How focusing on profit can help the poor
When leading water technology company Xylem started , it wasn't for charity: The company expected to profit.
The new line caters to the everyday water needs of farmers with small plots of land, among some of the world鈥檚 poorest customers. Like any of its customers, Xylem expects these farmers to pay for the right product at the right price.
鈥淢any of us in the water business 鈥� Xylem and its peers 鈥� are engaging in a lot of the same strategies: premium products in premium markets,鈥� said Keith Teichmann, vice president and director of innovative networks and marketing at Xylem in an interview with Global Envision.
It鈥檚 not that Xylem didn鈥檛 focus on humanitarian activities in the past 鈥� the company鈥檚 corporate citizenship and social investment program, Xylem Watermark, has delivered clean water and sanitation solutions to more than 2.3 million people in communities in need around the world. And when water-related disasters strike, the company funds urgent relief projects through a .
But during a brainstorming session, Teichmann says, the water technology giant recognized a huge missed business opportunity.
鈥淪enior level strategic people ... looked at each other and said, 鈥榃hat if we did something really different, something really wacky? What if we upend that traditional model and go for the base of the [economic] pyramid? Take our 100-plus years of technology and repurpose it into something that works in solving issues there.鈥� 鈥�
So Xylem developed the Essence of Life program to focus on the water needs of the 1.5 billion smallholder farmers , said Teichmann.
By doing so, Xylem became one of the few making water management products directly for the individual smallholder farmer.
Essence of Life鈥檚 signature product is the . Using the simple, foot-operated pump 鈥� similar to the mechanics of the average stair climber in a gym 鈥� farmers get the water they need to improve crop yields and diversity. The increased output can .
Xylem conducted interviews with hundreds of smallholder farmers to validate the Saajhi鈥檚 ability to deliver on their needs and expectations.
Why does Xylem insist on selling the pump, when it could just give it away?
Teichmann answered by sharing what he learned during an interview in Nairobi with a World Bank consultant.
鈥淗e said, 鈥業 see a lot of people come, and I鈥檝e seen a lot of people go,鈥欌�� recalled Teichmann. 鈥溾�楾hey don鈥檛 come here with the idea of setting up a business model and, as a consequence, they fail very quickly. And in their failing, they do as much a disservice as people who never came.鈥欌��
Without a sustainable business plan, efforts to help the poor can burn out. Although the profit margin on Essence of Life products is smaller than other products, Teichmann said it鈥檚 vital.
鈥淒o we make the same amount of money that we make on very high end products? No,鈥� he said. 鈥淲e couldn鈥檛 if we wanted to. And I would say that ethically we wouldn鈥檛 want to.
鈥淲hat we do is make enough money to continue the investment and get some return back so we can bring on people and make more products, expanding the portfolio [we can offer to farmers],鈥� he continued. 鈥淭he business model sustains itself, which is very important.鈥�
In projecting profit, Teichmann said businesses must evaluate what will sustain the product strategy while keeping in mind that the target market is at a very low socioeconomic level.
Thinking creatively about product design, manufacturing, and distribution has helped Xylem find that balance.
鈥淴ylem knows how to manufacture products, especially water-technology products,鈥� Teichmann said. 鈥淲hen we did the Saajhi design, we minimized the number of components and concentrated on the serviceability of the products, removing those that would wear or potentially fail in the field.鈥�
Xylem cuts production costs by partnering with nonprofit organizations and government agencies to distribute the pumps 鈥� groups that know these rural communities well.
鈥淲e utilize their intimate understanding of conducting transactions and relationships in rural communities,鈥� Teichmann said. 鈥淭hey become a part of our logistical channels to not only bring the product in, but to service the product as well.鈥�
That service component is crucial, Teichmann said. If farmers can鈥檛 get repairs or replacement parts, even the most innovative and necessary product becomes useless.
鈥淭he countryside, in some cases, is littered with the corpses of failed products,鈥� Teichmann said. 鈥淲e see competitive products rusting in fields because there was no proactive service proposition, and they broke. We decided at the very beginning that this would not be us.鈥�
Quality and service are just as critical to smallholder farmers as they are to other customers, said Teichmann. Smallholder farmers are a market that鈥檚 in this regard. Though it takes time and imagination to see sustainable business possibilities, Teichmann said he believes the effort is worth it.
鈥淚t is truly a compelling market,鈥� he said. 鈥淚 don鈥檛 know one other market we participate in 鈥� collectively as a water industry 鈥� that has a singular [base] of 1.5 billion people."
鈥� at , a blog published by .
