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Patient capital, markets that work and ending the endless emergency of poverty

Multiply the population of the US by three. That’s how many people around the world live on about a dollar a day.

Do it again and now you have the number closer to $2. About forty percent of the world lives on $2 or less a day.

What’s that like? What happens to you when you have two dollars a day to live on. It’s almost impossible to imagine. I mean, $2 is the rent on your apartment for about 45 minutes. $2 buys you one bite of lunch at a local restaurant...

And yet, two billion people survive on that sort of income.

The key issue is ‘survive’. Subsistence income means that you have the barest possible cushion, that every penny is spent and you are on the edge at all times. It makes life an emergency.

If every single thing goes perfectly, then you and your family will go to sleep tonight healthy, not too hungry and fairly safe. But of course, every single thing almost never goes perfectly. If you are bitten by a malaria-carrying mosquito, you need to buy medicine and so there’s no money for food. If you need more water, you have to spend two hours walking to and from the nearest half-decent water spot, and those two hours are the two hours you were going to spend harvesting the food your kids need.

From a fundraising point of view, this endless emergency is exactly what a non-profit needs to find and close donors. A dollar donated today will save someone’s life. It will. One dollar, one life. That’s urgent. As urgent as it gets.

The problem, of course, is that it doesn’t save that person's life forever, it saves it for today. Tomorrow, there’s another emergency, and yesterday’s dollar is gone. So you need another dollar. Two billion people, two billion dollars. Every day. Today, tomorrow, the day after that. It’s an endless emergency, and it never gets better.

That’s where patient capital comes in. It starts with this belief:

The difference between being one penny behind and one penny ahead is profound.Aheadbehind

If you’re one penny behind, then every day you fall further back. Every day, the emergencies get worse, the stress gets worse, your ability to survive (never mind thrive) gets worse.

If you’re one penny ahead, though, just a penny, then every day you build a reserve, every day you are able to invest in productivity or peace of mind, and soon you are two pennies or a dollar or five dollars a day ahead. And then you can send your daughter to college. And then you can buy something from the merchant next door. And then you can plant a better crop. And then you have a stake in the community, and then the world changes.

So, how to create this micro surplus? How to prime the pump of the system to improve productivity enough that things get better?

Markets.

When two people trade, both win. No one buys a bar a soap unless the money they’re spending for the soap is worth less to them than the soap itself.

When someone in poverty buys a device that improves productivity, the device pays for itself (if it didn’t, they wouldn’t buy it.) So a drip irrigation system, for example, may pay off by creating two or three harvests a year instead of one.

What does that do for the family that buys it? Well, if you have one harvest a year and you’re living at subsistence, it means your income is zero, or probably just a little below. If you can irrigate and get two or three harvests a year, though, your income goes up by infinity. Now, instead of making -1 pennies a day, you’re making 100 or 200 pennies a day. That’s a surplus of $700 a year. That’s enough to participate in other productivity or life-enhancing investments, like a well, or a roof, or health care. Now, the edge is a lot further away.

And what does that do for the family that sells it? When markets arrive, productivity increases and new innovations can be diffused more quickly, because change is brought in by the market.

How does Acumen Fund create these markets? The answer is patient capital. The companies that are selling solar lamps to replace kerosene or water purification systems in tiny villages, or housing projects for peasants in Pakistan or even ambulance services in Mumbai fully intend to make a profit, but the venture capitalists on Sand Hill Road aren’t in a hurry to invest in them. The investments are a little too risky, take a little too long or a little too unproven to take a chance on.

So Acumen finds these entrepreneurs on site in the developing world, funds them, teaches them and pushes them to build really big organizations. A to Z has literally thousands of people in their modern factory creating malaria bed nets in Tanzania. And so it grows.

I’m thrilled at the work Acumen has done, and excited about where the fund is going. I’ve got some interesting fundraising ideas to share with you this fall, and I thought it was worth taking you through my reasoning as to why I chose this organization as the recipient.

Any entrepreneur or marketer can learn a lesson from how new systems create new markets, and how an infinite increase in income or productivity can change everything. Everything.

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from Seth Godin's blog: "Multiply the population of the US by three. That’s how many people around the world live on about a dollar a day. Do it again and now you have the number closer to $2. About forty... [Read More]

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