Fistful of dollars... for lumens?

Light is one of those "things" that some of us are able to take for granted. The 1960's Supreme Court Justice Stewart Potter's observation about obscenity fits well, I know it when I see it. We may not really understand the duality of light. Is it a wave or a particle? But, we do know how much it costs to keep the lights on right? Well what does it cost to run the light at your desk right now. Let's just think about it. Figure it is a 100 Watt bulb and you pay $0.12/kWh (typical here in San Francisco). So, that means in one hour you would use 100 W hours or (0.100 kWh). Therefore, I spent a bit more than a penny while I typed out this post. Luckily, we live in a world where 1.2 cents is well below my threshold to care. I mean, I care but...

Now, picture your desk is in a quaint house in Tanzania. There is no electricity to run the lamp. So, we have a wick Kerosene lantern. Turns out that that most of the energy is converted to heat rather than light with this type of lantern. It is about 170 times more lumens for the incandescent light for the San Francisco desk lamp than the Tanzania. So, we need to burn a lot more Kerosene to get the same lighting effect. In fact, the lamp would have to burn more than 1.6 liters of Kerosene. That's nearly $2.30! That's 190 times what it costs to get the same amount of light here in California. Remember that burning Kerosene is dangerous and bad for your health. Oh, and in Tanzania we only make around $5 a day. That means we paid more actual dollars (if we had them) for a worse product that could eventually kill us. This is definitely above our threshold to care.

There is an actual premium being paid because they are poor. This "poverty premium" was made famous by C.K. Prahalad's Fortune at the Bottom of the Pyramid. Poverty premium gives dissigno two benefits. First, there is a lot of room to help make things better. Second, there is real economic potential for business. These "base of the pyramid" consumers are spending dollar for dollar (if not more) as their San Francisco counterparts. Companies that can reach these people can improve their quality of life and truly make a profit.

Community banks are essential

Light user fees will be paid direct to the community bank on a monthly schedule by end users.  An established and trusted entity such as the community bank builds confidence on sides of the transaction that the payments are safe and properly accounted.  Revenue in the projects community bank account not only supports enterprise growth, but also enables the bank to make loans to other community enterprises.  Reserves enable community banks to grow capacity and provide additional financial instruments to community members.  These could include credit, interest bearing savings accounts, collateral backed mortgages and business loans.  Financial instruments improve availability of capital to the community creating wealth-generating opportunities. 

Paradigm Shift

Since starting dissigno the conversation we've had with people has shifted.  When we approached people to partner with, all piss and vinegar, passion in our voices, but little else to show for our goals, many people looked at us with a sad smile.  They couldn't understand how were were going to sell products and services to poor people.  "They're poor after all, how can they afford stuff". We also heard, with more derision in their tone, "...you're going to make poor people pay for things?  You going to make a profit from poor people?"

Well, yes and yes.  But in the same enterprise we are going to help those poor people to build wealth, establish enterprises within their community to access improved products, and to attain stability.  At least that was the unpopular notion three years ago.  Now, with CK Prahalad's book Fortune at the Bottom of the Pyramid, Jeffrey Sachs End of Poverty, Harvard Medical, Aravind Eye Care, Unliver's success, Dell Computers, the Indian small scale neighborhood garbage removal, India's Dabbawla's (shall I continue or do you get the picture?) and any number of LED lanterns business, solar distributors etc.  Countless businesses have either developed out of rural poor communities or have been co created with the base of the pyramid specifically in mind.  These business have provided products for sale and created job and investment opportunity.  They have thrived or failed, just as in the developed world based on all the variables that exist for businesses.  But all have the same intention; addressing the needs of the poor.

Prahalad wrote about the poverty premium.  It exist where there is little competition and constrained access.  Due to limited competition, rural markets actually pay, on a percentage basis, higher costs for lower quality products.  Dollars for kilowatts in Tanzania is 1000 to 1 compared to the US.  This is due to the fact that the US has had 80 years to develop the infrastructure to deliver electricity very cheaply.  Whereas in Tanzania, there is no infrastructure in many places, so in order to deliver a similar mechanism the costs have to include distribution.

We were invited to attend the IDEO/Rockefeller Foundation Conference called Design for Social Impact.  Many organization (for profit and non-profit alike) attended.  The conversation was focused on "what do poor people want/need?"  The conference already had the paradigm shift of assuming that the models existed to complete the transaction and now the problems were focused on fulfilling the needs.  Now it's true that the commerce aspect still needs focus, but for major design firms to recognize that this a design gap existed and that filling it wold not just positively affect the world but crate a business opportunity for their bottom line. From a business point of view you can not ignore 5 billion potentially new customers.  However, care must be taken to avoid exploitive opportunistic businesses that poison the market and compound the problem.

Game on!

May 8th 2008

Wow!  We are awarded one of the 16 grants by the World Bank.  The final night of the conference the WB hands out 54 plaques to all participants.  It's a nice gesture.  They then call out 16 names of proposals judged to be exceptional and worth funding.  We are chosen and given $200,000 to put our idea into action.  I call Dave to let him know.  Now it's time to get to work and make this happen.

Land Rovers versus Toyotas

Kurt has a great analogy.  Products can either be Land Rovers or Toyotas.  Land Rovers are indestructible.  You can use and abuse them.  They are hard to break.  Toyotas are ubiquitous.  They are everywhere.  The parts are everywhere.  When they break you can almost always find a replacement part for them.  He suggested making products one or the other.  Either make them indestructible so that you don't have to fix them often, or make then easily fixable with a supply chain that seeps into every corner of the world.

Accra consists of two hotels

This, my first visit to Africa is short, intense and full of activity.  The whirlwind of activity starts as soon as we land.  Participants gather on board a bus for the ride to the hotel.  The hotel is clean and modern, along the lines of 70's Scandinavian Design inspiration.  It's about 30 minutes from the La Royal Palm where the conference is being held.  There is a pool, a bar, and internet connection.  Essential elements for comfort.  The drive between the hotels will be the most of Accra that I see over the course of the next three days, excluding the trip to the market. We travel through the more upscale part of Accra.  There are nice houses with manicured lawns and walls with razor wire.  The commercial areas are studded by outdoor work areas displaying products.  Signs are hand painted and hung where ever it is convenient.  On the other end of the spectrum are broken down cars, gutted of usable parts,  and litter & burning piles of garbage along the road.  There are few cars on the road.  Most people walk the road to and from their homes.  

The first night I sit at the bar drinking the local beer chatting with Phil from Pico Hydro and a local woman named Princess.  We discuss the excitement we feel to be part of this conference. It feels big and important to be surrounded by smart, passionate people, focused on solving this problem of lighting for and with the people of Africa.   As if we are on the edge of something so explosive and alive that we may burn in the process.  Listening to others who have been working, in some capacity, in Africa for the preceding years is enlightening.  Many people have been working to understand the problems of low cost lighting and how to create sustainable models which provide it. The Lumina Project, Evan Mills, Arne Jacobson,  LUTW, Russell Sturm having been living and breathing lighting for many years before w came here to this conference. Without their work, understanding the damage of kerosene, the possibility of low load LED bulbs, the needs and desires of the people, and access to innovative manufacturing, we would be back ten years still discussing what people wanted.  Instead, at this conference we are talking about what the sustainable enterprise models look like.   Modular products and financing, charging stations, solar lanterns that help kids study for school and shop owners light their products and quality control.  These are the new problems to solve.  This is not to say that an understanding of the market is a "done deal".  Just that we are now working on getting the products into the hands of people in ways that make economic sense for all stakeholders.

Dave's flight gets cancelled

After setting up the booth and meeting the other finalists at lunch, I head back to the hotel.  I prepare to travel to the airport to pick up Dave.  He, Jill and baby Ava are in Capetown. Little business and vacation. He's to catch a flight to Accra Monday night so that he can be here for the event.  

Back at the hotel I receive phone message marked Urgent slipped under my door.  Holy shit! What happened?!  I don't even want to begin thinking of all the possibilities that could occur.  I call his cell and find out that his flight has been cancelled.  He is obviously upset and disappointed.  His first flight from Capetown to J'oburg is running late.  The airlines tell him that he won't make the connection so they cancel his whole flight.  The next available combinations of flights will get him in the same day that he'd have to leave to go back to J'oburg for meetings.  I can't imagine what he is feeling and we have a long conversation about it. Tom's best line is that this is a good, small example of what working in Africa will be like.  If you can't handle this, then think about other career paths.

He attends the conference in spirit.  (He'd probably steal the show from me anyway!)

Appropriate Technology: Efficacy versus efficiency

Appropriate Technology is often described as having:

1) Limited impact on the environment

2) Sensitivity to ethical, cultural, social and economical aspects of the targeted community

3) Fewer resource requirements which can decrease maintenance and reduce overall costs

AT can be small scale, use small manufacturing & use footprints, which in turn can make it ecologically and socially benign.  AT can also include "leapfrog technology", benefitting from the hard lessons learned in the developed world: avoid polluting technology such as coal fired plants, decrease cement usage, limit carbon output, etc.

By the same token AT can also be labor intensive versus capital intensive.  This idea of efficacy versus efficiency is an important one.  When the nearest grid connection is 25+ km, away a pedal generator will be one of the best way to create electricity to power battery driven LED lights (for example).  An operator will be earning an income.  User fees can support the operator.  The enterprise will be effective in creating a fairly benign form of power. The power created, compared to the power we get from the socket in our walls, will not be efficient.  But the US had 100 years to develop the infrastructure to create and deliver that electricity efficiently, and thus cheaply.

Intermediate Technology can be a synonym for appropriate technology.  This phrase was coined by EF Schumacher to describe technology which is significantly more effective and expensive that traditional methods, but still an order of magnitude (10 times?) cheaper that developed world technology.  It is technology that proponents argue can be easily purchased and used by poor people and according to proponents can lead to greater productivity while minimizing social dislocation.  Much intermediate technology can also be built and serviced using locally available materials and knowledge.

Russell Sturm's speech

The LADM 2008 opens with a speech by Russell Sturm.  His passion for social change, his humor and experience certainly inspire me to take action.  He talks about all the things that dissigno believes is important.  Market based solutions, LEDs today are like cell phones 8 years ago, must do something to eradicate poverty, enable people to build their own wealth, world stability depends on all people having opportunity.  He talked about the specifics of the lighting market; provide lights that the market values, in a way that the consumer can access, small packages = small prices.  

The CEO of Philips Electronics spoke about an undefined market.  "It's early enough that the market is not defined.  Now is your chance to help define it with products that serve needs in ways that make sense."

LADM 2008

Phil and I board the shuttle that takes us to the La Royal Palm Hotel where the conference is being held.  We gather in the lobby of the surprisingly comfortable hotel and wait for the second floor to open.  The first floor is where the business to business trade show and the speaking events are to be held.  The 54 LADM finalists will set up displays on the second floor.  The booth positions are handed out and and we begin setting up.  dissigno's booth is in the back corner of the back room.  The air conditioner is broken, and I break a dripping sweat standing there in the dark corner.  It doesn't bode well for me!  Despite these inauspicious beginnings I persevere and set up the dissigno display.  

The pride of the booth is a map of Karagwe Tanzania with small Christmas lights indicating generator locations.  Dave thought this up and I must admit I thought it dumb at first.  I ran all over San Francisco looking for the small Christmas lights in March and couldn't find them anywhere.  Finally, about to give up I stop at Cliff's Variety ( I will always go here first) and found a set.  Over a beer in my kitchen I diligently stick the lights through holes in the map and glue them into place.  It was a little difficult to get the whole display to Accra.  I thought for certain I was going to get stopped at the airport (wires and batteries certainly don't seem like something the TSA will let on a plane).  However, all the effort was worth it as it was a perfect visual display of our plan.

Phil's bags visit Italy

British Airways loses Phil's bags. Phil is attending the conference through his company Pico Hydro.  They do small scale hyrdo installs.  It's ironic because he has boarded the plane in Heathrow and gets off in Accra.  No stops, no plane changes but the bags end up in Italy.  At the hotel we agree to meet for breakfast in the morning and visit the market across the street from the hotel so that he can shop for a few essentials. 

The market stretches along the street and curves into a parking lot where booths and alleyways have been built from rough plywood.  The wood walls create a snaking labyrinth of shops.  Similar to what I saw in India, products are grouped together.  Vendors selling men's clothes are all along one row, women's clothes another, children's toys yet another, etc.  After Phil buys his toiletries, underwear and shirts we walk back towards the hotel to catch the bus which will shuttle us to the conference.  On the way out of the market I see a knock off "Barefoot Power" (www.barefootpower.com) light.  It's made of a very light weight plastic (one of the lights I look at is broken through the packaging.)  We cause a bit of a row as I examine it closely and end up buying it for $5.00 USD.  Suddenly we are surrounded by vendors trying to sell us kerosene lanterns, batteries, food, etc.  We politely decline and head for the street. 

"Tail light warranty" - The light breaks as soon as we start down the street!  I wonder how these lights will poison the market?  $5.00 USD is not as significant for me as it is for someone living on $1-2/day.  These products could make it harder (or perhaps easier?) for Barefoot Power to sell their expensive, but better products?  Also the "knock off" light uses 4 double "A" batteries instead of a rechargeable battery making the cost of ownership higher over the long term

Lighting Africa Development Marketplace Conference

May 5th 2008

Accra, Ghana is so very hot. When we land at 9PM and walk off the plane it felt like sticking your head into the proverbial oven.  However, the excitement at participating in this conference combined with 14 hours of drinking beer and watching endless movies on a plane have combined to overcome this minor obstacle.    

Gathering on the bus it's nice to finally meet some other participants, advisors, and judges. There's an incredible buzz in the air.  We're all here to change the world; do something that is difficult, worthwhile, and necessary.  There is a buzz of traveling to Africa. This is forward movement, some might even say progress, after trudging through some heavy lifting to get people to start taking you seriously.  The building wave (maybe similar to 1989 before the dot com exploded?) of some new, larger than life episode in human development.  It's a huge new opportunity to bring "tools and technology" into emerging markets which help people improve their lives.  This is philanthropic as well as a business opportunity.  

Two years ago the conversations I had with investors and technology people were focused on two things:

1)" You're going to make poor people pay for products and services?" which roughly translates to "You're exploiting poor people for your own benefit"

2) "They're (you know who they are) poor, they can't afford the things you'll be selling."

Now, two years later, the conversation has shifted.  It goes screaming past whether aid works, or the "poor" should be given "stuff" to help them with their lives, or even whether poor people have money to spend on products.  The conversation has shifted to speaking in terms of:

1) Who are the poor?

2) What do they spend money on? 

3) What do the "poor" need?  

Who are the poor?  

 

The poor are difficult to categorize or label.  The poor cover a wide range of environments, economies and cultures.  Subsequently many of the poor are considered too poor, unsophisticated, and difficult by private investment wishing to produce enterprises through social ventures and are often overlooked.  However, strong partnerships with in-country NGO's, specific solutions for specific problems, localized value chains and access to enabling services such as financial instruments and credit will bridge this gap. 

What do they spend money on?

The poor buy products and services often seemingly similar to developed world customers.  They buy food, water, energy, clothing.  Average expenditures in Uganda for people living on $1/day presented as a percentage include:

49% on food

10% on household goods

7% on housing

4% on water

6.5% on energy

5% on health

5% on transportation

And as eloquently explained by Fortune at the Base of the Pyramid, there is a poverty premium due to a lack of access to competing products and services. Dave ran the numbers to compare costs of lighting in Tanzania versus the costs of lighting here in California and the results were shocking.  The basic comparison showed an almost 1000 fold increase in costs that the Tanzania customer pays for lighting versus California customers.