In his book, Entrepreneurial Solutions for Prosperity in BoP Markets: Strategies for Business and Economic Transformation, Eric Kacou argues that many business and government leaders do not have a full understanding of the great opportunity that “base of the pyramid” (BoP) markets offer to help entrepreneurs take control of their economic destiny and transform the sector in which they operate.
In his book, Kacou shares stories of the entrepreneurs who are doing just that. In a recent interview with Knowledge at Wharton, Kacou shared his thoughts on what other African countries can learn from Rwanda’s experience, why business leaders need to have a clear strategy and the right mindset before investing in Africa, and how entrepreneurs can escape the “survival trap.”
An edited version of the conversation follows.
Knowledge at Wharton: It is really apt that we are meeting today to talk about your book because this week’s edition of The Economist has a cover story titled “Africa Rising.” Your book begins with a success story from Rwanda. Let’s start by talking about how that success story came about and what lessons other African countries can learn from Rwanda’s experience.
Eric Kacou: When people think of Rwanda, they go back to 1994 when the genocide happened and a million people lost their lives. What is really amazing to note is how much Rwanda has transformed since. You are talking about a country where the GDP has more than doubled. You are talking about growth that is around 7% to 8% every year. You are talking about agriculture as a decreasing share of GDP, which means that sectors like tourism and services are growing. All of that is because of the type of entrepreneurial leadership that Rwanda has managed under President [Paul] Kagame, which has created the conditions for people to want to actually go and invest and for entrepreneurs to really thrive.
Knowledge at Wharton: The famous book written by the late C. K. Prahalad, The Fortune at the Bottom of the Pyramid, also talks about the idea that poor people around the world are not necessarily just problems to solve, but opportunities for business people who want to build their enterprises. How is this bottom-of-the-pyramid market evolving in Africa?
Kacou: There are probably three main points to think about here. The first one is that we need to stop thinking about the base of the pyramid as a static market for everyone to go and tap into. We also have to think about the ways in which we can empower the citizens who live within those conditions to do better for themselves, because everything else being equal, the better they do for themselves, the more they will represent by way of an opportunity.
The second thing is that the image that we have of Africa as being a zone where there are only problems is, at best, wanting. As you said earlier, it’s nice to see The Economist talking about Africa rising. About ten years ago, in 2000, they had a cover that said “The Hopeless Continent.” So I’m glad that they were able to [revisit] it. The West has to realize that it is very difficult for a region to pretend to be a locomotive and to travel half the speed of the carts that it is supposed to pull. What I mean by that is when you look at the places in the world today where there is growth, Africa comes first. It is extremely important for any business leader, or for any investor who is looking to really thrive over the next generation or so, to make sure that they have a very clear strategy for Africa.
Finally, to go back to the question that you were asking, I really believe that what is really amazing about the base of the pyramid in Africa is the amount of growth that you’ve seen in different sectors. Let me give you a few statistics to illustrate that point. If you look at the cell phone sector, we have gone from about 9 million people with cell phones in 1997 to about 400 million today. If you look at a statistic like that, it tells you how much growth there is. If you look at a company like Safaricom, which has the mobile money platform called M-Pesa, they had 900,000 subscribers back in 2007. As of 2010, that number had gone to almost 12 million. These are only a few of the places where you see opportunities, but I could [also] name opportunities in agriculture and infrastructure. If you look at Africa, you will have about 30 cities where the total spending power is going to be about $1.6 trillion.
These are all opportunities that most of the business leaders operating in the United States or in Europe are not thinking about. This is really why I thought the book was important in giving them a map to really access those markets. Economists often give you compasses. But if you have a compass and you don’t have a map, it is very difficult to find your way around.
Knowledge at Wharton: A core concept in your book is the survival trap. Can you explain what exactly the survival trap is and how is it holding Africa back?
Kacou: Let me give you an example. Have you ever had a day when nothing works?… Awful, right? Imagine if it were two days like that in a row. What if it were a week? What if it were a month? The survival trap is really this idea that when you operate in markets like Africa, there are so many challenges on a day-to-day basis, it becomes very difficult to see beyond those challenges toward the opportunities that are there. As a result, people develop a reactive mindset where they think about ways to alleviate the pain as opposed to harvesting growth…. They get stuck in this vicious cycle.
The survival trap is really about making sure that we recognize that this cycle is there. The most powerful part of the trap in my experience is not the part that we can see. It’s not the fact that the phone line doesn’t work; it’s not the fact that the roads don’t work well. Where it really hurts us is in the mindsets that we develop. We stop trusting other people. We start thinking in a zero-sum mindset, which means I’m thinking if the investor is getting $100, I must be losing $100. It starts having an impact on people thinking in a very short-term manner. People start being defensive. These are all mindsets which are very important for anybody who is trying to access base-of-the-pyramid markets — not only in Africa but beyond Africa — to think about.
Knowledge at Wharton: I wonder if we can spend a little more time on this issue of mindsets and mental models, which you devote time to in your book. What reinforces these mindsets and mental models? And more importantly, how can they be addressed?
Kacou: What reinforces this mindset is really the challenges that are in the environment. The more problems we face, the more likely we are to go back into those cycles. The operating reality has so many challenges that it shapes the way we view the world and the maps that we use to navigate the world, which are our mental models. As a result, we take certain actions, which will fail to give us the results that we are really looking for, which means that the environment will stay the same and it will go on and on.
To escape it, it’s important for business leaders to first realize that those mindsets have an impact on business performance. They have an impact on profits, on market share, on ability to sign a contract. Something that looks like the best of deals can become your worst ordeal just because you haven’t been able to appreciate the importance of those mindsets. To me, that is critical.
To escape the survival trap, we have to begin with a very clear vision. Again, Rwanda is a very good example of a nation that was able to have a vision. One of the cross-cutting themes all the entrepreneurs who I mention in the book have is this laser focus on the vision. They look very, very hard at what they are trying to achieve. Once that vision is in place, start thinking about some of the mindsets that we must diagnose — and if you will, disarm — in order to actually move forward. At the same time, [we must try] to reinforce the mindsets that help us.
Knowledge at Wharton: In addition to Rwanda, are there other African nations that are also trying to escape the survival trap? And how successful have their efforts been?
Kacou: If you look at the continent today, there are a number of nations that are trying to escape the trap. But I think the most exciting stories are not the countries. It is the entrepreneurs. There is a new class of entrepreneurs who are emerging on the continent. The Economist article mentions Mr. Aliko Dangote who is worth, I think, $13.5 billion according to The Economist, making him the richest black person [in the world]. Above and beyond billionaires like that, you have day-to-day entrepreneurs who are starting a business and out of that business realizing not only their dreams, but creating jobs for others and having impact. That’s really something that we have to appreciate when I think of the base of the pyramid in Africa, which is not being looked at enough.
The most exciting stories are stories of real entrepreneurs who are starting a business and doing well. It’s also stories of corporations such as Walmart, Coca-Cola, etc., going onto the African continent because they realize the potential that Africa has and managing somehow to make it a very, very big part of the bottom line.
Knowledge at Wharton: One of the things I found most fascinating about your book is the vignettes of different entrepreneurs who you mentioned. Can you give us examples of interesting entrepreneurs and tell us what entrepreneurs around the world can learn from them?
Kacou: You gave me a big, big challenge. I could have profiled 100 of them. Let me maybe give you a couple of examples. One example that I find particularly inspiring is that of a woman called Eva Muraya. Eva is actually the founder and CEO of a company called Brand Strategy & Design in Kenya. She’s also the financier of another company called Color Creations. Eva was trained as a journalist; her husband was an entrepreneur. Unfortunately, her husband passed away in a car accident. Overnight she was left with nothing. When everybody else would have thought, let me go and look for a secure job to take care of my kids, she actually left her job and invested everything she had into a business.
What is really unique about the story of this woman is really her ability to build some very strong businesses in an environment which was set against her. [At that time, the laws in Kenya] made it very difficult for a woman to inherit her husband’s assets…. But what is even more important is how much she has invested in trying to train and shape the next generation of entrepreneurs.
She has been recognized with many, many awards. She is the kind of person who really finds ways to go beyond her own challenges, but above and beyond that, is also able to create opportunities and do business in a world where everybody can benefit.
Another entrepreneur is Jean Diagou. Back in 2008, right when AIG received massive bailouts out of taxpayer’s money, Jean Diagou actually managed to raise about 35 million euros, which is about $15 million, from a venture capital firm called ECP. He managed to do this because he had built an insurance business that was based on integrity. While the firm was still private, he decided that he was going to make his financial statements public, and he decided that they were going to make sure that every time somebody had a claim, they would fulfill the claim very, very quickly. He’s managed to expand to more than ten countries. How? Because everywhere he goes he will find a partner and give them a quick in to the business because he understands that they understand the environment very well. This is something that may sound normal to most people, but in environments where level of trust is very low, most people want to do business just within a very close circle.
This is a different way of looking at opportunities, a different way of thinking about a business, which today has really allowed him to build the business with over $100 million in revenues. This is somebody that started his career as an entrepreneur at the ripe age of 47.
I could give you thousands of stories like that. Those are the stories that we have to think about because, again, as we look at the challenges that the West is facing, I believe that Africa and other BOP markets have a very big role to play and they can only play this role if indigenous entrepreneurs also do extremely well and are able to grow strong businesses.
Knowledge at Wharton: In your book you refer to something you call the DARE process. What exactly is that and how can that be used to uncover opportunities in the bottom of the pyramid markets?
Kacou: The DARE process is about being able to really diagnose the mindsets that are impacting our business. Depending on what we find, we then decide what to do with them. There are some that we must reinforce. There are some that we must emphasize. Others that we must basically find a way to remove completely from the firm. It’s a process that requires that the business leader work with all the stakeholders and try to understand how they are seeing the challenges that the firm is facing and what the problems are. It’s a process that I’ve seen a number of business people on the ground use with quite a bit of success. I invite the readers to go to the chapters and get the secret for themselves.
Knowledge at Wharton: You also write about something you call the Archimedean mindset. What is that and why does it matter?
Kacou: The Archimedean mindset is about making sure that we really create businesses where moral purpose and profit motive are really balanced. Archimedes told us way back when, 200 years before Christ died, that if we gave him a fulcrum and a lever that was long enough, he could singlehandedly lift the world. Well, today we are in the position where business people have all the tools, the innovativeness, the passion and the drive to lift themselves and the rest of society out of poverty. But it will require that they have a different set of values and mindsets.
As a matter of fact, most of the entrepreneurs that I profile in the book are entrepreneurs who I believe showed this compassion and this ability to really drive for profits and generate returns, which are very, very high, while at the same time being able to demonstrate moral purpose in the way they conduct their business.
Knowledge at Wharton: How can Africa build the kind of ecosystems that are required to generate prosperity for entrepreneurs and the people at large? And who should take the lead on this?
Kacou: It’s a very good question because there are a number of efforts that exist out there. If you think of the indices — whether it is the Ease of Doing Business Index, the Corruption Perceptions Index, etc. — these are all tools used to think about ways in which we can have better ecosystems. What we often neglect and what most of those indices don’t capture are the intangibles, because that’s really where things get difficult.
Let me give you an example…. As a business person, God forbid you go bankrupt. It’s going to be very, very difficult for you to get another round of financing to start your next venture because even when you haven’t gone bankrupt, it’s difficult to even get money to begin with. I believe that it’s really important that we develop the kind of culture where we have reverence for failure. What I mean by that is we realize that failure can be an opportunity to learn, and failure is not necessarily something that is ingrained in somebody. It’s just an experience that is a combination of what happens in the environment. I really believe that one of the [ways] we can develop a better ecosystem is if we begin to appreciate the role that failure can play.
The second point that I would really look into is also our understanding of what really being an entrepreneur is. In Africa, it’s often very difficult for people to tell their parents or to tell their friends and family that they want to be entrepreneurs. Often entrepreneurship is perceived as the thing that you do when you can’t go to school, when you can’t work in government or when you can’t get into the Army. Yet we need entrepreneurs because they are the ones who drive the productivity of a society. I believe that it’s really important that we create a kind of ecosystem where being an entrepreneur is at least as prestigious and as interesting as doing some other things. This is where having role models is a very, very important and powerful element.
Finally, I think there is a lot that governments and development partners must do in creating an environment where the basics are there. For example, out of the 54 countries that you have in Africa today, 38 of them since the 1960s have had some sort of a conflict. Most of those conflicts would be intracountry conflicts where the economy is going to shrink by 14%. But most importantly you’re going to pitch a different part of the society against the other part. So I think that really creates the kind of environment where it’s difficult afterward to do business. I think these are some of the things that can be considered to make the ecosystem better.
Knowledge at Wharton: What should Africa mean to corporate leaders today?
Kacou: Africa should mean growth. Anyone who is serious about growth has to think about Africa. Because as you look at the statistic, if you look at the article that The Economist wrote this week, if you read reports such as “Lions on the Move” from the McKinsey Global Institute, there are a number of publications, even books like Africa Rising by professor [Vijay] Mahajan … that show that clearly being serious about growth requires that one thinks about Africa. Once they have decided that the compass as a business must point towards Africa, what they will need is a map for them to realize the potential of Africa. And I hope that my book can be that map to help them navigate what’s required to turn the opportunities that are there into real profits.
Knowledge at Wharton: So Eric, let me ask one final question. If Africa’s business and political leaders were to come to you and ask your advice on how they can keep Africa rising, what would you tell them?
Kacou: I would tell them, “Work on the software.”
Knowledge at Wharton: What does that mean?
Kacou: That means work on the mindsets that are there. Make sure that you build trust. Make sure that people start being more comfortable with risk. Make sure that people think long term. Make sure that we start being defensive. Make sure that we really realize that we can work together and grow something. For them to really work on those mindsets effectively, they must go beyond just telling people what to do. They must then take the reforms that are required to change the environment where all those mindsets get their basis from.