Curb Your Social Entrepreneurial Enthusiasm

Curb Your Social Entrepreneurial Enthusiasm

Is there really a fortune at the bottom of the pyramid? C. K. Prahalad’s famous text suggested lots of money could be made by serving the world’s poor, and a new book by Paul Polak and Mal Warwick makes similar claims. But this opportunity isn’t for everyone.

Polak is a legend in social entrepreneurship circles, a former psychiatrist who started designing products for poor communities and has since sold millions of units. I’ve used his writings and speeches in my course at New York University on the role of the private sector in poverty alleviation. His latest book, The Business Solution to Poverty, says that the 2.8 billion people who live on $2 a day or less constitute a multi-trillion-dollar market. But it’s not that simple.

According to the World Bank’s database, there were indeed a maximum of roughly 2.8 billion people living on under $2 a day between 2000 and 2010. Multiply those numbers by 365 days, and they could indeed have spent about $2 trillion a year. It could have been more — some countries did not report any poverty figures — but it also could have been less, as the minimum numbers from the same period cover about 2.2 billion people.



That’s still not too shabby. If all the poor lived in one country, it would have an economy roughly the size of Spain’s. Moreover, unlike the Spanish, this country’s population would be spending almost all of its annual earnings. That’s not great for families, but it does make the market bigger for companies.


In this respect, the global poor’s buying power is real. Yet outsiders might have a hard time entering some parts of their market. For example, it might be difficult to convince a poor family to buy housing or pay for religious ceremonies and festivals — often two major items in the annual budget — from new sellers. And for other products, from local delicacies to haircuts, families might prefer established local purveyors.

Even if the bulk of poor households’ buying power were still available to new entrants, there would be other possible limits to their consumption. Just how many different goods and services would the households really buy? In rural areas, a local shop might stock 100 different items. In cities, that number might rise. Still, there’s a tradeoff: the more variety a family has in its spending patterns, the less often it will buy any one item.

For a given product — say, toothpaste — the revenue available from poor households worldwide might be on the order of $10 billion, or one hundredth of the total market. In a given country, though, the amount could be much smaller.


At this point, the numbers begin to look perilously small. Products sold to poor people usually have low prices, so the margins are low, too. As Polak himself is fond of saying, "If you can’t sell at least a million of them, don’t bother." But how many companies could sell a million units in a market worth only $10 million, especially if it were costly to enter?
