The idea of frugal innovation—or jugaad—often focuses on saving money.
But organizations must be frugal with their time as well so they can be agile, says Navi Radjou, co-author of “Frugal Innovation: How to Do More With Less.”
He’ll address the America’s Credit Union Conference/World Credit Union Conference in Denver July 12-15.
Radjou says the association of frugality with agility is very strong.
Large companies’ layers of bureaucracy, which are costly, reduce frugality. In a small organization, the lack of hierarchy allows for more agility.
“Agility means you save time, and time is your most valuable resource,” he says. “That’s why we think being frugal is not only about saving money, it’s saving on time.”
Large organizations understand they must be nimble, but their structure prevents them from helping the micro-entrepreneur, Radjou says. “The heart is in the right place, but the body isn’t responsive.”
Credit unions’ modest size is great for two reasons, he notes. “One, they can operate with more agility. But more important, they can better empathize with micro-entrepreneurs.”
Local and community-based lending means you’re likely to run into customers at the grocery store or coffee shop, for example.
And you can’t run away, Radjou says. The relationship has a certain empathy, more accountability, trust, and familiarity.
“One of the interesting ideas is the notion of proximity,” he says. “The closer you are to the customer, the more you’ll keep costs down.”
But the more distance between a business and the customer, the less trust exists. This leads to higher interest rates, for example, as a way to “de-risk” the relationship—or the lack thereof.
“The smaller you are, the closer you can get to the next generation of innovators and job creators—the job makers, not the job takers,” Radjou says.
The new generation of entrepreneurs won’t have MBAs and a lot of venture capital. They’re frugal innovators who use less capital initially to support their ideas with the notion of serving the community and having social impact.
“They have a social heart but they may not have a business mind,” he says. “Instead of just lending them money, they could use money management services, too.
“Credit unions could have an interesting role providing capital to these grassroots entrepreneurs but also providing advice or other services that generally large banks charge a lot of money for,” he says.
Suddenly the credit union is a hybrid organization that provides capital, advice, and knowledge to support the growth of these modern entrepreneurs.
In the frugal economy, this class of grassroots entrepreneurs will present a challenge. They’re more interested in production than consumption.
“I think this might actually be the golden age for credit unions because you have to finance frugal economics,” he says. “I don’t see the [venture capitalists taking this on], and neither will traditional banks. This is a new economy where you need microloans to get started or you need a community center to access the tools modern entrepreneurs will use.”
Credit unions have two interesting roles. One is to fund the community structure—the kind of locations and spaces where people can actually build products. And credit unions could also support the sharing platforms with financing.
Radjou suggests filling a complex need by connecting the customer with a partner network: “When I present this idea to big banks, they look at me like, ‘Are you kidding? We will never share customers!’”
Credit unions already do this kind of work with credit union service organizations and peer-to-peer support.
“If customers have a complex need, you don’t have to put it all together yourself,” he says. “You can provide a piece of that puzzle and link the member with other credit unions who may have complementary capabilities. This is awesome because you deliver amazing value-adds to individual customers.
“You can do both: You can do the shared service on the back end, which gives you more efficiency gains. But if you provide other services, your customer retention increases. People love you because they feel you understand their wants or needs in a more comprehensive way.”