Culture shock: what is ‘development’ again?

Balloon Kenya encourages “entrepreneurial thinkers to imagine the solutions that will not only create new avenues for growth and prosperity, but also recast the course of human development”. After previous posts gushing about the freshness and coherence of the Balloon approach, the ‘d’-word appears and it all gets messy.
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Balloon Kenya foregrounds the entrepreneur as a primary agent of social, economic and technological change, transforming the society around her. Here in Kericho, aid is dead, replaced by youthful exuberance and Business Model Canvasses. The talk is of empowerment, of young people undergoing transformative processes that give them the confidence to unleash the creative, innovative potential inside, and improve their own lives through doing so. Four weeks into the process, the stories of personal-level development are emerging, both from international participants, and from Kenyan entrepreneurs; hearing Everlyne remark “I have never thought about that” when working with us to come up with a tutoring business to operate alongside her small tea shop was quite momentous, even for a cynic. And the implicit point is that the benefits for the individual spill over to the surrounding environment (“...recast the course of human development...”).

This makes me jumpy. When we’re talking about the concrete case of the individual, the benefits are palpable, even if their sustainability is uncertain. Of course Balloon Kenya isn’t claiming to have all the answers; its approach to bringing about social good is inevitably partial. But the seductive slide, more or less present, into thinking that we have found a new model for societies to develop on a broad, macro scale is troubling.

Because “development, when you get down to it, is a political process”. As Guillermo Toro points out, whether you adopt the right-wing version of this (think Easterly) or the left-wing (i.e. From Poverty to Power) is less important than accepting the basic concept. Which means that encouraging enterprise carries ambiguous benefits, because the private sector emerges and evolves within the context determined by a number of groups, businesses, citizens, states and all. We’ve seen this at a macro-level recently in the criticism of the turn to the private sector of a number of development agencies.

Part of this unease is definitely about culture: coming from an NGO-, blogosphere-background, used to academic debates about power and institutions, an unapologetically pro-enterprise attitude grates, even if I often agree with the ideas. To be jolted out of your comfort zone is no bad thing: as the great Chris Blattman puts it “If you work in international politics or development and do not have an intellectual and existential crisis every year, then something is wrong”.

Kericho: causing me headaches

But, coming back to the micro-level, one of our entrepreneurs’ businesses is to act as a middle man between tea farmers and factories; tea farmers individually do not produce huge quantities of tea each day, meaning that factories often subcontract out the management of the plantations. So the middle man acquires a contract from a given tea factory to supply a certain weight of tea per month, earning significant profits working relatively few hours, once he has the all-important license. The process smells a lot like rent-seeking, and the benefits to society seem debatable. You don’t see many rich tea labourers around despite them putting in the hours, rain or shine. And this isn’t the only example: the difference between moneylender and loan shark is a thin one. These are, at least partly, questions of political economy, where the focus on entrepreneurship and innovation has to be complemented by a look at the social, political and economic context.

I guess I am asking too much. During the programme, the word politics is not even mentioned but that’s because we are not here to ‘do development’ (not that that exists), we are here to help individuals. The broader effects of that on society could be positive or negative. We shall see.

'Talking to people about tea'

This post originally appeared on the Balloon Kenya blog

... The answer I have given every working day for the last week to the question, “What have you been up to today?” ‘Testing’ has begun, and for my partner and me, it has meant asking passers-by how much they would pay for a pack of Kapchebet; ascertaining from restaurant owners why they switched from Litein to Toror; discovering that Tusky’s (a local supermarket) stocks 12 different tea brands but none from the Kenya Tea Development Agency; and much more.

In a way, our ‘Dream Team’ group of entrepreneurs, now streamlined to three businesspeople all stationed at various overlapping perches in the tea supply chain, has worked out perfectly. From plantation to consumer, it’s allowed us the chance to immerse ourselves in the tea industry: fragrant, if nothing else. Plus we’ve been able to wow unsuspecting Kerichans with our in-depth knowledge of local tea prices, which is almost as good as speaking Swahili.

Immersed in tea

So we’ve been testing. The word brings to mind ideas of objective science, experiments, the confirmation or rejection of a hypothesis, and those are precisely the terms in which we were introduced to the concept in the Balloon curriculum. Go out and test your assumptions, convert those guesses into facts. A coffee business illustrates the alluring clarity of the idea: build your ‘minimum viable product’ (i.e. 100 cups of coffee) and test the assumption that people will pay for fresh coffee (run around town selling those 100 cups).

In real life, it’s often not that simple. Talking to people, the method of ‘testing’ we have used most, does not give straightforward answers: confirmation bias, ambiguity, uncertainty, and the general messiness of human psychology and social reality gets in the way. ‘Just sell’ sounds easy, but translate that into a tea agent trying to get a school to make an order, and an hour sitting in the cateress’ office and two mugs of uji (porridge with the texture of liquid gravel) later and slowly the snappiness of the idea, and my ability to think, fades. Product accepted or rejected? Who knows. Preferences are elusive, inconsistent and unpredictable; we surveyed nearly twenty restaurants and hotels and asked them which tea they stock; we got 11 different answers but one reason: [insert tea name] ‘tastes the best’.

This feeling of wading through mud makes me wonder if the Balloon Kenya-endorsed, build-measure-learn approach is really any different to how any other entrepreneurship consultant would go about things. But I would still say it is; the relentless emphasis on customer development has meant that there has been a rush to get to this phase, which cannot be taken for granted.

At Toror Tea Factory: a key stage in the tea production process. Also describes the experience of talking to customers at times.

Is speaking to people always useful? No: testing can be done well or badly. Witness this guide to customer development, or the laziness implied by the fact that many in our group resorted to the ‘customer survey’ within 2 days of the first pair to do so, with perhaps less reflection on how to do this well than eagerness to start.  Personally I’d definitely confess to this.

Testing: easier in the classroom.

So, conclusions? Testing is a tricky concept, and not all talking is useful talking. But better to muddle vaguely with customers than to muddle vaguely inside your own head. For someone with antisocial tendencies and a penchant for writing lists, that is saying something.

Business strategy by Balloon and Beinhocker

Given complexity economics, Balloon Kenya’s approach to business makes total sense. This much is clear. I want to nail down here a little more on how Beinhocker’s conception of strategy parallels Balloon’s thinking, and how they seem about right.

Some basics on strategy: it has two key characteristics: it’s forward looking; and it’s about creating a plan and committing a course of action specified by that plan. That means if it’s an easily reversible decision, it’s not really strategy, because there’s no real commitment.

Moving on to Balloon vs. Beinhocker, I want to pick out threepoints of comparison:

1) The ‘traditional,’ planning approach is barking up the wrong tree.

Balloon and Beinhocker both take aim at the traditional/old/straw man guide to strategy, based on planning and essentially predicting the future. Both recognise the (crippling) difficulty of this, Beinhocker in particular highlighting that there is a near-infinite number of possible future states of the economy, and which branch is taken depends on a series of impossible-to-predict frozen accidents. The Balloon curriculum is full of quotes and one captures this point brilliantly: Ken Olson, President of Digital Equipment Corp., 1977: “There is no reason anyone would want a computer in their home”. Yeah.

2) Learning is the key

Given this “inherent uncertainty of the future,” we need to “emphasize learning and adapting over predicting and planning” (Beinhocker). This could practically be taken out of the Balloon textbook, which states: “start-ups in their early stage don’t execute. They search”. ‘Searchers’ vs. ‘planners’ takes us to Bill Easterly and so we complete the loop back to complexity-compatible thinking. The basic idea that both Balloon and Beinhocker are hitting on is that the knowledge required for success in the economy is not to be found in the heads of clever people, but out there with customers.

3) How do you learn? Test.

Testing for Balloon is the means of converting guesses into facts. Whether by talking to people, building a prototype or just trying to make some sales, it’s the crucial step between the ‘building’ of a product and the ‘learning’ that we’re all here for. Beinhocker has the requisite pithy phrase: strategy for him is simply “a portfolio of experiments”. He gives the example of Microsoft in the 80s, which kept a population of competing business plans within the organisation (many irons in the fire), each with tight feedback loops, to give the best chance of success. Some are going to fail – there’s got to be a tolerance of risk – but as long as those failures are small, who cares?

So there we are: three crucial ways in which Balloon and Beinhocker are peas in a pod. To flog this dead horse one more time, the correct mindset is “highly pragmatic. It values tangible facts about today more than guesses about tomorrow, doesn’t expect that everything will work out as planned, and prefers lots of small failures to big ones”. Quote from Balloon? Beinhocker? It doesn’t matter.

Balloon Kenya, or ‘doing’ Complexity Economics

This post originally appeared on the Balloon Kenya blog which you can check out here

When you live in a big city, you often get to know the geography of different ‘islands’ within it without being able to connect them in your head. When this eventually happens, and West and Central London lock together, it’s a good feeling. When this same thing happens with two ideas, the feeling is even better. When this happens with two ‘spheres’ of your life, say intellectual and professional, it feels bloody awesome.

I’ve recently begun a project with Balloon Kenya, an organisation which trains UK based students (a good mix of international and British) in entrepreneurship and uses their enthusiasm and skills to support aspiring Kenyan entrepreneurs. The approach to entrepreneurship they promote is based on the ideas of Sara Sarasvathy, who differentiates between ‘causal’ and ‘effectual’ reasoning. ‘Causal’ reasoning starts out with a “pre-determined goal and a given set of means, and seeks to identify the optimal, fastest, cheapest most efficient alternative to achieve the given goal”. It’s a planning mentality, where you break the problem down into its constituent parts, come up with some logical answers, build your product, and either sink or swim.

‘Effectual’ reasoning starts with the means and “allows goals to emerge contingently over time,” in an iterative method with a heavily action-oriented, trial-and-error-based mindset. Testing – and learning along the way – is key. It’s an exciting, and potentially revolutionary approach to unlocking the entrepreneurial instincts buried inside all of us. And it locks in perfectly to an evolutionary view of the economy as a complex adaptive system, my pet intellectual concept at the moment. Cue mental fist pump. In fact, complexity can explain why this ‘effectual’ approach to entrepreneurship is the most effective.

The Marshmallow Challenge demonstrates the difference between causal and effectual thinking. The aim is to build the tallest structure out of spaghetti, tape and a marshmallow – which has to go on the top.

As I’ve been reading recently in Eric Beinhocker’s ‘The Origin of Wealth’ the economy, in the evolutionary complexity-based view, is a system of millions of interacting, boundedly-rational agents; who are constantly learning and adapting their behaviour. This produces an economy that is dynamic and has ‘emergent’ properties which are more than the sum of its constituent parts. Its behaviour is non-linear, meaning that small changes can have huge effects (think the financial crisis or mobile money transfer cascading across the Kenyan economy) All this makes it mighty hard to predict or plan, beyond human intelligence in fact. Alain Lewis, for example, shows that the perfect rationality required to process all the information in the economy is beyond a ‘Turing Machine,’ an imaginary, all-purpose, all-powerful computer. ‘Causal’ thinking for entrepreneurship here takes a big hit.

“Evolution is cleverer than you” says Orgel’s Second Law. And in the economy, wealth is created not by individual human rationality but by the operation of a simple evolutionary algorithm that differentiates, selects and amplifies successful models for conducting business, with the market as its ‘weapon of choice’. Essentially this algorithm ensures that those ’fit’ models best suited to the environment survive and therefore proliferate, whilst the unsuited die out.

Evolution basically says I will try lots of things and see what works and do more of what works and less of what doesn’t. The effectiveness of ‘effectual’ thinking makes total sense in light of the above. A customer-oriented approach – which takes the burden of selecting successful and innovative ideas from individual human brains and places it with ‘customers’ (Balloon Kenya’s terminology) - aggregated into ‘the market’ (evolutionary economics-speak) is a formula for success.

For Eric Beinhocker, complexity economics pioneer and author of 'The Origin of Wealth', “Wealth is knowledge and its origin is evolution”. For Eric Ries, Balloon Kenya pin-up and author of the ‘The Lean Startup,’ “Value in a startup is….validated learning about how to build a sustainable business”.

West and Central London just locked together.