It’s the profit, stupid

I enjoyed a delightful lunch today with energy sector colleagues exploring how to kick start the small scale private sector for energy services. Private sector development is all the rage at the moment and there is no end of projects and programmes to support private sector development.
However they all seem to share the same flaw – the dominant methodology is to subsidise private enterprises. I guess that’s what happens when you get public sector staff trying to target the private sector.

There seems to be a lack of attention to the core of the private sector – profit. How do business models deliver a profit? Is there a market for the product? Are people willing and able to buy?

The conversation then moved on to payment by results, where private companies are paid for delivering social goods. For example a solar lantern seller might receive payments per household with increased access to lighting. However this just props up an otherwise unsustainable market. As soon as the donor money goes, the business model is no longer viable.

Profit as results

This led me to reflect on how else public money might stimulate and reward successful business models. How about an approach where successful businesses are rewarded. You could take a payment by results approach, but define results as profitability or rate of return rather than households served? Or alternatively, a competition where the most successful business model wins capital funding. It’s still subsidising, but focussing on accelerating businesses that have demonstrated success rather than fitting a predefined (internationally imported) definition of what model or technology should be used.

Imagine that.