Tuesday, January 24, 2006

Looking at the Top of the Pyramid

I return to the Bottom of Pyramid concept yet again.

Of late, I have been engaged in creating business models for a training company, which wants to enter India with an offering of English training courses.

I was excited because it is indeed a huge opportunity – the largest population in the so-called Anglo-sphere [a political concept dear to heart of conservative political thinkers in Britain and United States, a super-commonwealth], millions of people with some English knowledge locked inside and a changing educational environment – the business made so much sense to me.

We drew up a business plan and the following were key observations and ideas for the market entry:


  1. The thriving BPO industry makes training English a big business opportunity.

  2. There is a huge market in metropolis, especially Delhi, Mumbai and Bangalore, and the largest training centres must be located there.

  3. The product offering – and the global brand – must be positioned as niche, priced at a premium, and must be seen as the ‘Mercedes’ of English training.

  4. Advertising will be the key in establishing the brand, and we must plan to cover satellite channels extensively.

  5. There will be lot of demand in the corporate sector and hence we must be able to tailor products to suit the needs of this marketplace.

As you will notice, each one of these are correct assumptions and strong drivers of business, and hence, they have been planned for very rightly. But, then, we knew the following too:


  1. The BPO industry employs about 400,000 people out of an Indian population of 1,100,000,000.

  2. Only 6% of India’s population lives in its top 24 cities.

  3. There are not many Mercedes in India. In fact, many global, premium brands have been disappointed with the ‘India experience’. [In fact, the same is also true for China, the darling of global business, as a market]

  4. Satellite Channels reach less than 1% of India’s population.

  5. ‘Corporate’ sector represents only a very tiny minority of India’s workforce, a puny proportion of its GDP and has very little ‘rub off’ effect.


Why did these numbers and observations not worry us? Why did we plan for a business which will only cater to possibly only the top 2% - 5% of India’s population, a market place which, to a large extent, already quite familiar with English [after all, that’s the 2% which hooks up India as a part of the Anglo-sphere], and catered by about 12 global training brands offering similar products.


Instead, let me offer you this imaginary picture [no, not our plan, because we will never get funded for this]:


  1. A tried-and-tested method of training English, delivered through 2000 outlets all across India.

  2. Serving more than a million learners every year, enabling them to understand, read and talk in English.

  3. Offering training in the learner’s native language – so the class happens in local language, making them understand English words and bridging them to English culture.

  4. Not costing more than $40 per learner,

  5. But allowing the business a margin of $1 per learner per year.

This will need a different approach, different ways of funding, different ways of looking at things. Global ‘Mercedes’ brands will not do, because these come with an inherent logic of 'margins must be worthwhile'. If there is a trade-off between margins and markets, only a very short term view will settle for margins, and most 'global mercedes' brands follow that. Also, venture capital imposes its own requirement of matching the margins that it can gain from another industry, let's say, trading. So, a profit maximization approach will never lead us to do this business, even if the opportunity is plain and clear.

But then, many businesses, Sears, Walmart, IBM and many such corporations, never started with the 'margins' logic. That is a contribution that MBA schools made in business policy-making. It confused the means and the end, and so far, clouded the 'concept of the corporation' to a large degree. However, I shall keep faith in the enterprise of our business leaders - such failures, probably many such failures, will make them return to seek markets again, ahead of margins.

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