Step 4 Business Models

Man building toilet moulds

Duration: 4-5 months (alongside promotional strategy development)

By Step 4, you’ve listened to your target consumers and identified products designs they want, and you’ve started talking to existing businesses that might be able to offer them. You have started doing the math to get a rough idea of what they might cost to produce and transport. Now you are ready to start testing how businesses can deliver these offerings in a lot more detail.

Thinking like a Business

To work with businesses – whether they are very small service providers and masons, or large distributors and manufacturers – SanMark programs must understand what they need, worry about, and what drives them. This includes understanding potential profit, risk and investment required to engaged in sanitation. Businesses involved in sanitation – no matter how small or large - need business models that ensure financial viability. Businesses must make a profit to be able to sustainably offer products and services to new (or repeat) customers. So the first essential step is to change the way we work with and talk to businesses: in SanMark, they are equal partners and viable, independent enterprises – not input suppliers or contractors.

 

Understanding Business Models

A business model defines how a business creates, delivers and captures ‘value’ – the benefit that customers receive by using a product or service. A good framework and tool for thinking about business models is the Business Model Canvas which helps us think about the four main areas of a business:

 

1) Offering: The products and services that a business offers to meet the needs of its customers. These are the value proposition of a business and what distinguishes the business from its competitors.

2) Customers: The different customer segments that a business tries to serve with its offering. The channels through which the business delivers value to the different customer segments (e.g. retail store front, village events,

etc) and the relationships that a business creates with its customer segments.

3) Infrastructure: The key activities that the business performs to execute its value proposition. The key resources that are needed to create value (can be human, financial, physical) and the partners needed to complement a business (e.g. suppliers, service providers, etc).

4) Finances: The costs of doing business (including fixed costs, variable costs, economies of scale, etc) and the income that comes from each customer segment. Income must be greater than costs for a business to be profitable.

 

By mapping the activities of a sanitation business, we find out exactly how they work, where they don’t work well and how they could be improved and expanded to serve our target markets.

 

Changing the way we engage with the private sector

Many sanitation program supply-side strategies have not gone to scale because they have made incorrect assumptions about what consumers want, what the main market bottlenecks are and how best to address these.

 

For example, we’ve learned the hard way that training masons in technical construction alone is usually not enough to catalyze a sanitation market if the opportunity costs of engaging in building latrines is too high.

 

We’ve also learned that SaniMarts/RSMs that are ‘set up’ by external programs to only  sell sanitation components are often not viable because the cost structure and resources required to run a fixed location business cannot be covered by the revenue generated by selling only sanitation. And there many not be a large enough rural customer base where these shops are being established.

 

In Sanitation Marketing, we do the math and look holistically at a business, and we help to generate new ideas on how it can profitably reach new markets – this means focusing in particular on the ‘last mile’ of rural distribution to get their products and services out to hard-to-reach places.

 

Testing What Works

The best sanitation business models will be those that adequately address the four key areas of the business, with enough profit to sustain and grow. Rather than trying to create brand new businesses, try to start with existing businesses that have a diversified product line, a reasonable case position and a willingness to make up-front investments.

 

The essential thing to remember is that the right business models and products will be completely determined by the existing market barriers and opportunities. The best way to learn what works is to convince a couple of ‘first mover’ businesses to invest in the sanitation business opportunity, and then help them to test what works on the ground. This might include setting up small sales and distribution trials, producing a small batch of products for testing, or trialing different ways to link businesses to your other demand creation activities (see Step 5).

 

UNICEF Guidance Note 4 presents a lot more detail on how to motivate early ‘first mover’ businesses and then help others to jump into the market to replicate early success. Getting those first few businesses on board will be the hardest part, so check out the tips and tools on how to make a business proposition, what to say at the first meeting and other ‘do’s and don’ts’ of business engagement.

 

 

PowerPoint icon
Slides

Supply Chain and Business Model Strategies Supply Chain and Business Model Strategies (2844 KB)

Document Icon
Documents

WSP, 2011, Introductory guide to Sanitation Marketing WSP, 2011, Introductory guide to Sanitation Marketing (4109 KB)

Sanitation Marketing for Managers, USAID-HIP, 2010 Sanitation Marketing for Managers, USAID-HIP, 2010 (1817 KB)

UNICEF Guidance Note 3 Supply Chains and Business Models UNICEF Guidance Note 3 Supply Chains and Business Models (587 KB)

UNICEF Guidance Note 4 Business Development UNICEF Guidance Note 4 Business Development (337 KB)

DFID and SDC, 2008, A synthesis of the making markets work for the poor approach DFID and SDC, 2008, A synthesis of the making markets work for the poor approach (929 KB)

SDC, 2008, How the private sector can contribute to poverty reduction SDC, 2008, How the private sector can contribute to poverty reduction (4375 KB)

Tremolet, 2012, Using economics to improve the delivery of services along the sanitation value chain Tremolet, 2012, Using economics to improve the delivery of services along the sanitation value chain (994 KB)

WBCSD, 2004, Doing business with the poor - A field guide WBCSD, 2004, Doing business with the poor - A field guide (1515 KB)


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