Tell us how you came to work for International Development Enterprises (iDE)

My name is Yi Wei and I’m the Global WASH Director at iDE. For those who are unfamiliar with WASH, it stands for Water, Sanitation and Hygiene. I’ve been with iDE for almost eight years now, having landed in Cambodia as a volunteer, straight out of college. I wasn’t planning on going into international development, but when an exciting door like this one opens to you, you step through it!

When I’d first entered college I was aiming to go into music professionally, and I’d joined a liberal arts program with music performance and orchestral percussion. The undergrad liberal arts education degree was called Social Studies, and far from being simple, it was a challenging set of interdisciplinary fields combining political economies, sociology, statistics, history and continental philosophy. That rich multidisciplinary background has really helped me see the complexity and nuances and historical legacy of some of these problems we’re trying to solve today. My undergraduate thesis was on comparing social entrepreneurship with community organising, as different modes of change. I was interested in the intersection of the political forum versus the marketplace, and I was looking at different social enterprises at a time when no one else was interested in social entrepreneurship: in fact, there was only one source I could draw on for my literature review. Nowadays, social entrepreneurship, social enterprise and impact investing are all the rage.

Definitely, I already had the seeds of moving into international work, but it was a chance meeting at the right moment that completed the step. I met a man named Jeff Chapin at an after-school event at the Boston office of IDEO, which is a world-renowned design company. He had been on sabbatical in Cambodia, which led him to design the Easy Latrine, the toilet that we are selling in Cambodia now. Jeff Chapin connected me with iDE.

It was through that, I ended up working here under some amazing leaders. They are not international development experts themselves; they come from marketing backgrounds and private sector backgrounds.

I really think if you want to apply a market-based approach, you need functional skillsets to do with business and the market. We have a lot of folk here who come from a public health background or a more traditional international development background who are interested in the type of approach we’re using, but ultimately the day to day problems we’re trying to solve are business problems or economics problems. I personally believe it’s a lot easier to learn the technical aspects of sanitation or water supply for our field than it is to learn how to think like a business person.

How did iDE begin to develop its market-based approach to WASH?

iDE’s focus is on rural households and we aim to leverage the mechanism of the market, the private sector, the power of entrepreneurship, to deliver much-needed goods and services. We have been using a market-based approach in the agricultural space for almost 35 years now, but few people were trying to use a market-based approach in WASH when iDE first entered that sector, eight years ago.

The situation then was quite depressing, honestly. I think there was a lot of effort going into improving clean drinking water and sanitation, but it wasn’t gaining much traction; it wasn’t having large-scale impact. When I landed in Cambodia we were trying to identify what makes households interested in purchasing latrines and water filters and whether businesses would be willing to sell them long term. Could we make a sustainable solution out of this?

Fast forward to now, eight years later, and globally we have sold over a million toilets and water filters across our six country programs. We have demonstrated that the private sector can be an effective mechanism for distributing these much-needed products and services, and we have come up with a process for doing this and we are replicating it in other country programs. However, I’m not exactly sure how iDE set about taking the approach it used in the agricultural sector to the WASH sector.

Our founder, Paul Polak, was not an agronomist or economist: he was a psychologist, who first encountered the international development sector when a friend invited him to help with the Somalian refugee situation. He saw that if refugees could have access to transport they could set up a local economy. He realised that people are poor because they don’t have money, and they don’t have money because they don’t have access to economic means of production that can generate income. He applied that thinking to smallholder farmers – who were and still are the vast majority of the world’s poor – by developing transformative technologies they could scale-up through the market. If you give farmers access to irrigation technologies and better inputs, they will be able to increase their yields and their incomes.

In the WASH sector, leaders in iDE saw a clear need for clean drinking water and sanitation. The traditional approach at the time was to hand out free toilets to people who didn’t have them. That then evolved into community mobilisation approaches, with subsidies becoming taboo. The international development community tried to focus on empowering people to buy toilet hardware and adopt their own solutions, which succeeded to a certain extent but there still was a need for a durable, affordable, aspirational product for people to use, and no solutions on the market. That is where iDE saw an opportunity to apply its market-based experience to WASH.

We are really proud of the fact that we see the user as central to our approach. Paul Polak recognised 35 years ago that to really understand farmers’ problems, you need to talk with at least 100 farmers a year. We try to apply that ethos — listening — to everything we do. You don’t know what people want or need until you talk to them, and you really don’t know if a new idea could work until you talk to someone who might use it. That seems obvious, but for some reason, it is often forgotten.

Tell us about subsidies in the Cambodian market. Has the transition from subsidies to a market economy in WASH been an easy step?

I recall someone at a conference a few years ago saying it is more acceptable in the WASH sector nowadays to mention the word ‘shit’ than the word ‘subsidy’.

First, I want to clarify that iDE is not averse to subsidies. Most of our work is subsidised, in that we receive grant funding from private and public donors. It’s not that subsidies are good or bad, but rather that we want to make the most efficient use of scarce resources, such as public funding, to achieve the best outcomes — the biggest ‘bang for your buck’.

We look at communities in three tiers. We ask those who are willing and able to pay, to pay; and those who are willing but less able to pay, to use financing mechanisms. Then for those who truly are unable to pay, the market price of the product or service can be directly subsidised.

When we talk about a subsidy, we can mean a free toilet, which is a very explicit hardware subsidy. But from an economics perspective, the term ‘subsidised’ refers to anything that is not fully merged into the market. Our role has been to convert something that was non-commercialisable, non-investable, into something that is commercialisable, by bringing in private sector investors. And our way of looking at the community in three tiers helps us make sure only the neediest people receive the subsidies.

iDE is a market-based organisation, and when we use subsidies we aim to do it effectively. Currently, we are moving into more mature markets where the communities are the poorest of the poor; they definitely need direct subsidies, but we want to ensure we apply a nuanced approach that responds appropriately to each specific context. Details matter; it’s not a simple yes or no.

The question is: How do you transition from an environment where communities are used to direct subsidies and handouts, to one where they are willing to buy and invest? That transition was a difficult challenge when we first started.

Existing subsidy programs were a major obstacle because when people have seen their neighbour be given a toilet for no cost, they expect to be given one as well. They don’t accept that there were only, say, 100,000 available, and there is not enough funding to treat everyone the same in a population of 14–15 million. So they resist buying one for themselves, and businesses don’t invest, and it is difficult to get the market moving.

We worked very hard to overcome that situation, in a couple of ways. First, we wanted to make sure our product offering to the customer was unique and different. It needed to look different from the subsidy option, and to be more aspirational and something that people would be willing and proud to put money down on and invest in. We positioned it as a desirable product that was not like the free things that poor people got. In other words, product differentiation was an important part of our marketing strategy.

We saw it was also important to work with businesses to help them choose between taking up a contract for 100 toilets right now from an NGO or investing in developing a market to supply 100,000 people in that area. That was not easy because you’re talking to businesses who need the cash now and a definite contract, rather than taking on the risk of investing in a potential market.

At a third level, we also worked with other NGOs and government players to show them that to achieve a sustainable solution that’s scalable they needed a mechanism that was not limited by the number of toilets they could buy. Even if they had $100 million to spend, they couldn’t buy everyone a toilet. We wanted them to agree to develop a self-perpetuating mechanism, such as a market, that can promulgate products that scale seamlessly. This took a lot of interactions and conversations, learning together and producing evidence to show that this alternative way of operating could succeed. We were changing peoples’ minds, one conference at a time.

How does iDE use community incentives for its work in WASH?

We believe that people, markets, organisations are driven by incentives. The incentives don’t have to be tangible or financial in nature: they could be very intangible but very powerful. They are anything that affects your reason for doing, or not doing, something. Incentives are the core of our user-centred approach for understanding what drives, bars or accelerates peoples’ behaviours.

One example of how we have applied incentives is in scaling-up our market-based approach with our teams and in our relationships with our partners. With a market-based approach, ultimately you want someone to buy something, and therefore someone has to sell it. Salesmanship is notoriously difficult, especially when you’re trying to sell something to a relatively poor population and that thing is not necessarily at the top of their shopping lists. You need to keep salespeople motivated, and to do that we use incentives. In the private sector, incentives are often financial, but that’s unacceptable to the way NGOs typically do their work … or at least it was when we first started this, about six years ago. So we developed an incentive system to motivate all the various groups of our own staff as well as the private sector actors that we worked with.

For the businesses we worked with, their incentive was profit. The more they sold the more profit they earned. For the field leaders on the ground who at that time were independent sales agents, their incentive was commission. The more they sold the more commission they earned. And for our own staff who are managing the businesses and the sales agents, if they were able to facilitate more sales, they got more incentives. It was as simple as that. You don’t always need to incentivise the end result. Of course, we want the agents to facilitate more sales, but what else leads to more sales? More sales agents on your team. You can incentivise the number of sales agents you’re able to recruit and train and retain. You can see it’s a very powerful tool that you can modify as you need to, based on the results you’re getting.

For an incentive program to be effective you need to have timely data about the outcomes, and so we built a robust real-time data system that allows us to monitor and manage staff performance. We also work with a forward-thinking partner in the Gates Foundation who incentivised us to reach ‘stretch targets’. By that, I mean targets beyond the acceptable targets that were part of the grant agreement. If we reached those ‘stretch targets’ we were able to access a pool of unrestricted funding. As anyone who has any experience working with NGOs knows, unrestricted funding is the pinnacle of desirability.

The power of incentive is such that you can set a clear goal and a reward for reaching that goal, but you don’t necessarily have to dictate all the activities. The Gates Foundation didn’t say to us, “You have to do X, Y, and Z activities to accomplish those goals.” Instead, they say: “Here’s the goal; here’s your incentive; figure it out,” and that creates a space for innovation and creativity that’s really focused on top-end results that everyone cares about. And it doesn’t create a load of transactions that are not necessarily productive.

Actually, I haven’t seen incentives applied anywhere else. For a sales organisation or social enterprise doing sales, incentives are probably obvious. For any NGO that is mission-focused —  I’m sure they all are mission-focused — incentives are a powerful way to keep yourselves accountable. Either something happened or it didn’t happen, and you get rewarded if you achieve a result that’s provable. I think that incentives support an NGO’s mission. They improve accountability, too. NGOs often work in very complex environments where it’s really difficult to bring about change, and there are always extenuating circumstances that explain why something didn’t happen. But in the end, if we care about results and achieving that mission, we should hold ourselves accountable to being rewarded for achieving those results.

As I said earlier, incentives don’t have to be financial, although financial incentives are the simplest, most direct way to incentivise behaviour. Some work doesn’t need to be incentivised: it would be a conflict of interest for the iDE Measurement & Evaluation team to be incentivised based on a number of sales, for instance. We could incentivise the M&E team based on the quality of data instead. Incentives are so powerful because you can incentivise whatever behaviour you’re trying to encourage, and it could be via career promotions, or exposure to conferences for some of your local staff, or whatever is motivating for the person or organisation you’re trying to incentivise. If money would cause complications, think creatively about other types of rewards that could be used. One challenge in implementing incentives if they’re financial is finding partners who are comfortable and able to make that possible. For some donors, a financial incentive might not be an eligible cost. So you need to make sure that the incentive you choose to use is acceptable to your funding partner.

How does iDE set about scaling-up technologies successfully?

I would say that we’re trying to scale the market-based approach, rather than technologies. There are three parts to it: design to context, make sure that you have a feedback loop that’s giving you the right information to iterate, and have that on the ground presence to iterate.

You need to ensure first that you do the human-centred research that lets you understand what is desired, feasible, viable and financially viable, within those contexts.

Most of our country programs have different products, and that is because we are designing products to suit the particular contexts, the specific needs, wants and desires of our users in that context, and what’s possible within that context. For instance, in Cambodia, the initial product we designed is a pour-flush ceramic offset pit latrine. It is successful in Cambodia because that’s what people wanted and that’s what is possible within the local supply chain. But it’s not appropriate in rural Ethiopia where water is scarce.

To operationalise your design, you need to be very iterative. You won’t come up with the perfect solution from the ‘get-go’ at any point in time, anywhere, so you need a feedback loop that responds quickly, that is accurate, that gives you the information you need so you can iterate and improve upon the solution.

The third part of scaling, which is very important for iDE at least, is having boots on the ground, doing the day to day grind, interacting with users and with the private sector actors, so as to iterate quickly and appropriately. It’s not sexy and it’s not an easy catalytic copy-and-paste approach.

Our model is very focused on boots on the ground. We work with local government and with local private sector actors. Without those, it would be hard to know what’s going on.

Can you tell us about your innovative funding models and how you bring partners together to provide funding?

We have learned a lot by looking back on our experiences globally, and on partnerships that have really worked well, and those that could have gone better.

Our very effective partnerships have had everyone around the table sharing the same long-term vision. Also, they have had a harmonised program that was not ‘projectised’; that is, not requiring a separate reporting structure for each donor, different KPIs for each donor. Projectised programs give you a load of transaction costs managing nitty-gritty aspects that should ultimately contribute to the headline KPI but that in practice distract you from the big goal.

We have realised it’s very important to articulate a vision that people can buy into, from the very beginning. And you need to know your partners really well. Just like users, your partners have different needs and desires, and they are constrained by their own organisations in what they can or cannot fund. You need to have an upfront conversation and identify who can contribute what type of resource, whether human, financial, or technical, and at what stage along the process they want to join in.

Looking at how venture capitalists operate, for inspiration, we saw how they raise money over time as a business scales up. They really try to align different investors with different risk-reward profiles. For instance, very early-stage investors hope to get into a program on the ground floor and have a huge return, but they’re obviously also taking a huge risk because the initiative hasn’t been proved yet. For later-stage investors – let’s take IDEO, a proven business, as an example – if you buy a stock, you own a very small portion of the business so your reward is less because your risk is less.

We think the risk-reward paradigm is something we at iDE should be much more aware of when we approach different partners. What is their comfort level with different risk profiles? Do they want to be an early-stage investor? Are they willing to take on that risk and take a chance on you? Or are you looking at a bilateral donor who really wants to invest in something that is proved but can’t provide large scale funding? This means knowing the different stages of your program, and what type of risk appetite you are comfortable with, and delivering on and finding partners along the way who can meet those criteria. Ideally, you will gather them all in the same room at the very beginning of the initiative, and be positioning yourselves to be ready for the next stage investor or donor. And you want them to tell you what they need for you to be investment-ready.

I think it’s the fragmented nature of funding for international development that leads to much of the stop and start tendencies of projects — that is, people see them as projects rather than as long-lasting programs.

To be clear, when I say ‘investment’, I don’t necessarily mean the strict definition of investment where investors will get their money back with an added return. I use the word ‘investment’ even for donors who give us grants because that is an investment in a long-term long-standing program, as opposed to a short-term grant for a project that will end in three years.

A grant is an investment with a negative 100% financial return but a lot of social return, especially for donors who want to play a catalytic role at the very beginning. They like to know that their early-stage investment, as seed-funding in the form of a grant that they don’t expect to get paid back financially, has led to the development of a sustainable program.

One other thing I want to clarify on this topic is about impact investing and the shifting paradigm of funding for NGOs. I’m not trying to say that people should start a social enterprise and try to achieve 100% cost recovery. By definition, the populations we’re serving are marginalised and vulnerable and costly to serve, and it may not be possible to get 100% cost recovery. It’s really time to be thinking about problems differently: how do you approach your partners?; what is the tenor of the relationship?; are you in it for the long game?; are you developing something sustainable?; and how should you think about returns on investment in a way that holds all parties accountable?.

If listeners want to learn more about iDE or get involved in business enterprises in the WASH sector, what advice would you like to share?

The first place to look is at our website, www.iDEglobal.org. That’s where we host our most recent announcements about any job openings, and the latest updates about our program. We also are on social media: search for iDE on Twitter or Facebook or Instagram.

If you are interested in working with specific teams, there are team emails listed on our website that you can reach out to.

If you are at an early stage in your career and want to be involved in a market-based organisation, be aware that it’s super helpful to have market skills: for instance, being able to write a business plan, read a financial model, understand some economic analysis. It is also very important to us that you come with some field experience, by which I mean the ability to work with people of many different cultures, and to be comfortable in the dusty hot contexts of the field, because that’s where all the exciting work happens.

Yi’s introduction to market-based approaches

Yi was introduced to a man named Jeff Chapin, who at that time was with IDEO, a renowned design company. He had been on sabbatical in Cambodia and ended up designing the Easy Latrine, which is the toilet iDE are selling in Cambodia. His story of this sabbatical is described in this engaging TEDxChange talk.  Jeff connected Yi with iDE. Yi described her early time of working under leaders with private sector or marketing backgrounds who were not necessarily international development experts. She observed many practitioners with a traditional development or public health background looking to iDE for advice on these functional skillsets for accessing markets.

Yi described her perspective on the situation when she first started working on rural sanitation and hygiene in Cambodia as depressing, with lots of efforts and resources going in but few scalable impacts as a result.

She outlines iDE’s market-based approach to working in this context in her interview as one that had been rarely used for WASH but one that had been used by iDE for small-holder farmers for 35 years.

In Cambodia, iDE’s focus was on rural households and in particular, leveraging the market to supply badly needed goods and services. iDE wanted to understand what would motivate households to purchase latrines and water filters and businesses to continue to supply them as needed.

Eight years later, Yi reports that this private-sector approach has been an effective mechanism for selling over a million toilets and water filters across six country programs.

Transferring experiences from the agriculture sector to the WASH sector

Yi described how iDE’s founder Paul Polak used an opportunistic approach to develop iDE’s market-based approach in the agricultural sector. He was not an agronomist or an economist, but a psychologist and was invited by a friend to see the Somalian refugee situation firsthand.

He perceived that if the refugees in this context had access to transport they would be the local economy going again. His idea was that people were poor because they did not have money and they did not have many because they did not have access to a means of production to generate income.

His focus was on transformative technologies that could be scaled-up using the market and applied this to the agricultural sector and smallholder farmers because they were and still are the vast majority of the world’s poor.

Leaders within iDE saw how this could be applied to the need for clean drinking water, sanitation, where the traditional hardware subsidy approaches were not working. This later evolved to community mobilisation approaches, where subsidies became taboo and development practitioners started to focus on empowerment and facilitating people to adopt their own solutions.

This is where Yi suggests iDE found a gap in the market for durable, affordable, aspirational products for people to use and an opportunity to apply their market based experience from the agricultural sector to WASH.

Human-centred approaches to using subsidies

Yi says her organisation (iDE) is proud of their human-centred approach. She makes it clear that iDE is not against all subsidies and in fact most things iDE does is publicly or privately subsidised. iDE’s role is to use these subsidies more efficiently by taking a product of service that has not been commercialised and adapt it to attract private investors to WASH outcomes.

“It is much more acceptable to say shit than subsidy in the WASH sector now”.

Yi claims that changing an environment where potential customers have become accustomed to receiving subsidies to using those subsidies to incentivise them to buy toilets and water filters is a big challenge. Back and forth conversations are needed to learn about how a market-based approach might work.

“Beneficiaries do not understand that you do not have enough products to give to everyone and expect that if they wait long enough they will also. When this happens people don’t buy, businesses won’t invest and the whole process gets stuck”.

Pride differentiation is an important part of iDE’s marketing strategy:

• Offer a product that is unique and different from a subsidy option that poor people will consider it aspirational.
• Working with businesses to show them they have an option beyond taking limited NGO contracts and they could invest time and resources to develop a market that sustainably grows if they are prepared to take a risk.
• Working with other NGOs and governments to show them that satisfying, sustainable, scalable solutions can be achieved is they use mechanisms that are not limited by their budget.

Using the power of incentives

iDE believes that people, markets, and organisations are driven by incentives and they don’t have to be tangible or financial in nature to be powerful. A user-centred approach aims to understand what the drivers, barriers, accelerators of human behaviour are.

A tangible example of this is how iDE borrowed private-sector mechanisms to sell low priority but necessary products to a relatively poor population by applying financial incentives. This was quite different from the way NGOs normally work and not really an accepted practice before IDE led this approach in the WASH space.

Their incentive system:

• Provided commissions to private sector actors and field leaders as independent sales agents motivated by profit.
• Provided iDE’s own staff who are managing the businesses and the sales agents incentives based on the number sales agents they were able to mobilise.
• Providing those involved in monitoring and evaluation, where financial incentives may act as a conflict of interest incentives based on the quality of data.

Yi suggests that incentives can be very powerful as they can be applied in nuanced ways that do not have to only focus on the end result but stressed that this requires accurate timely data.

She referred to how the Gates Foundation incentivised iDE using stretch targets, that did not dictate what their activities were but allowed them to access a pool of unrestricted funding if they were met. She described this as incredibly motivating for the organisation as a whole. It also created room for innovation and creativity and enabled them to develop a long-term sustainable program.

This is an innovative approach that Yi suggests that not many other NGOs use but could be by mission-focused NGOs as a powerful way to keep the organisation accountable. She believes that NGO missions can be results-based, even accounting for difficult extenuating circumstances.

iDE Steps to scaling a market-based approach

Yi clarified in the interview that iDE does not necessarily scale technologies as much as a market-based approach. There are three steps to this:

1. Designing to the context of your user and what’s possible within that context — For example, the product designed in Cambodia was a pour-flush ceramic offset pit latrine because that is what is possible within the local supply chain and matched what users wanted. However, this would not work in rural Ethiopia where water is scarce.
2. Operationalising the design through an iterative process — This is about having a feedback loop that is timely, accurate, and gives you the information required to improve the solution.
3. Having a ‘boots on the ground’ presence — Working with local government and private sector actors requires this to understand what’s going on.

Innovative Funding Models

iDE has learned by reflecting on their market-based experiences globally and which partnerships either worked well or not so well.

Some common characteristics of the most effective partnerships were:

• A common long-term vision for all partners that is not project-based.
• Common reporting structures to reduce transaction costs.
• Buy in from partners and an understanding of their constraints, limitations and risk profiles and how they are willing to contribute.

iDE looked toward lessons from the venture capitalists to see how they raise money as businesses scale-up. They found it is useful to categorise partners as having different risk-reward profiles.

For example, early-stage investors hoping to get in early for a large return by taking a larger risk on something unproven and later-stage investors who prefer safer more consistent rewards at a low-risk. Yi suggests that these different types of partners should be in the same room at the start of the process and advise a program what it needs to do to be ready for an investment. She acknowledges that this is difficult because of the fragmented project-based nature of development, which is often not well aligned with long-term sustainability.

A paradigm shift in NGOs funding

NGOs are more and more being required to think like businesses and bring together multiple partners and different kinds of funding under one vision.

Yi differentiates between a strict definition of investment where investors are focused on getting their money back with a return and a looser definition, where donors invest in a long term, long-standing programs, as opposed to a project. The second type of investment might give a donor a 100% negative financial return, with a large social return.

This view can work for donors or investors to visualise their role as catalysts, seeding the development of a sustainable programme, rather than a short-term project restricted by funding. However, Yi is not suggesting that all organisations should be social enterprises and achieve cost recovery. She stresses that a market-based approach is about thinking about problems differently in terms of how you approach partners, the tenure of the relationship, and whether a sustainable outcome is being created where all parties are accountable.

How to plan a career around a market-based approach

Yi referred to the iDE website, Twitter, Facebook and Instagram accounts, as ways to keep in touch with job openings and program updates. She also mentioned specific team email lists that you may be interested in reaching out to.

More importantly, she had advice for people in the early stages of their career who want to be involved in a market-based organisation:

• Aim to develop market-based skills such as writing a business plan, reading financial models or understanding economic analysis.
• Getting field experience working with people from different cultures, as that is where the exciting stuff happens.