Senior Associate Dean Bhaskar Chakravorti comments on the next big small thing.
Meet ChotuKool. As a fridge with no compressor, it is tiny, weighing in at under 18 pounds. It can run on a 12 volt battery, and it can be yours for about $75. You can get any color you would like, as long as it is an eye-popping candy red. Most importantly, you can get it…in some of the most hard-to-reach rural areas of India. Chotu means “the small one” in colloquial Hindi. It may well be the Next Big Small Thing.
In many ways, ChotuKool is like any other new product. Its design, price, features, and especially the eye-popping color were determined the old-fashioned way: through iterations with focus groups involving target customers. But with that target being a woman in an outlying village, doing the research could be both difficult and expensive. To solve the problem, ChotuKool’s makers piggy-backed on another small innovation: the microfinance network, deeply embedded in some areas. And then when the product was ready for sale, instead of the traditional distribution channels, the makers of ChotuKool returned to the same network.
The starting point for innovation in an emerging market is like that of innovation in any other market: it has to tap into an unmet need. However, emerging markets are distinct in that the contextual challenges that explain why the needs are unmet are rather significant. If we were to peel them back, the challenges are of three kinds. Affordability: Does it fit the consumer’s budget? Appropriateness: Does it fit the consumer’s usage context? Accessibility: Can the consumer be reached? Overcoming all three is difficult, which is why the volume of the unmet need is large and the prize for an innovator who overcomes them can also be quite large. Even with low margins, the economies of scale build up quickly.
Overcoming the three-fold challenge is hard. Imagine the difficulty of designing a product that must work in a context where some combination of the following is true: small homes, poor infrastructure, unreliable transportation, unreliable energy sources, extremes of weather, little usage experience, relatively limited media, fragmented retail networks, etc. Meeting the appropriateness challenge can make research and engineering quite difficult. Access is not easy either; reaching the consumer in distant towns and villages or even in cities with poor infrastructure can be expensive. Overcoming these problems can make it impossible to then meet the critical third requirement of affordability. ChotuKool scored highly on all three. The notion of leveraging the existing deeply embedded networks may have been its breakthrough idea.
The motivations for finding such breakthroughs are very strong for both home-grown innovators as well as for the multi-national companies. Not only is there so much unmet need to be met, the numbers are compelling: as the mature world struggles through both recession and recovery, more than 75% of the growth of global output will come from the emerging markets.
However, before venture capitalists, CEOs and entrepreneurs rush to book their plane tickets for emerging markets, I would encourage everybody to take a deep breath. While emerging market innovations have not yet reached a bubble phase, it does run the risk of becoming a fad. Companies are running out of good ideas elsewhere and even when Steve Jobs was alive, there was only one Steve Jobs. Solving the triad of affordability, appropriateness and accessibility is really hard. While solving all three is absolutely essential. By no means, will solving all three guarantee that you have a winner. The solution to each of these challenges has a dark side, an unintended consequence.
Consider three examples.
Consider the Tata Nano, widely celebrated as the world’s cheapest car and the biggest of the Next Big Small Thing. The Nano has enjoyed far more success in magazines and business school case studies than it has in the market. Among several reasons, buyers didn't particularly relish being perceived as buyers of a product whose primary positioning is as the world's cheapest car. Affordability can bite back: appearing cheap to others is never a good thing.
Consider the Play Pump, which used the energy of schoolchildren playing on merry-go-rounds to pump water up to a storage tank. It was brilliant in harnessing appropriate technology that fit with the usage context. The brilliance of the idea captivated a worldwide base of admirers and celebrity champions –from Bill Clinton to Jay-Z. Alas, children simply could not play on merry go rounds long enough to realistically meet the water needs of a South African town. Child’s play can be rough; spare parts for merry-go-rounds can hard to find.
Finally, consider the microfinance networks - the same networks that were used to conceive of and sell Chotukool. They excelled at cracking the accessibility challenge. In fact, they ensured so much access that multiple microfinance institutions were giving loans to the same client - leading to over-borrowing, default and possibly suicides in some cases. In many instances, the borrower did not quite understand the terms of the loan. Eventually, it led to a political backlash in places as dispersed as India and Nicaragua.
That said, I think ChotuKool is, indeed, cool. And I say this because the red fridge has become more than just an innovative product. “Chotu” has even become a platform: it has inspired ChotuWash, a washing machine with similar characteristics and others in the pipeline, including a water purifier, space saving furniture, etc. It has pointed the way to solving the challenge of the three A’s, affordability, appropriateness and accessibility. If it fails, it has spawned other ideas that may yet work.
So here is my final thought: For all the reasons I just outlined, small will be huge in emerging markets, but any one small thing may still be risky. But many small things or a platform that is a “god of small things” – now that can be really cool.
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