similarly, as part of our involvement in the Ripple Effect initiative by Acumen/IDEO, we are also developing rural water "ATMs", that allow penetration into smaller villages where there are few houses, but we can deliver filtered water daily.  Customers use a pre-paid RFID card that has a credit balance of water units, which they can dispense 24/7, and it works under solar power!  Of course, it also connects to our servers by a SIM card.

We're now working on modifications to cheap cell phones that turn into point-of-sale devices to take input on all customer transactions at franchise point, or when water is delivered.

This stuff may sound interesting, but it is critical to making our business model work, and cannot be done without the existence of mobile phones.   We still have not even begun to explore the opportunities in organizational efficiency that will be possible with things like Android phones, which I imagine will be available for cheap in the developing world within a year or two - our staff could report on activities, we could manage service and maintence (we already accept service requests by only SMS), we could do customer surveys.....

I'm convinced that one of the greatest innovation enablers in India is the penetration of mobile service.

"I'm providing water to the distant village for free, because I know once they see the benefits of drinking this water, they will continue to want it" - Our Samaspur Franchisee - "I went to the hospital in Jhunjhunu, and saw that they were serving Sarvajal, and decided to learn more, visited the machine there and hunted you guys down so I could start one in my village."

What a perfect example of what we are trying to do: an ex-army farmer, showing initiative, with a small shed on the edge of his property / on the road, selling Sarvajal water to surrounding villages, growing melons with the wastewater, and doing so to make his village healthier.   This is what we are trying to prove, local entrepreneurs who earn their living by encouraging better water and sanitation habits, running their own "business," provides the right incentive structure to make this intervention work.

He's only been going 30 days, and has 40 regular customers.   He says more than half have shown clear improvements in health, including a young man who returned from abroad and has been having digestive problems for 2 years.  He had been to a dozen doctors who have given him all kinds of medicines, but none suggested he change his water source - 30 days after drinking water from our franchisee, he shows no symptoms.

There is nothing more energizing than actually seeing that all of this theorizing to develop a franchise water-as-a-service model for villages actually has impact.   One more reason to make sure that each person on the Sarvajal team that isn't in the field makes a trip on a monthly basis to remember how their work product makes a difference.

A major philosophical challenge that has plagued many a team member is dealing with building an enterprise that delivers – or does not deliver - a service or a product to the bottom of the pyramid. 

The contentious issue is how far down the pyramid do you draw the line that begins to define the bottom.  I have spent a lot of brain space formulating an answer to this that I am comfortable with, and have come to terms with the pace and process required to build a sustainable enterprise.

A major problem with the chic for-profit social enterprise theory is that most of us provide a product or a service that has to be purchased.   By definition, someone has to buy your goods or services, perhaps mitigated by a middle financier, government subsidy program, donor, etc – many of which sort of undermine the holy grail notion viable social enterprises based on micro-level consumption power.

Unfortunately, innovating by developing technologies or products that priced affordably is not always enough to ensure that every potential customer sees the value.  Where this does work, in places like India, is when there is clearly understood value addition by a product – say in the case of cell phone service – and the only reason people do not buy is an issue of price. 

In the case of water, this is not necessarily the case (I think this issue is true of many cool social enterprises out there).  Around the world, water consumption has a significant element of choice.  There will always be people in rural India that drink tap water as a choice – just like there are people in New York City who will always drink bottled water despite the relative safety of tap water.  In many ways, this is important to understand as we develop social enterprise models that provide goods or services to the poor (especially in developing practical business plans – in another post).

In our case, despite our pricing controls, we are find that fewer customers than we would like are actually the “poorest of the poor,” those who live in abject poverty and are weighed down the most by the burden of water-borne disease.   Yet most of our customers are first-time consumers of purified drinking water, and are clearly feeling the benefits to their well-being and health expenditure.  

Should that be satisfying?  For the entrepreneur in me, yes.  It is going to take a very long time to get to a scale where we re-define the practice of obtaining drinking water.  Our purpose is to improve access by engineering an enterprise that works at a particular price point that we believe should be viable, and that requires a whole lot of effort.  However, we will have to seriously innovate to get there.

For the bleeding-heart side of me, maybe.   The way we are structured has its advantages – particularly in access to resources and people.  However, it also has its disadvantages:  unfortunately we have to figure out how to deliver our service well enough to continue to exist before we can start playing with options that get us to the people we want to serve most.

After spending ten years building or helping build a number of organizations that are committed to social change through public service, charity, or the things that institutions do, I now spend my time on a for-profit social enterprise trying to find a solution to rural drinking water quality in India (www.sarvajal.com).  

My journey to the most trendy form of social enterprise has cast a wide net:  it started with helping start a charter school in Boston, then to setting up the service mission of Indicorps in India, to starting a foundation with a mandate to recruit young people that want to innovate for public good, to helping structure a large new private university.   Throughout, there is one thing I have learned that trumps everything else:  the most critical components to delivering on a social mission are the people that make up your team.

I know - "of course" - everyone knows how important people are to any organization.   However, it is different this time.   The mission of every other organization I have helped build has made sense, particularly to the people who helped build it.   There was little left to interpretation, no matter how new the concept.   Yet, ten years later, I feel more confused (and more challenged) by the basics than ever. 

For the beginning of this blogging excursion, I hope to clearly articulate some of the day-to-day struggles of making my social enterprise work - particularly the basics - because I think they are core to the philosphical underpinnings of trying to make a difference.   Today, we start with people.

The first problem I face with people is actually in the definition of "social enterprise."   I find that no one really knows what it means.   Neither do I.   That gets really complicated really fast.   There are many definitions, and many justifications for the "sustainable" notion of for-profit initiatives.    The most clear articulations are by people who spend their days discussing such things, however, those people are often far away from where I work.  This presents a second problem:  the people that best understand what we are trying to do are largely not the people that I need to recruit.   In fact, they are in completely different countries that have wildly different concepts of social impact.   I feel like I'm walking a tightrope in trying to keep ourselves relevant to both the world of social enterprise and the world I operate within.

Let me try to explain how this plays out in my context.   I have found it remarkably easy to find people who understand the social mission of our enterprise, that is, that increasing access to clean drinking water will have the single greatest influence on reducing the burden of disease.  I find it really easy to find people that understand the business mission of our enterprise, that is, building a robust franchise model that is able to grow exponentially and is effective at delivering and generating revenue for a service.   It is remarkably hard to find people who have clarity on the interplay.

The intersection of these two poses a cultural problem within the organization particularly on philosophical questions:  Should we be going to the poorest villages first / start at the very bottom of the pyramid?  Should we fix our water prices at a level that all can afford even if it means we lose lots of money?  Should we pick franchisees who need to earn a living the most even if it means they may be notoriously difficult to collect from?   The problem is, the answers to these are critical to the initial success and long-term ability to have impact through our business (and that is largely what my job is about).  Different people get involved for different reasons, and many often get frustrated because the expectations of impact are unmet at a pace that is satisfying.

Many of the oft-discussed exciting for-profit social enterprises bypass this conundrum by becoming extremely product-oriented.   If it is about creating something that is engineered to be ultra-low-cost and serves a need that presents all kinds of earning or other potential for the poor, the enterprise is focused inward. To some extent, even micro-lending is such a product.  So are we.  We get really excited about the innovations in technology that we are developing - but they skirt the questions about impact and are misleading because they leave disproportionately powerful impressions on investors and the social enterprise crowd.

The equation changes significantly when your impact is about delivering a service, especially within the heart of those who would like that service reach those who need it most from the start.  Unfortunately, much needs to change to make that possible (in a future post).  When you have to figure out to make it work sustainably enough first to have the freedom to experiment with social parameters, you need to find people who understand the long-term mechanics of systemic social impact.   Perhaps the sector is growing enough opportunities for us to begin to educate such people?