Reluctant Entrepreneurs

We at GO DESi owe our Impact thesis to the book #POORECONOMICS by Esther Duflo & Abhijit V Banerjee who were recently awarded the Noble Prize in Economics. In one specific chapter Reluctant Entrepreneurs, backed by a lot of research done amongst the rural poor, they debunk the myth about all the rural businesses being entrepreneurial, resourceful & "jugaadu".

Think of a 'laddoo' manufacturer based in a village. To start his business he invests Rs. 2000 and makes 500 laddoos, the villagers come to know of it and the entire stocks get sold out and he makes a cool profit of Rs.1000. He borrows another Rs.4000 and makes 1000 laddoos but the village is small and to sell he has to go to the next village costing additional money, he manages to sell all the 1000 laddoos and makes Rs.1500 in profit. 

Though his profit in absolute terms increased, however, his marginal returns reduced from Rs.1000 to Rs. 500

Let us geek out a bit on this (The graph below- published in the Poor Economics book). The graph below is the production curve, for most poor businesses the production curve is graph OP & for more 'start-up/ scalable' businesses the production curve is QR. 

 OP: High marginal increase in production with an increase in the capital but the returns fizzle out.

OR: Zero returns with initial investment but once the product-market fit is established, higher the capital deployed higher the returns.

The simplest way to explain this is that there are only that much laddoos that you can make by hand, to get to higher production curve (QR), a new machine will be needed, a new market will be needed & most probably a differentiated product, new skills and finally more capital.

To summarize, rural businesses are

1. Often a forced-choice or an additional source of income for idle hands. For example Wife of a farmer opening a Kirana shop to supplement the meagre income. 
2. Lack differentiation and therefor command lesser margins (Chemist, bicycle repair, sweetmeat shop)
3. Rarely scale-up and create employment (Laddoo example)

This learning led to our two impact hypothesis:

1. Finding rural entrepreneurs with a differentiated product is difficult, once you find them, all support should be given to moving them to the production curve QR to enable them to create higher returns and hence scaling up.
2. If you can't find them, then create businesses in rural areas which capture the economic value and hence create long term sustainable jobs.

The story of #Imlipop is GO DESi testing out these hypotheses. Check this journey of #Imlipop from the production curve OP to QR ;).

If you would like to be a part of our experiment in testing these hypotheses, hit us up :)

#socialentrepreneurship #impact #godesi #startup #entrepreneur #Pooreconomics