The elusive fortune at the base of the pyramid

cimg7634It’s been an exceptionally busy week, beginning with the 2014 edition of Fortune Brainstorm Green (selected videos are online here) and ending with a holiday weekend visit from my new grandson, so I’m going to quickly post a link to my latest story for Guardian Sustainable Business.

It’s a long-ish story about doing business at the bottom of the pyramid, an idea popularized by the late C.K. Prahalad in a book published a decade ago. Here’s how the story begins:

When CK Prahalad‘s book, The Fortune at the Bottom of the Pyramid, was published in 2004, the book made an immediate splash. Its argument was irresistible: The world’s poorest people are a vast, fast-growing market with untapped buying power, Prahalad wrote, and companies that learn to serve them can make money and help people escape poverty, too.

Microsoft founder Bill Gates called the book “an intriguing blueprint for how to fight poverty with profitability”. BusinessWeek’s Pete Engardio described Prahalad, a professor at the University of Michigan business school, as a business prophet. He was awarded honorary degrees and sought out by CEOs.

Ten years later, businesses big and small continue to pursue profits at the bottom of the pyramid. The global uptake of mobile phones has proven that poor people will buy cell service if it’s available at low prices. (It costs a fraction of a cent per minute in India.) Single-serve packages of shampoo, toothpaste and soap dangle from shelves of tiny storefronts in rural villages. Products ranging from eyeglasses to solar panels are being designed and marketed to people earning $2 a day.

The bottom-of-the-pyramid (BOP) market leader, arguably, is Unilever, with its Anglo-Dutch colonial heritage and a chief executive, Paul Polman, who is determined to improve the world. Unilever generates more than half of its sales from developing markets, with much of that coming from the emerging middle class. Its signature BOP product is Pureit, a countertop water-purification system sold in India, Africa and Latin America. It’s saving lives, but it’s not making money for shareholders.

And there’s the rub. If there is a fortune to be made at the bottom of the pyramid, it remains elusive. Partly that’s because doing business with the poor is unavoidably complex, and partly that’s because the notion was oversold, says Mark Milstein, director of the Center for Sustainable Global Enterprise at Cornell’s business school and an expert on the BOP.

“I haven’t seen anyone making a fortune,” Milstein told me. “Unilever’s made money on some products, but they’ve been challenged. Other companies are making profits, but not enough to matter to their organization.”

The story goes on to report on successful and not-so-successful efforts to do business with the world’s billion or two poor people. We’ll be considering this topic again next month at the Guardian, with a live tweet chat on Tuesday, June 10, at noon. You can read the rest of my story here.

Glimpsing the future at Net Impact 2010

My favorite conference is Net Impact’s annual gathering, mostly because of the crowd—this weekend, about 2,500 people, most of them MBA students, undergrads and young professionals, gathered at University of Michigan’s Ross School of Business in Ann Arbor. These fare the smart, passionate and committed business leaders of tomorrow. I’m proud to be on the board of Net Impact, a nonprofit that helps its members harness the power of business for the greater good.

So much programming is crammed into the two-day event that it can’t be captured in a single blogpost or experienced by anyone, because dozens of sessions on different topics unfold simultaneously. But here are a few highlights:

What’s the future of recycling? It’s an unhappy fact that recycling rates haven’t moved up much since Earth Day. Yes, the original Earth Day, back in 1990. But innovative companies like TerraCycle, RecycleBank and Waste Management–yes, Waste Management, through a subsidiary called Greenopolis–are experimenting with clever and promising new ways to move the needle, by rewarding consumers for recycling.

I first wrote about RecycleBank in 2007. [See Turning trash into cash at Fortune.com] The company measures homeowners’ curbside recycling, and then rewards those who recycle with points that can be redeemed for stuff at more than 1,500 companies. “The idea of consumer behavior change is at the heart of our business,” said Ian Yolles, the chief marketing officer at RecycleBank, who previously worked at Nike and The Body Shop. The company is growing–it now operates in more than 300 communities in 26 states — and its investors include Coca-Cola,  venture capitalists Kleiner Perkins and Generation Investment Management (the fund led by Al Gore and ex-Goldman partner David Blood). RecycleBank generates most its revenues by saving municipalities money (lower tipping fees, higher revenue streams from recycling) and taking a share of the savings. [click to continue...]