Our World

Fat vs. Lean Markets

I’ve always struggled with what word to use when describing poor markets. There’s the developed and the developing world. There’s the bottom or, a little better, base of the pyramid. There’s the emerging or frontier market, which evokes an image of covered wagons heading west—Manifest Destiny and all that. The UN classifies them as LDC, or Least Developed Countries. The problem with all these is that they define people by how much money they make and set the Western way of life as the ultimate goal—if you develop, climb the pyramid, and emerge, you’ll be like us, which is obviously what you want to do. It grades people based on purchasing power, which has always felt dehumanizing to me.

In manufacturing there’s a concept called Lean Manufacturing, which at a high level represents a philosophy of “maximizing value while minimizing waste.” Eric Reis has taken these ideas and applied them to startups, something he calls the Lean Startup. As I met one amazing entrepreneur after another last week in Kenya with Acumen Fund, I thought, what better word to describe the environment they operate in than “lean.” These guys are all about maximizing value and minimizing waste—they have to be. They’re capital-constrained, they face a shortage of skilled labor, their customers have little disposable income, and they are often at odds with state-backed incumbents or even the government itself. They operate in a lean market, and yet they are succeeding. I think back to a scene I saw earlier this year in China: two women were fighting over a discarded plastic bottle for the recycling refund. Now that’s a lean market.

The constraints of these markets breed innovation—it’s the reason startups beat incumbents. It’s why the Nokia 1100 cell phone with it’s monochrome screen and $20 price tag is the world’s best selling cell phone. It’s why Tata can build a car for $2,200 and why Visa’s mobile banking platform was developed in Africa and imported to the US and Europe. It’s why 37signals is so successful and why the Lean Startup methodology is being ever more widely adopted.

So if these markets are lean, I guess that makes us fat, and, really, is this so far off the mark? We have the highest obesity rate of any country in the world—about 30%. We consume more energy per capita than almost anyone else (the exception being a handful of very hot Middle Eastern countries). We have the shortest school year. We drive the largest cars and build the biggest houses. It’s hard to be innovative when you have everything you could possibly need, and thus we’ve become fat. On top of that, we’ve taken on a mountain of debt to pay for it all. From the World Economic Forum’s Global Risks 2010 Report:

According to IMF, by 2014, the average debt-to-GDP ratio of advanced economies that are members of the G20 is expected to climb from 2007 pre-crisis levels of 78% to 118% [various academic work has shown that a ratio above 90% becomes a serious head-wind to growth]. In sharp contrast, emerging economies, with smaller governments and lower exposure to the baning crisis, kept their fiscal houses in order. According to the same IMF analysis, between 2007 and 2014 the average debt-to-gdp ratio fo emerging countries that are members of the G20 will never exceed 40%. For once, and in contrast to the 1980s and 1990s, emerging economies are not the causal to global fiscal crisis.

So who emerges as the winner here? In a world of debt, who out performs? And what market do you want to emulate—the one that excels when faced with every constraint imaginable or the one that has everything? Which one figures out the environmental problems first—the one where waste is valuable or the one that can afford to ship and dump it? The one with the longer school day and year or the one with the shortest of both? The lean startup or the incumbent? Which one is your money on?

What you call a market matters—it frames the discussion—and in this case, we may want to reevaluate who is aspiring to what.

This post originally appeared on Nate Laurell’s blog, New Frontier: Solutions for an Accelerating World, where he writes on energy and the application of markets to various social issues. Nate is a board member and advisor to several technology-driven financial firms and recently joined the Acumen Fund Global Advisory Board.

Comments

Edubridge: Bridging the Skills Gap in Rural India

India’s demographic dividend is widely acknowledged as a strength that sets it apart from other emerging economies. One million young men and women enter the workforce every month, which will add up to an astounding 240 million over the next twenty years.  Rural youth make up two thirds of India’s population and are a major segment of these job seekers. At the same time, fast growing companies in retail, IT, BPO, banking and financial services struggle with finding employable staff, especially in rural areas.  Research shows that only 5-40% of the staff in such companies has undergone formal training. [Read More]

New Study By Acumen and Bain & Company Unveils How To Scale Adoption Of Agricultural Innovations

Acumen and Bain & Company today released Growing Prosperity: Developing Repeatable Models® to Scale the Adoption of Agricultural Innovations—a new report to help entrepreneurial companies, and others, unlock the potential of smallholder farmers through large-scale adoption of agricultural innovations and inputs. The report’s insights and findings—which are the result of interviews with more than 300 smallholder farmers, sector experts and pioneer firm management—demonstrate the transformative power of providing smallholder farmers with the right access to the right innovations at the right time. In parallel, the report addresses why very few pioneer firms have been able to achieve the scale needed to provide smallholder farmers with access to agricultural products and services that have the potential to increase their yields and pull them out of poverty. [Read More]

Why India’s Economic Growth Depends on Vocational Training

India has an enormous population of young people – over half of the 1.2 billion people are younger than 25 years old. Yet, only 2% of its 500 million person workforce has any skills or training. The majority work in the informal sector (90%), where there are few opportunities for education other than what workers ‘pick up’ on the job. This reality limits overall productivity, as well as upward mobility. [Read More]

Letter from Jacqueline: My Week in Ghana

I am writing on a return flight from Ghana. The country has not seen a single case of Ebola, yet the impact of fear is profound. As travelers enter the country, attendants screen for high temperatures. Hand sanitizer dispensers are omnipresent. Hotels and conferences have seen massive cancellations. Everywhere are constant reminders of our fragility and the strength of our connectedness. [Read More]

Six online courses we’re taking this year

+Acumen’s free online courses are a great way to learn tools that will help you develop both professionally and personally. Whether you are a social entrepreneur who wants to market to your customers or a young professional that wants to strengthen your leadership skills, we are offering six courses this Fall that will help you develop the tools, knowledge, and networks to change the way the world tackles poverty. [Read More]