Selling real estate on the $300 house

'Reverse innovation' is unique way to penetrate emerging markets

In the Harvard Business Review recently, Vijay Govindarajan and Christian Sarkar put forth the idea of designing and manufacturing a house for $300 in order to more adequately house the poor.

What is specifically interesting about the concept is that it is not to be a charity project. It is to be an actual business in an unfortunately large market.

Working through Dartmouth College, Enterprise for a Sustainable World, and International Fund for Africa, the team is planning to deploy a solution to India, Haiti and Indonesia, as well as working on an integrated model for Ethiopia.

One of the core principles of the work is "reverse innovation."

Reverse innovation is any innovation likely to be adopted first in the developing world. And though it may seem counterintuitive (How do developing countries get "innovation" if they don’t have financial resources?), there is a lot of merit to the concept.

I’m reminded of travels I did in Bulgaria in the ’90s. Though not exactly a member of the "developing world," their telephony infrastructure (combined with a free-fall currency) was a combination of nonexistent and inaccessible. The cost of repairing and building out land lines was greater than any company was willing to invest.

Article continues below

But cell towers, on the other hand, were a different story. And people were willing to buy cell phones. As a result, Bulgaria was one of the first places I encountered a society that was connected primarily by mobile phone.

Innovation isn’t about technology — it’s about human culture change. The phone wasn’t important — the ability to communicate from anywhere is.

As a measure of "reverse innovation," Bulgaria at that time chose to skip over the development of land lines and instead embrace the emerging technology of mobile cell phones. If you wanted to see what Manhattan communication culture would be like in 2012, you could get a glimpse of it in Sofia in 1996.

So often we look only to the wealthiest segments of society in search of innovation. We look to the educated. We look to the rich. We look to the technologically connected. But all of these groups come with a history and cultural baggage that may prevent them from identifying and finding value in something that will change the world.

There may be tradition-based blinders: "We’ve always done stuff this way."

There may be culture-based blinders: "Our way is fashionable."

There may be political blinders: "Changing the way we do this may diminish our power/wealth."

And so innovation can pass by the "first world" entirely, barring a few pockets here and there.

In "developing" segments and countries there is much less to lose. Certainly there are the same blinders in effect, but the options are so sparse or the consequences so much more consequential that innovation can overcome those blinders much more easily.

It may seem that reverse innovation is available only to large global organizations. You may feel that if your organization doesn’t service the needs of homebuyers and sellers in Africa then you’re just out of luck in terms of participating in reverse innovation. Maybe globalism or access to global markets is a prerequisite for reverse innovation.

I would suggest it isn’t. Instead of seeking out a global market, look at the bottom segments available to you today in a culture with which you have some familiarity. And consider what services or products can be developed that actually serve these segments.

As with the $300 house project, this doesn’t mean products and services that are funded by some other wealthy segment — this isn’t about freemium. But instead, what kind of value can be delivered to your least financially capable segment that actually adds value to their lives as well as provides a reasonable return on investment for your business.

Maybe there isn’t anything. But it’s worth examining. Here’s why:

1. Most economic measures show an increasing gap in wealth with fewer individuals on the wealthy side of that gap. This means more customers on the less wealthy side.

2. Meaningful and effective brand penetration into emerging markets is a medium- and long-term growth plan followed by many large brands (though perhaps not in the real estate industry) as emerging markets become actual markets.

3. The acceptance and feedback on innovative ideas will be faster and more direct than it would be with other segments who may have no interest in changing their behavior.

Those of you who are practitioners in the real estate industry may look at the $300 house and wonder, "Where does the agent or broker add value in this market?" It may require some innovative thinking to determine what sort of business model would even work in that situation. But that’s the point.

The winning designs for the actual project are houses that include charging stations for mobile devices — this audience isn’t going to remain "developing" forever.

Gahlord Dewald is the president and janitor of Thoughtfaucet, a strategic creative services company in Burlington, Vt.

Contact Gahlord Dewald:
Facebook Twitter Facebook Email Facebook Letter to the Editor


Comments