Products for the other 3 billion

Stanford's Jim Patell (far left) with current and former students who design products for the poorest of the poor.

D.Light replaces kerosene lamps in parts of India.

D.Light founders Goldman (left) and Tozun met at Stanford.

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(Fortune Magazine) -- Jim Patell is perhaps the only member of the faculty at Stanford Graduate School of Business to come to class sporting police-issue cargo pants with a black Benchmade knife clipped to the right front pocket.

Patell differs from his B-school peers in another way too: Instead of teaching in a lecture hall filled with diligent students typing away on laptops, he operates out of Stanford's design school, where he teaches a class called Entrepreneurial Design for Extreme Affordability. His classroom looks a bit like your typical high school wood shop crossed with the lobby of the United Nations. Whiteboards are covered with scenes of village life and subsistence farming in Ethiopia, India, Nepal, Rwanda, and parts of Southeast Asia.

The pictures are a reminder of the class mission: to teach a new generation of entrepreneurs to use their business and engineering smarts to design and sell products - profitably - for the developing world.

Two such budding entrepreneurs are Nedjip Tozun and Sam Goldman, founders of D.light Design. D.light makes cheap, solar-powered lights to replace the kerosene and diesel lamps so common in the developing countries of Asia and Africa. Tozun and Goldman met in Patell's class in 2006 and quickly connected over their mutual passion for helping the poorest communities tap into basics, like light, that the developed world takes for granted.

For smart, ambitious students of Tozun and Goldman's generation (they are both 29 years old) professional success and saving the planet aren't mutually exclusive. Patell's class is supercompetitive; people regularly are turned away because there's not enough space. Some of the students - a mix of would-be MBAs, engineers, and designers - truly are do-gooders, but a fair number think building good, cheap products is a skill any corporation would value.

"General Electric is not dumb - it looks at these markets too," says Seth Silverman, a civil and environmental engineering graduate student in the class who focuses on technologies for Ethiopia. "But these environments are so hard to work in that its attention is spent elsewhere. We can fill that gap, with an approach that goes beyond a fast profit motive."

Often that approach involves combining cutting-edge technology with widely available products that are moving down the cost curve. D.light, for example, marries next-generation light-emitting diodes (LEDs), proprietary power-management tools, and increasingly cheap solar panels.

As a result, D.light is able to offer poor communities an affordable alternative to kerosene, which is ubiquitous but hazardous. The quality of the light isn't good, it emits pollutants, and it's just plain dangerous. "You travel around these villages, and everyone has a story of a child being burned or a house destroyed by fire," says Tozun, speaking by phone from his office in Shenzhen, China. "And yet in some places we found that people were spending 15% to 20% of their income on light." The world's poor spend about $38 billion a year on kerosene for lighting, according to the International Finance Corp.

The D.light lamps sell for about $25, steep for someone earning $1 per day, but the D.light team quickly found that the quality of light was so good that people with the D.light lamps were able to do more work at night and increase their income. Two families in New Keringa, a village of 47 families in southern India, took the plunge on D.light lamps. Says Tozun: "All of a sudden the two families were able to work at night," mostly weaving banana leaves into plates. "Their average monthly income increased from $12 to $18, and they could save the time spent traveling to buy more kerosene." Within a few days the entire village had sprung for the lights. "These people are great customers if you give them a clear value proposition," Tozun says.

Empowering would-be customers is one of the mantras of Patell's class. Each year some students, like Goldman and Tozun, take their ideas and try to build businesses. Patell doesn't expect every student to start a company, but he does demand that every product in the class offer poor consumers tools for their own microenterprises. "We want to design things so that a farmer can decide to leave his farm and support his family selling water pumps or drip-irrigation tubing," Patell says. "We want things to be sold at a price that covers the cost of manufacturing and distribution."

Capitalists in Silicon Valley are starting to take notice of the projects coming out of the Stanford course. In November, D.light secured $6 million in funding from Draper Fisher Jurvetson and Garage Technology Ventures, among other venture capital firms, to ramp up production and get its lamps into markets, initially in India and Africa.

At first $6 million doesn't seem like a lot of money. And selling $25 solar lights in the developing world is not typical for firms like Draper Fisher Jurvetson, best known for backing Hotmail and Skype. But the financiers think D.light can model itself after another successful enterprise in the developing world: the cellphone industry. Device manufacturers - Nokia (NOK) in particular - are selling millions of handsets in rural parts of India, China, and Africa, places that in many cases don't have centralized electricity. But even some of the poorest of the poor will pony up several months' salary for the benefits of connectivity.

"Fortunes have been made on the back of that cellphone business," says Bill Reichert, managing director of Garage Technology Ventures. "A decade ago you wouldn't have imagined you could target these populations, but there is real business opportunity in introducing the right technologies."

Reichert believes that D.light's lamps are just the beginning: The company could expand into other solar-powered devices, even the energy business. "Is it a billion-dollar business? Probably not," Reichert admits. But could D.light become a well-run, profitable enterprise? That's absolutely the goal of Patell's class: D.light and its counterparts are out to improve lives and make money. If they also happen to enrich their investors, that's icing on the cake.