We Need More Entrepreneurs Serving Lower-Income Consumers. Here’s Why.
There are two types of companies currently targeting low-income users: those who do so in an exploitative, predatory way, and those who seek to make people’s lives better.
The world needs more of the latter.
Empowering underserved communities and building successful businesses are not mutually exclusive. Poverty is a big problem, and a saving-the-world mission should not only be for non-profits and philanthropic efforts, but also for double bottom line businesses that create more impact and economic value through innovation and technology.
I believe more entrepreneurs should commit to creating real value for the bottom of the pyramid, where there is an opportunity for both improving lives and creating profits.
I know this from experience. I dropped out of college and joined my first double bottom line startup when I was 18 years old.
At that company, we built software to help entrepreneurs in emerging markets private label their own communication software. In doing so, our customers could navigate around exploitive telecom companies to create their own small tech businesses and better serve their own communities.
Most of these entrepreneurs were from emerging markets where telcos were government owned or influenced, or where other IP communications (such as VoIP) were often blocked, causing high prices for consumers.
Through sophisticated VoIP tunneling technology and simple dialer and web interfaces, our technology enabled any person in the world to easily start their own VoIP business. The technology enabled call-shops, LAN houses, restaurants, and coffee-shop owners to sell any kind of IP voice service without understanding the technology and without needing any tech infrastructure.
Our technology improved lives and made an important social impact, but we also created value for our employees, our shareholders, and the economy, bringing in millions in revenue each year.
This was just the beginning of a longer personal journey that drove me to work on both social entrepreneurship and emerging markets as the focus of my life’s mission.
I realized the impact we made was small compared to the change and economic value a larger momentum of social-minded entrepreneurs could affect. But the question remains: How do we harness capitalism to solve the most crucial and pressing problems of humanity?
Most can agree that advertising and social networks are great businesses, but can be detrimental to society. This burning desire to solve greater problems is what caused me to leave a steady job at Google and return to my old company, which although ended up failing, led to the genesis of Airfox and my first journey as a Founder and CEO.
Entrepreneurs need to know that there is a large economic opportunity in solving pain points for lower-income consumers.
Building businesses that target low-income customers is risky. But if done correctly, past examples have shown us it can prove economically prudent.
Just look at Muhammad Yunus. In the 1970’s, Yunus founded Grameen Bank, a company that specialized in providing loans to poor communities in Bangladesh. Today, the company generates $180 million in revenue per year, and Yunus won a Nobel Peace Prize.
Western Union is currently helping lower-income consumers in a similar way while still making massive profit. Western Union’s ability to send money abroad in a fast and efficient way is a powerful tool for lower income people. It enables an immigrant worker in the United States to easily send money to his or her parents in Mexico, for example.
In this way, Western Union is an integral, positive part of people’s lives. It’s also the largest money transfer company in the world. Western Union is now testing blockchain technology via a partnership with Ripple and XRP token to further improve access of remittances by lowering the cost of transactions. I mentioned in my previous posts how blockchain is poised to unlock capital in emerging markets and leapfrog traditional industries.
However, on a larger scale, there are entire industries well-positioned to help low-income consumers.
One is financial literacy. There is a growing need for companies that teach the poor how to incrementally build wealth. There’s also a growing need for internet access, which in emerging markets and rural areas is currently prohibitively expensive or monopolized.
There are over 4 billion people that remain in poverty. They are not only stuck in Tier 4 or 5 of the economic pyramid but they also cannot escape a daily state of survival. The bottom of the pyramid is constantly in fight-or-flight trying to solve their basic physiological and safety needs. How can the poor innovate, educate or improve their lives if society and businesses make it impossible to pursue more enriching endeavors that positively impact their lives and their community?
If you visit a Favela in Rio De Janeiro, Brazil, you will see a vibrant informal private sector with real micro-entrepreneurs and businesses that are often ignored by the government and corporations alike.
The governments and corporations that do choose to venture into these informal and local communities ironically make it so the cost of information, education, capital and technology are nearly impossible to access.The poor then become target of predatory and low-value services. Therefore, the opportunities to build businesses that are high-value and non predatory for low-income consumers are still fairly underdeveloped.
Of course, the challenges of building businesses aimed at helping low-income consumers are real — and it starts with fundraising.
For one, targeting lower-income consumers is riskier than targeting high-income earners in the way of Apple and Tesla. Margins are lower, and success can only be reached by reaching larger numbers.
“What happens if users don’t pay their money back?”
If you’re an entrepreneur in this space, this is one question you’ll always hear from VCs — most of whom likely don’t work with companies serving low-income populations.
“How can your customer afford your service?”
This one is also my personal favorite.
Although that risk can be mitigated once you’re at scale, VCs have very low risk tolerance. Many, when they hear your idea is to serve the “poor”, simply become uninterested.
There is also the problem of empathy. Many seed-stage investors don’t understand or care about emerging markets because they’ve never lived in one. They don’t understand the needs and opportunities that exist there. I once pitched a top VC who had no idea that there were two billion unbanked people across the world.
Still, it remains that the risks of starting socially inspired companies are mitigated at scale. The problem is getting early-stage investors and entrepreneurs to take the first leap. Once product-market fit is achieved and a replicable revenue model exists, investors won’t be able to argue against the numbers and traction.
However, there are investors who understand that if you can address the core problems lower-income consumers face, there are great opportunities that exist in those communities.
The simple fact is, no one needs innovation more than people with diminished means and the total 4B people on the bottom of the pyramid is a hell of a big market in the trillions of dollars worldwide; No investor can deny these facts.
The goal for entrepreneurs is to show investors that while there is a big mission, there is also a focused, go-to-market strategy that can be replicated efficiently in a reasonable time frame.
Innovating for the underserved is a challenge, sure. But as an entrepreneur, if you commit to that purpose, you will have the benefit of being powered by an intrinsic and important mission. That mission will be a driving force for you and your employees to succeed.
Changing the world is a powerful motivator.
At the end of the day, if you’re starting a business, you should ask yourself: what sort of impact do I want to make? Do I want to build a company that adds value to society and the local economy? Or do I just want to make a quick buck?
For me, the answer has always been the former.
I grew up poor in a small city in Brazil, but was lucky enough to have parents that were small-business owners and entrepreneurial. Like many people, they wished to fulfill the American dream and pursue a more egalitarian capitalistic system. I want to provide others with the same opportunity through technology and education, empowering a new wave of entrepreneurs to leverage themselves out of poverty. And while there are some like-minded companies that have already started, the world needs more.