Is It Profitable?

In the world of rural economic development one of the most common mistakes is executing a program without accountability to the truest measure of sustainability - participant and program profit. Just about everyone in business in the developing world can provide an important opportunity to their community but only if the opportunity is sustainable. It's all too common in economic development work that what began with good intentions fails because of business fundamentals, rather than philanthropy. Sustainability of development is tied to the program's intrinsic profitability.

A few years back, we had the opportunity to compete with a prominent national for private funding in his home country. Now while it may seem on the surface that we were potentially putting someone out of business, the fact is that the gentleman would have put himself out of business after wasting several hundred thousand dollars. His intention was to get the government of his country to get behind an agricultural processing program. We pointed out that the people from which he sought local support profited by the failure of the industry. How? By skimming relief money from international donors. His response was sadly too common, "I know these people. I'll go to their house and tell them how important this is." Look, people who profit from something are not motivated to change.

His tactic was to bolster donor/funder support for an idea that hadn't been researched properly. What he needed more than anything was to know his product from farm to retail, to know complete production data and what were the most likely causes of failure to his venture. Moreover, he didn't know product's price points or how the product migrated along the value chain. He hadn't done any research on what the market would set as a conservative basis for his forecasting.

I have to say that getting reliable numbers in an undeveloped enterprise effort is challenging beyond words. In our field of cashew production, it was virtually impossible to know how fast training would occur, the split to whole nut ratios for the workforce, the correct and fair wage of each workers place in the production or reasonable expectations for quality of production. At the beginning we faced the same temptation to focus on product marketing rather than production at first. Over the first two years of our venture, we found that all of our marketing research while important didn't mean anything because we couldn't produce white kernel cashews at a competitive price. In fact, no one could; a fact demonstrated in no less than five large scale processing businesses failure and closure. Millions of dollars in investment capital were wasted by amazingly skilled investors because they didn't bring diligence to their decision in the fundamental component of sustainability - profit.

As we assessed the reality of our production problem we came to a shocking conclusion our project couldn't work. You can't imagine the horror I felt as our dream of working in arguably one of the poorest countries in the world came to a crashing thud. So, as all entrepreneurs do, we asked if there were any other ways to make the project profitable. We decided that there was only one possibility, marketing to retail. Not only did this dramatically increase the cost of capital improvements from about $50,000 to $450,000, but it required a much more rigorous focus on business training rather than merely processing skills. The profitability became a self-selling feature of our work.

Virtually every venture in every part of the world has partners or mentors that make the work sustainable. Someone said that sustainability means the beneficiaries of a program must continue it on their own. I couldn't disagree more. I'm not sure if it is an anti-colonial mindset or lack of long-term willingness to commit that has created this utter misread of development work. There is nothing wrong with an organization having an influence in a rural community for decades. In my opinion, there is something wrong when they don't. The real measure of their value is the impact they have on the betterment of the community and the individual households they work with. Long term business partnerships provide stability and presence to a fledgling start-up.

If you're in Africa wanting to create a business then do your research well. Production costs aren't interesting unless you plan to succeed. If you can't employ someone at a fair wage and still compete in your target market then figure out why. Is it their speed, their currency's value, or the quality of their work? You have to ask what can be done to tighten cost without sacrificing your worker's well-being. Some business ventures are stories of miraculous profitability and brilliant ideas, but most businesses are slow, methodical efforts of design and redesign working their way into a solid model for success.

If you're hoping that the UN family of organizations or the World Bank will be your answer to funding then you might as well pack up and go back to the bush. My experience is that the people in those organizations who want to help can't, and the people who can have pet programs and projects they are already committed to fund. In that sector it is all about who you know not the quality of your program. So, don't be discouraged, just work your business plan and you'll find money. After all it isn't government that fights poverty it's business.