Building the energy industry sector

Every time I come across a new social enterprise, I find myself eyeing them with a healthy dose of skepticism because some of them fail to understand the real needs of their target populations, some are inherently unviable businesses, and some hardly qualify as businesses with a social objective.

Several years ago when I first heard about SELCO Solar, which provides lighting solutions to rural households, I had wondered about similar questions.

Last October, I happened to meet SELCO’s founder Harish Hande at an Ashoka workshop on rural innovations and farming.  Within an hour it was clear that he was someone operating on a different plane than the typical entrepreneur (social or otherwise).

Not a Technology Company

One of the first things that struck me about Harish’s approach was that from the beginning he insisted that SELCO is not a technology company.  He focused on the household and its needs rather than the technology.

He asked the question: what are the kinds of things that a rural household is willing to spend money on? Clearly, they spend money on family functions, pay for bus and train fares to attend weddings, and on buying household assets, however small they may be by urban standards. So what is the thing that makes a household spend on X but not on Y?

To answer this question, Harish lived in a village in Sri Lanka for six months as part of his Ph.D. work.  Later in India, he tried to answer the same question for households in rural Karnataka. He realized that one of the main reasons for households to spend on lighting is to enable them to continue income-generating activities such as weaving during the night.  Other households wanted lighting to enable their children to do homework.

Such insights into the purchase decisions were critical for not only the design of the product, but also its price and financing, as well as the business model he created for SELCO Solar.

Participant at CREAM training at SELCO, explain’s her team’s marketing poster to the whole class

Recently my TREE Society colleagues and I conducted a business management training (“CREAM”) for the managers of SELCO branches. This program focused on Finance, Sales and Marketing (For more about this program, see here and here).

This gave me a fantastic opportunity to meet the operations team of SELCO and develop a deeper understanding of their business.

We discovered that the pricing of the product was calculated based on substitution cost.  SELCO had calculated that the average spend per household on candles and kerosene for lighting was around Rs. 5 per day and estimated the current lighting budget of rural Karnataka households to be Rs. 150 per month.  Keeping this in mind, they designed lighting systems whose monthly installments would roughly match this amount.  By the way, I am not giving away any company secrets here – these calculations have been covered in previous case studies.

Why sell four lights when you can sell two?

The way any company goes about conducting its business says more about it than any amount of press coverage or awards.  At SELCO, while financial incentives for sales staff are tied only to total revenues, performance metrics also include the number of small power systems sold such as two-light systems (as opposed to the large value systems of 4 lights or more).  This discourages the sales staff from straying too far from the original mission of the company.

SELCO is now a 17 year old company with annual revenues of about $4 million and about 125,000 customers across Karnataka.

Along the way, they worked hard to get banks to recognize lighting as a sector worthy of bank loans.  Convincing the first bank was hardest, but the next few weren’t exactly easy either.  A big part of the sales process now involves helping the customers with the documentation process for securing a loan and building relationships with local bank branch managers for financing.

Growing the sector, beyond the business

The reason that SELCO wanted upskill their Branch Managers was because SELCO was undergoing a transition where the founders and other key members of the original team are leaving SELCO to start a sustainable energy incubator.

Over the last year or so, the company has been undergoing a planned succession from the original team to the next generation of leaders. This is very rare sight even in most large companies where founders remain closely involved with the business even after giving up formal positions.  At SELCO, both Harish Hande and Ashis Sahu (erstwhile COO) have handed over their responsibilities and have turned their attention to launching a pre-incubator in the sustainable energy sector.

Harish explained their thinking:  He believes that the growth and expansion of SELCO beyond Karnataka borders is best handled by the experienced senior managers of SELCO.  He himself will focus on identifying, encouraging and supporting entrepreneurs around the country to create many more sustainable energy enterprises.

In particular, they plan to focus on those entrepreneurs who do not have IIT/IIM degrees and international experience (who seem to constitute the vast majority of incubatees/investees of Indian incubators and venture funds). They want to reach out to non-English speaking entrepreneurs, help them create sound business plans, embed them in SECLO operations for several months to give them a clear idea of what running such an enterprises entails.  The first batch of entrepreneurs has started their journey.

And now they have embarked on their search for the next generation of entrepreneurs (read more here).

I will be watching them closely in the hopes of applying learnings from their efforts towards the agri-sector platform that I’m launching.

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This entry was posted in Business management training, Micro-enterprises & rural businesses, Social Enterprise Profiles and tagged , , . Bookmark the permalink.

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