In a nutshell: The Business Case is a particular facilitation tactic used to convince a market actor to try out a particular strategy or behaviour (e.g. moving into a new market or adding a new service) based on an analysis of the costs and benefits of doing so. It is an expansion on a few of the Facilitation Tactics and Activities related to financial projections and calculations of the return-on-investment.
Key principles: The Business Case blends the principles of Participation – whereby market actors themselves engage in active thinking about the pros and cons of a new investment; and Facilitation – whereby the project plays an active role stimulating thinking and potentially providing new information. The goal is to build understanding and conviction for a market actor to try out a new strategy – and so the information presented or gathered must be credible to the market actor. This means that the source of any market demand or market research is crucial – where an NGO has done too much of the work to collect and analyse data, this may taint its perception.
Preconditions and preparation: To use this ‘tool’, we need a reasonable understanding of the market actor themselves (their business model, how they think, how they perceive different risks) and of the financial dimensions of the particular behaviour change in question. The insights on the market actor themselves are best gained through observations and informal conversations. Whereas the information on the financial projection should have a slightly stronger grounding – ideally backed by semi-formal research – whether through surveys or analyses of the financial records of similar companies. Here, it may be useful to draw on some of the Economic Analysis tools for understanding the cost and revenues of different actors in a given market, or the size of different end market channels.
Timeline and resources: Project teams should expect to spend several weeks to months doing the preparation work on a business case.
The thought process of this tool can be summarised in a few sets of questions about the market actor; their perceptions of risks and opportunities; and the actual market opportunity itself. An example below shows what these questions could look like for a scenario where a project seeks to stimulate more dynamic and responsive energy markets that serve the needs of rural farmers (i.e. solar products for irrigated farming).
1. Current business model:
- What is the current business model of the key solar suppliers?
- What are their main product lines, and to what type of customers do they sell, for what uses?
- What type of marketing do they do?
- Do they offer after-sales service?
- Do they offer any embedded financing?
- Who are their suppliers – and do those higher level suppliers (importers or manufacturers) offer higher leverage for changing the system?
- What is the nature of competition between existing suppliers – on what dimensions do they compete with each other?
2. Perception of risk and opportunity:
- What are the solar suppliers’ current perceptions of rural markets, and especially farmers?
- Have they ever made any sales to this market? If so, did they market first, or did farmers seek them out in urban centres?
Note: Perceptions of risk are what really matters the most here. The key underlying strategy to the ‘business case’, as an intervention tactic, is to have enough trust and relationship with a market actor to know what kind of information would be compelling to them. This includes the source of information (who produced it and why), the size of sample, or the context of that trial/pilot – they may be quite skeptical of NGO-supported tests given the likelihood that there are hidden costs being subsidised (consciously or not). Once you have a good sense of this, then you can start to think about preparing the information required to make that business case.
3. Actual opportunity:
- What solar products are the best fit for farmers’ needs?
- Are these likely to be sold to individual farmers, or does the capacity require multiple farmers to get a high utilisation factor?
- What is the up-front cost and operating costs of those units?
- What are the range of scenarios for different crops in terms of the return on investment for an individual farmer? (e.g. scenarios by crop; rainfall; market pricing)
- What are farmers’ perceptions of the usefulness and value of these products?
- What is their willingness to pay?
- What is their cash flow situation and ability to pay?
- And finally, where is there a high enough density of farmers that it would be worth a company’s time to invest some resources (e.g. part-time sales rep as an example) to expand into that market?
The intended goal of this intervention tactic is to ‘convince’ market actors that a particular opportunity is worth their time and investment. In the ideal scenario, the information alone is sufficient to convince them to take action. However, they may still have reservations that require some resources from the project to enable them to take the risk with some support if the investment fails. In this case, it may be necessary to combine the Business Case with other Facilitation Tactics and Activities.
Resources and templates:
BEAM Exchange; Making a business case