NextWealth–Distributed Incubation and a new outsourcing model with profound implications

On a recent trip to Bangalore to visit with Duron Energy, an Idealab company, I was fortunate enough to meet with Dr. Sridhar Mitta, the original Chief Technology Officer of Wipro, one of its earliest employees, and, as President of Wipro Global R&D, the key missionary of outsourced product development. He is the Founder and Managing Director of NextWealth, www.nextwealth.in.  After receiving his M. Tech. from IIT he went on to get a second Masters and his Doctorate at Oklahoma State University. (He did say it was nice to meet another “Okie.”) He returned to India and spent several years in the public sector before joining Wipro in its startup days. He retired in 2001 and subsequently has been involved in a number of technology companies. His career truly traces the development of the IT industry in India. But his primary focus now is NextWealth, which may represent another step along the IT path in India and possibly elsewhere.

NextWealth is a for-profit social enterprise that is taking advantage of a significant cost arbitrage between urban and rural India, but also, profoundly, makes use of and reinforces certain cultural and social aspects of the Indian society.

In addition to the famous network of IIT schools in most of the major urban locales, India has located many very good technical schools in rural areas in an effort to increase the number of college educated members of the workforce.  Many of these campuses have quite complete infrastructures including, importantly, sufficient primary and back-up power. The schools provide a college education to students in rural India who would not be able to move to urban areas because of the costs and the prospect of separation from their families at a young age. This particularly applies to the young women from the rural areas. The problem is that once they receive their degrees, the job opportunities are most likely elsewhere, not in the local community.  In India, culturally, family takes precedence, but the economic realities brought about by the demand for technically trained individuals in the large engineering complexes in the cities require difficult decisions for these graduates. NextWealth finds an entrepreneur or entrepreneurs either living in the rural areas, or more often working in urban areas, who would prefer to be nearer to home and family. NextWealth provides the start-up funds and other support to create a business that can scale locally. Dr. Mitta pointed out that in many ways it is a distributed Idealab concept. While Idealab incubates the companies at its facility on West Union in Pasadena and then moves them out, typically to a nearby location (Duron is an exception!), NextWealth starts the incubation where it knows the workforce will exist to sustain and grow the company. The willingness and ability of the US college-graduate workforce to locate almost anywhere allows for the Idealab model. NextWealth is to some extent capitalizing on the current state of the Indian infrastructure, but more so, the cultural phenomenon of the importance of geography and family.

The NextWealth model, itself, has some profound implications. We have all seen the articles and dissertations on the urbanization of populations globally. The pundits are predicting that, ultimately, 90% of the population will end up living in cities. It is hard to imagine what life will be like if that occurs. In many societies as the migration takes place the disruption to the concept of family is significant and is being resisted. That is certainly the case in India and is happening in China as well. Dr. Mitta is pragmatically taking advantage of the ties to family and geography in India. But in so doing, he is creating an alternative model to this inexorable march toward the mega-cities. In addition, Dr. Mitta told me that NextWealth’s companies are primarily employing educated women, where the pull from family is the strongest and the prospect of moving away to a single life in the city is remote. NextWealth is bringing many more women into the workforce in roles that provide higher incomes than they historically were able to receive and where they are actually making use of their education. The incomes are lower than they might earn if they moved to the city, but the cost of living is more than proportionately lower, while the quality of life and family interaction is higher. The empowerment of these women feeds on itself in the local area providing a model for other younger women to pursue an education without the prospect of it disrupting the pull of place and parents.

For this to work does require Tom Friedman’s Flat World. It requires global connectivity as well as the local infrastructure resulting from the creation of these rural educational facilities. It relates primarily to service businesses as opposed to manufacturing. It also requires acceptance by the customer that a reliable network and an educated workforce does exist in rural India.  Dr. Mitta says the selling process to the customer reminds him of the early days of Wipro, when the first response to the idea of outsourcing to India was “Where’s India? And how can they possibly speak and read English?”  He says the questions today are “Where’s Karnataka? And how can they possibly have that skill set?” Sounds like we still have a bit of work to do in the US educational system on Geography and Global History in addition to Math and Science.

This model won’t apply everywhere, but with some tinkering it might even work in the developed world. Dr. Mitta is exploring that possibility, starting with regional educational institutions in the US. One of the Indian businesses that has been funded is providing math tutoring for K-12 students in the US, www.tutorvista.com . Yes, that’s right. Educated individuals sitting in the town of Mallasamudram, in the state of Tamil Nadu, India, are helping US students improve their math skills. Dr. Mitta thinks there is an economic model that doesn’t require outsourcing the service all the way to India. He may be right, but in the meantime, the model is changing lives and bringing more of the world’s population into the global economy.

I must admit that this post has very little to do with Climate Change, and probably belongs in a blog with a different URL. I guess the closest I could come is that the purpose of my trip to Bangalore was to visit Duron, www.duronenergy.com , which is providing solar home lighting to rural India. The original point of contact with Dr. Mitta was his interest in learning more about the company. When one has the opportunity to meet such a unique individual doing some unique and possibly profound work, sharing the story may stimulate others to think outside the box and come up with unique ideas of their own, whether it relates to climate change or other big issues confronting us over this century.

600 Million Points of Light—Thinking Outside the Grid

I just returned from two weeks in India, one week with a start-up company providing a low-cost lighting solution for the 600 million individuals with homes and shops that are off-grid. The other week involved a variety of meetings, mostly concerning NGOs in India, a visit to the Salt Pans in Gujarat and three interesting days in the Bandhavgarh National Park looking for tigers and learning more about the role the Parks play in India’s future. While we were in India, the last votes were being cast for members of Parliament, which in turn would determine the nature of leadership in a very critical period for India and the world.  For the first time in many years the voters, 400 million of them, kept the incumbent party, the Congress party, in power with a larger mandate than it had before. The Indian stock market had the biggest percentage gain, ever, of any major stock market in the world the first day of trading after the results were announced.

Many observations came out of this trip, some of which relate directly to the supposed focus of this blog and others less so.

Let’s start with one that does relate, Distributed World Power (DWP), the start-up company. Full disclosure: I am on the board of DWP, which is a portfolio company of Idealab. We recently relocated the headquarters from Pasadena to Ahmedabad where the first product is being manufactured.  It is a solar-charged power pack, with three LED lights and a cell phone charger. It sells for around $100 (~5000 Rupees).  It is currently being sold through a variety of distribution systems and financing schemes to a mixture of demographics in various parts of rural India. In India, the immaturity of distribution, financing and marketing to low-income rural customers presents a problem and an opportunity.  The problem is there is no standard model in which to slot a product.  The opportunity is if one can figure out the right model(s) for the right demographics—whatever they may be—the market is huge. The need is certainly huge: 600 million off-grid with the rest on unreliable grid. This was brought home traveling through different villages, on-grid and off, in Uttar Pradesh, one of the most densely populated and least developed states of India.

At night, in an off-grid neighborhood of 70 homes, it is dark, with 4 points of light visible as one looks over the setting. Three are compact fluorescents  (cfl) hooked to small automobile batteries.  At each cfl house the light is hanging in a sheltered dirt floor area, outside the home, which one could call a “patio.” There are 9 to 11 women seated around a table doing embroidery to be sold in the local markets. The houses themselves are dark. An occasional kerosene lamp provides a small glow in an alcove inside a home. Every two days someone must carry each of these batteries 4 kilometers to be charged by a diesel generator at a cost of 11 or 12 rupees. In some villages the walk is to a point connected to the grid for recharging, although there is no guarantee that the grid will be carrying electricity at the time one arrives. In either case there is the walk to, the wait while charging and the walk back with the battery.  The fourth point of light in this village is a  “Duron,” the brand name of the DWP system.  A LED light is mounted at the entrance, lighting up the patio. Another is mounted in the main room, and a third in a bedroom or, more accurately, a dormitory.  A six to eight hour solar charge provides 4 hours of bright illumination from the three lights or 8 hours of partial illumination, or some combination thereof. Bright illumination from these three LED lights is about 570 lumens, equivalent to a 50 watt bulb, but with greater lux or intensity.

As we traipsed around the village, asking questions of the various light owners, a crowd gathered, followed us and carried on a community discussion including questions to our distributor in that area. He closed another sale that night. The system was delivered and installed the next day. I suspect there will be other sales there until about 20% of the neighborhood has lights. If the right financing scheme can be found, maybe all the homes will have light. And then, maybe all the 30 neighborhoods in the village. And then, maybe all the 70,000 villages in Uttar Pradesh.

There are calculations that justify purchases, but little value is put on time, labor or periodic outlays. The shopkeepers can make an easy calculation: more light, more people, more hours open, more sales. For a homeowner, it is not yet easy. There is a value put on education. In another village we talked with the younger brother of the owner of a Duron about how his life had changed since the purchase. He said he now studied two to three times as long as before, three hours in the pre-dawn morning and three in the late evening under one of the LEDs. Previously, he had studied under a kerosene lamp until the wind blew it out or his eyes were burning—usually about two hours.  We know there was some truth to what he told us as he had called the distributor the morning before at 6 am saying he was having trouble charging his cell phone, something he did every few days while studying. It turns out he simply hadn’t pushed the plug in far enough this time. He said he was doing better in school and now liked school–an ambitious young man with a better chance to achieve his ambitions.

These stories and others as we traveled around were quite heartening.  The quality of life improvement, the educational element, the individual economic gains made one feel good about being in the business. Maybe, as importantly, the potential to build economic value at DWP, or other companies like it, was so apparent. Not an easy task, but very likely achievable.

There was also the reinforcement and exposition of an observation made by a young friend as we were walking around the streets of Mumbai, picking our way past torn-up pavement and demolished front yards. He said, “India must skip the classic infrastructure build expected of them. They have to find another way.  Otherwise they will never bring all the country up to developed world standards and achieve true participation in the 21^st century. They did it with cellular phones. Why not with other basic systems?” At the time, I felt it was a nice thought but one without an implementable set of solutions. In retrospect, having spent time in various parts of the country, I thought maybe it could be done—at least in power.  The capital and operating expenses of most alternative energy systems, ex nuclear, are approaching the point where scale is less necessary to achieve cost-of-power parity with fossil fuels. Why not skip the build-out of the grid and the behemoth power plants and install specific-point power facilities.  This can range from a Duron to a solar, wind or hydro facility, or some combination thereof, for a single home, a plant, a village or a town. Power storage is still an issue, but being solved.  Think about the emissions improvement from such an approach. Think about the shortened time frames if private enterprise provides the solutions into a local bureaucracy as opposed to a state or national one.

I haven’t spelled out a complete answer here.  That may best be left to the entrepreneurs.