NPD Case Assignment 1

Case: SELCO Solar Light Private Limited: A Social Enterprise’s scaling Up challenge

Yogita- 1811072

Smriti Aggarwal – 1811081

Ruchika Bhartiya- 1811085

Neha Koli - 1811409

Introduction:
Launched by Dr Harish Hande in 1995, SELCO Solar Light Private Limited was a Bengaluru, India-
based social venture with a mission to bring solar energy to the bottom-of-the-pyramid
customers. A SELCO India PV system consisted of a panel (the PV cell), a battery, charge
regulator and electronics that were powered by solar and priced at INR 18,500. The company
suffered through many challenges while in start-up phase but after 19 years, it is a successful
and profitable venture without veering from its social mission. But the company’s business
model made it difficult to scale up without losing the social focus that was key to its success. It
started a recent venture to replicate its model by launching ‘baby SELCOs’ which would be run
by entrepreneurs, which is successful but was slow to yield results. Now the company is at
crossroads, where it must decide whether to go forward with ‘baby SELCOs’ or could the SELCO
India business model be tweaked to promote scaling up?
Target customers for the products: Small farmers earning US$ 1,200- US$ 1,500 annually, small
businesses earning US$2- US$ 4 a day, individual households with regular monthly income of
US$ 100- US$ 150 and home-based workers earning US$ 2- US$ 4 a day.

Problems faced by SELCO

1. Government regulations
During the initial implementation of decentralized solar power in India, SELCO faced with
a major barrier which was in the form of government regulations that made it
impossible to bring the grant money (US$ 40,000 from Rockefeller Foundation) into
India.
However, the then managing director of SELCO, Hande, found a way around this
restriction by obtaining PV systems on credit which were guaranteed by the grant
money. This method involved buying the systems in small lots that significantly delayed
any attempt at a large- scale implementation.
Through this struggle, his mission was further established that profits and a social
mission could coexist.

2. Identifying and convincing influential individuals

After launching his venture, Hande set out to identify influential people who can
convince others in their village or town. Hande found one such individual Arvind Rai in a
village which used kerosene lamps. Despite several attempts, Rai didn’t accept Hande’s
proposal raising the issue of cost as well as reliability of the product.
After finding some connection with his mother, Hande installed the PV system free of
cost when Rai was out of town. Rai later paid the full amount of the system to Hande
after he actually experience the results of the system and was able to develop trust
eventually. Finding the right individuals and convincing them to buy the product proved
to be a tedious job for Hande
3. Lack of Trust
Initially, Hande used the cash received from Rai to buy a second system. But he knew
that to expand this business, he needs to build trust and faith in rural areas about this
technology. For a social venture like his, customers need to have faith in the product
itself and the merit associated with it which is the core of his business. He was trying to
provide social benefit but with a profit which might not connect well with rural people
who might think that they are just taking advantage of the poor.
He travelled across his home state of Karnataka by bus explaining the merits of solar
energy and installing systems. This led to a development of a sustainable rural delivery
system which started with doorstep service and doorstep financing.

4. Opening of for-profit USA company

Initial grant was insufficient for SELCO to scale up the business. They decided to set up a
for-profit company – SELCO USA and operated the Indian arm as a subsidiary. This
helped SELCO India to raise capital of around $ 10 million from both equity and debt.
Hande also had 2.5% stake in the venture. This helped in strengthening the company
financially.

5. Effect of German government subsidy on supply and prices

German government offered subsidies for its citizens to encourage the use of solar
power in 2005. This caused the global shortage of solar cells, increasing the prices by
47%. As a result, SELCO couldn’t do the sales though it had clients. The key investors
pressurized Hande to retrench around 50 employees. Hande approached International
Finance Corporation to push back the investors and tried to raise money from social
venture funds. It eventually led to him understanding that irrespective of money it’s
important to have control of the company’s missions for which you need to have like-
minded investors.

6. High Price
A single light costed Rs. 5000 with annual maintenance charges of Rs. 150-200 that were
very costly for the bottom-of-the-pyramid market. A conversation with a street vendor
made Hande realize that he needs to provide financing such that payback patterns were
matched with the income patterns of the target market.
Hande understood that the needs of all users are different. Some may require a certain
type of light and fuel daily, while some may require it annually. Therefore, he introduced
customized financing based on people’s needs. This led to a new business model for
SELCO where they focused on creating products based on end user needs, installation
and after-sales service and standardized financing packages. This helped SELCO in
establishing itself as not just a technology supplier, but as one that offered customer
centric products.
What strategy should SELCO adopt to scale up its business keep its
social mission intact?
Currently, the MD of SELCO, Dr Hande, has 2 alternatives to decide the future course of action
for Scaling up business:
I. Creation of baby SELCOs independent of parent SELCO India and run by entrepreneurs
trained by the Centre
II. Tweaking existing Business Model to promote Scaling up
To decide on which strategy to adopt, areas that should be taken into consideration are
financing, pace of growth, Company’s vision, overall business strategy of SELCO and Marketing
of its products. The company might want to explore options of Geographical expansion, product
level expansion and reaching to poorer section of society. Based on above parameters, we
suggest that SELCO should go ahead with hybrid approach for scaling up. In this approach, they
will focus on tertiary sector which was not marketed well till now as well as build capabilities to
expand the business without compromising the social mission.
Below are the key areas which they should focus on to scale up the business and the risks of any
given course of action:
i) Tertiary sector Marketing: Till now, SELCO has focused majorly on primary and
secondary market which included low earning farmers, households as well as high
earning farmers ($ 2,500- US$ 5,00). SELCO should now market its offerings to
Institutional clients like refugee camps, religious institutions, government-run
institutions and clients working for poor. This will help SELCO to reach bottom-of-the-
pyramid market via an intermediary but will help them in achieving their mission.
But another challenge in tying up such organizations is lack of supervisory personnel
which will be vey necessary if they want to enter different states with this
proposition. To solve this problem, they can open a training center locally, recruit
local people and train them with necessary knowledge. This will reduce their cost
and also gain trust of rural people through the local supervisory hired.

ii) Expand Geographically: If SELCO decides to expand in different regions of India, new
employment will be provided but potential leaders won’t be identified. These
regions might not have the required level of knowledge and educated personnel
which can be hired to handle this expansion. Also, in long term, the social objective
might get compromised. Furthermore, SELCO’s business model required deep
involvement with local banks and relied on word-of-mouth marketing - relationships
that required time and energy to cultivate.
 iii) Diversify Products: This will increase the reach of its products as more customers will
have their problems solved but it will increase SELCO’s cost due to R&D. Also, the
leadership problem will still be prevalent.

iv) Incubation Center: This will effectively translate into identifying new leaders who will
carry the baton forward. As the Entrepreneurs are being nurtured and trained by the
Centre, the social values are transferred and social objective is not compromised.
This model can be replicated in future to create more Baby SELCOs to expand. These
new cells will help in developing context-based ideas to reach the poorer sections of
the society with focus on certain needs. This Incubation Centre can also be used to
develop new energy efficient products either through in-house development or
manufactured by others. But, there is a risk of brand dilution as the company’s
inexperience in these products might hurt its reputation for reliability. So, there
should be proper checks and supervision about the quality and feasibility of
products.
We would recommend SELCO to invest and incubate the potential entrepreneurs to replicate
SELCO’s business model. They can start by identifying potential entrepreneurs in Karnataka and
other parts of the country, already working or interested in energy sector. SELCO will continue
to support and mentor them technically and logistically and may assist them with funding later
if required.
SELCO can also act as an intermediary between banks and customers by directly taking credits
from customers on daily basis and then depositing in banks on daily basis. This will remove the
issue of shortage of loans to customers due to micro manage of credit by banks. This particular
step by SELCO will increase its customer base if banks are able to provide loans to customers
without the need to micro manage the money on daily basis. To implement this structure,
SELCO has to develop an internal financial branch which will handle these transactions.
Appendix:
Appendix 1: SWOT analysis of SELCO

Strengths Weaknesses
Customised products, optimistic
leadership, close relationship Model is difficult to replicate or
with customers, relation with scale, low margins, trade off
suppliers, Innovative between social and commercial
skills/products, pre sales and objective, lack of government
after sale service facility, maintain support.
quality of product, innovative
financing SWOT
Opportunity
ANALYSIS
Threat

Fresh ideas to come in as old Cheap alternatives available in the

ones leave, Untapped market, market, reluctance of people,
growing need of renewable Limited number of suppliers
energy.

Appendix 2: PESTEL analysis

• Political: JNNSM was launched by Government of India which favoured large centralized
production- SMEs were unable to influence policy makers
• Economic: Subsidies available in Foreign markets because of which big suppliers divert to
such markets.
Financing method- Customers find it difficult to get loans through existing channels.
• Social: Target customer base doesn’t have money to invest in a product costing in
multiples of their monthly income.
• Technological: Lack of availability of low-cost alternatives for raw materials
• Environment: Sustainable, Eco-friendly, Energy Efficient, Renewable Source of energy
compared to existing sources of fuel like kerosene