I’m no expert in matters of investing at the bottom of the pyramid, but looking at the statistics below, it seems like a no brainer to me.
Half the world ( 3 billion people) live on less than $2.5 a day.
80% of all humanity lives on less than $10 a day.
20% of the richest people account for three quarters of the world income.
I generally don’t get very enthusiastic when I read business plans, or hear about businesses that target the elite in the society. There’s nothing wrong with starting the next Sir Henrys to sell 2,000 bob shirts, or an online business in Kenya. It’s just that for me, it makes sense to be serving a segment of this 3 billion people.
You can’t go wrong at the bottom of they pyramid, and this is why:
- Most items consumed at the bottom are essentials. The people in the low income segment buys what they must, and as such, if they’re buying your commodity/service, you have guaranteed, sustainable market.
- In hard economic times, the higher income segments tend to adjust their spending a step down towards the lower income segment. What would this mean for your business? That in hard times, your business still thrives.
Case in point is the rental market in Nairobi.
A couple of years ago when the housing market was booming, the rents in areas such as Kileleshwa and other up market estates sky rocketed, so did the apartment selling prices. The demand was so high, the apartments would fill up 2 months post completion. Serving the high income segment made sense, because we were in a growing economy, and more people were moving up to the higher income segments and were able to afford the housing.
Then we experienced a decline in the economy. I can spot an apartment in Kileleshwa that has been complete for the last 6 months, and it’s yet to fill up. The rentals in this area are going up, but it’s not demand driven, it’s more of home owners trying to recoup their investment.
On the other hand, try looking for a house in South B or Nairobi West. The decline in the economy hasn’t made a difference. Quite opposite actually, the rents are still going up, house scarcity is worse than ever. South B/C is more middle income, but this example demonstrates the dynamics at the bottom. I doubt houses are more available in Kibera now, than they were 3 years ago.
The disadvantage of investing at the bottom is the service providers are numerous, and therefore innovation is key. For an entrepreneur, one of the quick wins at the bottom is quality. Despite popular belief, quality isn’t expensive. It doesn’t cost significantly more to run a clean restaurant for example, or a nicely tiled house. The bottom is littered with millions of businesses providing bad quality services that this would be a win.
Well, I’m studying more on investing at the bottom of they pyramid and will share my insights as we go, but two areas that are gaping opportunities at the bottom of the pyramid are housing, and food (production, processing, restaurants, fresh produce etc).
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Contributed by Kellie over at the Rookie Manager. Kellie is a blogger and an avid outdoors sports lover. She also loves motorcycles.