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Book Review: Prosperity Paradox

By Laura Davis | Tue Feb 02 2021
Why do some countries develop in a generation and others languish in poverty and dust for hundreds of years? No book or perspective can ever tell the whole story, but as an investor who has dedicated the last 10 years of my life to building the private sector in East Africa, I found great hope, helpful insights and a practical framework from Clayton Christensen’s book Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty. How satisfying that the book, published in 2019 and co-authored by Efosa Ojomo and Karen Dillion, has an ORANGE cover? Orange is my signature color and one of the primary colors of RENEW’s brand, so I was immediately drawn to the book! In this case, you can judge the book by its cover.
The book details a framework that challenges many preconceived notions of development and could revolutionize the economic situations for millions across the continent of Africa if entrepreneurs, development organizations, philanthropists, government officials and investors were to implement this framework.
I would distill the framework down into three key takeaways. This is my personal summary - you might discover more:
  • Use “Disruptive” Innovations
    - Other innovations that Christensen has defined throughout his career at Harvard like efficiency innovations and sustaining innovations are good, but not great for an economy. Efficiency innovations free up cash flows but rarely create new jobs. This is the nature of resource-related innovations. Sustaining innovations ensure a company continues to maintain its market, often by adding bells and whistles to make sure the product maintains its competitive edge in the light of new market entrants. But disruptive innovations create new markets, making non-consumers into consumers, creating employment and giving cause for forward and backward integration that often positively impacts infrastructure and policy. My take - don’t just copy and paste models that work in the East or West, in Africa. Rather, start by asking what will it take to create a market here?
  • Focus on Turning Non-Consumers into Consumers
    - Speaking of market creations, Christensen spends a fair amount of the book detailing case studies from companies like Singer, Kodak, Bank of Italy, Ford, Sony, Indomie and the like that build companies that produce products and services that don’t try to steal consumers from other companies, but rather bring new consumers into the market because of the value of their creation. The end of the book also includes an encouraging list of companies around the world that are creating markets by building disruptive innovations. My take - instead of looking at business as fighting for a bigger piece of a fixed-sized pie, ask how can we build something that makes the pie even bigger.
  • Ask if We are Solving the Jobs to Be Done
    - Does the product or service solve the problem for which the company was hired to do? It’s not always as clear as an entrepreneur might like to think. The authors provide the example of a newspaper in an airport. Does a passenger buy the newspaper ahead of the flight to find out the latest news or as an insurance policy in case he or she is seated next to a pesky passenger he or she doesn’t want to speak to? My take - many times a successful product or service that works in one market falls on its face in Africa. The job to be done here might be different - a well dug in one location to help prevent women from having to carry heavy jugs multiple kilometers might have eliminated their bonding time with peers, so it never gets used. Ask, what's the job the customer needs to be done here in Africa? Not, here's what we did in other countries, so it should work here.
Christensen and his colleagues also provide some specific advice for each stakeholder intermingled throughout the great case studies and stories in the book. Here I try to summarize a few of the things the book highlights for each stakeholder group.
For Entrepreneurs
  • Look for opportunities to create new markets.
    Be sure to focus on creating markets by creating products that address the needs of non-consumers. Identify pockets of non-consumption by looking at skill, time, wealth, access, etc. and know that existing data does not predict non-consumption.
  • Don’t fight against bad policies, lack of infrastructure and corruption...use them.
    From the book and my own experience in Ethiopia, I know that is a losing battle that consumes way too much energy. The book says to focus first on your market-creating (disruptive) innovation, and if you are committed, the other things will likely follow. In some cases, you will end up building the infrastructure, supply chain, etc. yourself.
  • Know what job your customers are hiring you for.
    It’s not always as clear cut as you might think. Ask yourself, does the product or service solve a job my customers need to get done? And if you don't know what that is, start to build up a very strong primary research function within your due diligence team. The information you're looking for is likely not available. Long conversations over tea and coffee will be the best way to understand that job before investing millions into an idea that might not be what the customer wants (almost every well drilling NGO should read that again).
For Development Professionals and Philanthropists
  • Stop drilling wells
    - We all know friends and organizations that have been heartbroken by the terrible issues surrounding lack of infrastructures such as access to power and clean water across Africa. But rarely does it work over the long term to address those problems from a philanthropic perspective. We end up keeping people in uninhabitable places and/or wasting resources because infrastructure is not owned and maintained by the community. Thousands of wells dug with well-intentioned grant dollars lie in ruin across Africa. Christensen’s answer: Let the private sector create a market-disrupting innovation that pulls non-consumers into a marketplace and addresses the issues with a private-sector solution. This isn’t an overnight solution, but perhaps it is time to put more resources towards investing with the private sector vs. flushing grant dollars down wells and toilets. As I like to say, every decent job we create through investment in a local company provides more access to clean water and healthcare.
  • Support cultural changes rather than institutional changes
    - This is hard to do. I get it. But start with the end in mind, and support initiatives that you think will get you there. I wish the book spent more time focusing on what this could/should look like.
For Policy Makers
  • Let innovations pull the right policies and infrastructure in place
    - The authors share stories from developing countries across the world we’d like to forget. We’ve all seen those well-intentioned infrastructure projects that go nowhere because they aren’t in line with what the private sector and the community needs or will use. Rather, is there a way to focus on innovations and let necessary infrastructure and policies follow? The book goes into great detail about how the United States and other countries were before market innovations like Henry Ford’s affordable Model T, which helped pull America’s highway system into existence. This story is well known, and the authors go into many other unknown and overlooked examples of market innovations pulling infrastructure and proper policy into existence.
  • Remember good laws are not enough
    - Christensen opines that institutions reflect what people value, and therefore leaders and policymakers should focus on changing culture where necessary in order to impact institutions. He puts it another way “institutions are a reflection of the culture, behavior and norms.” His advice? Whether you are a policymaker, investor, entrepreneur, or development professional, don’t wait to get institutions right; rather focus on innovation. In the end, most successful institutions grow from culture.
For Investors
The following are from the book, but it’s slightly difficult to know where the book’s perspective ends and my own begins.
  • You must take a long term approach
    - If you think you are entering a developing country to make a quick buck, maybe look elsewhere. I know firsthand that building markets take determination and grit, and the book supports that.
  • It’s not for lack of resources
    - Resources already exist in Ethiopia and across Africa. They just need to be developed and properly utilized. Money, natural resources, human resources, you name it, they exist but have a plan to develop them.
  • Be prepared to build your own supply chain
    - Have a strategic plan for where you start investing and know that you can’t just build a hospital. You need to build the infrastructure to make the hospital run, a healthcare worker training school, a patient education and outreach get the idea.
  • Look for market-creating innovations (disruptive innovations)
    - Not that other investments shouldn’t be done, but if/when you find market-creating innovations, and you have the stomach to see them through, you’ll likely find the legacy building financial returns and social impact you crave.
In summary, disruptive innovations create new markets by making non-consumers into consumers. The book gave me great hope that building 100M USD companies in Africa is well within reach for RENEW and for entrepreneurs across the continent.
If you haven’t read the book, you should.
Renew Capital is an Africa-focused impact investment firm that backs innovative companies with high-growth potential. Renew Capital manages investments made on behalf of the Renew Capital Angels, a global network of angel investors, foundations and family offices who seek financial returns and sustainable social impact. For the latest on investing in Africa, subscribe and follow us at our social links below.

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