The world loves the story of the lone crusader (who happens
to be young, attractive, and usually from an elite university). Social entrepreneurs, specifically those from
the United States and occasionally Europe who are flocking to the Global South to save the poor while living large,
are the latest answer to all the “failures” of the non-profit and public
sectors. And there are plenty of “impact”
investors ready to fund them, and foundations ready to crown them with admiring
awards. It’s all good, except for the
fact that many of these (expensive!) ventures fail to deliver any value.
Some investors have set up shop in the Global South so that they have a
front-row view of the action and can get their hands dirty. Many other investors
are unwilling or unable to do this. As
a result, social entrepreneurs sometimes take advantage of the fact that
potential investors are not always savvy about the targeted markets and
contexts. Over the last few years of
meeting a lot of entrepreneurs, I have come up with a few basic rules of thumb
that may help investors better separate the truly great ideas from the ones
that are pretty unlikely to succeed.
#1 Where is
the entrepreneur based? Or spending most
of their time?
If you were starting up a new company in Silicon Valley,
would you spend most of your time in Tokyo?
Of course not! You’d be living
and breathing the challenges of getting everything up and running on the
ground. Trust me that there are many
additional levels of complexity when you try to do this in a developing country—from
electricity, to establish occupancy in an office, getting permits, to the
informal powers that will inevitably expect a cut if you want to avoid their
wrath. None of this can be done
remotely.
If the CEO is spending less than 80% of their time onsite, I’d
be deeply skeptical that a.) they actually know what’s going on, and b.) that
they are qualified to talk about whatever problem they are solving.
A side note: social entrepreneurs that decide to tackle markets
in multiple places (like East Africa and South Asia) simultaneously scare me a
bit, because there is really no economy of scale and double the challenges. Poor people are not the same everywhere—and it’s
hard enough to go one place and solve the problem. Once you prove something in one place, at a
reasonable scale, then it makes more sense to me to look abroad. A global portfolio too early to me points to
signs that an entrepreneur is unable to scale up in one place and is
compensating (see #4 for more on that).
#2 Can the entrepreneur communicate with his/her
target consumers?
I’m always surprised at how quickly some American entrepreneurs
and investors assume that the ability to talk with consumers “over there” is
superfluous. To me this is just
subliminal racism or something.
Obviously if someone who only spoke Urdu tried to apply for funding to
market a new product to American teenagers, without having actually ever spoken
to one or worse, even thinking that she needed to talk to one, they would face
serious doubts from investors. But flip
the roles, and that’s the norm.
In the “normal world,” entrepreneurs are intimately familiar
with their potential consumers. Often
they are themselves a member of the target group, or were quite recently. It’s possible to design products and services
for people whose culture, lives, etc. are radically different, but it’s much
harder to do so. Understanding the
intricate details of decisions, values, risks, trust, and financial management
requires diligent efforts by an outsider.
And a lot of time.
If the entrepreneur cannot speak the local language, and even
worse, doesn’t seem to think that his/her constant dialog with consumers is
required, this should be a big red flag.
If there are “other people who do this for him/her”, then those people
better have the lion’s share of decision-making power.
#3 Can you
talk to someone outside of the company (ideally a semi-neutral third party) who
has seen the work on the ground?
Over the past few weeks, I have been reading a great deal
about a social enterprise that’s going to transform financial services for the
poor. The founder is based in the USA,
the company in South Asia. A friend of
mine work works in the industry tried for a month to schedule a visit to see
their work on the ground. After
receiving lots of warnings that the field site was “really remote” and “would
require an uncomfortable journey” and other things that failed to dissuade my
friend, he was eventually told that there was actually “no activity to see.” Unfortunately, entrepreneurs working in
remote places often greatly overstate their activities because it’s unlikely
that the investors or the media will actually go and check.
Don’t be played a fool.
Go yourself, or check with others in the region/sector who may have gone
(make sure to say upfront that the conversation is “off the record” and mean it,
if you want to get the real picture without endangering relationships). Get the name of the villages and even check
on social media/facebook to see if you can find someone in the area. Just because there’s an article in the New York Times about the company, doesn’t
make it true. Write to the journalists
to see if they visited. If the entrepreneur
can’t produce a few external references and/or seems reluctant to let you
visit, something’s up.
#4 Who are the local partners? How does the entrepreneur describe the
relationship? How do the local partners
describe it?
Every successful social enterprise I’m aware of owes at
least some of its early success to a good partnership, usually with one of the
so-called “evil” or “failed” non-profit organizations. Organizations, like BRAC for example, have a
deep community network that can provide distribution, but also the less
tangible benefits such as legitimacy, quick mechanisms for feedback, and
knowledge on community influencers. Many
social enterprises seek out partners like BRAC, because they also know that a
successful experience with a world-renown organization will signal to investors
and donors the quality of their project.
So if an entrepreneur says that they have no local partners,
this would be a crazy big warning sign.
Never underestimate how hard it is to break into this space—from getting
policy-makers to approve your work to convincing a farmer in a village to spend
money on your product. The lack of local
partners would probably mean that they approached organizations and were
rejected, which is a sign that you may want to do the same.
If they have a local partner that sounds legitimate, ask
them about the experience, and the plans for scale up. Is the NGO also seeking funds for scale
up? Because that’s what we usually do
when we see something effective. Are we
publicizing this new innovation? Talking
about it at conferences? If not, ask the
entrepreneur why not. My favorite answer
is usually “because the NGOs just can’t see the benefit of it.” That’s industry code for, “The NGO leadership
is just too polite to tell you that it’s not working and hoping that this can
just quietly die.”
#5 Does the entrepreneur (or one of his/her
co-leaders) have the technical expertise required to run the business and
evaluate the quality of the product/service?
One of the truths of development (and life) is that there is
ZERO correlation between the ability to TALK the walk, and actually do the
work. Yet it appears that smooth
communication is the best indicator of ability to raise funds.
Fine, investors want to talk to someone who excites them
with the possibility. But probe a bit
deeper to learn about the bench strength.
Taking a design course or a “lab” is not enough! A medical device company should have a doctor
or two, a new solar light needs a few engineers. These should be full-time
staff, not just advisors, and ideally they would be based in or near the
primary market, so that they can continuously observe what’s not working.
If you get the sense that the entrepreneurs greatest asset
is the ability to paint a beautiful story rather than provide specific details,
ask to speak to someone else as well who is potentially less flashy but more grounded
in the work. If everyone you speak to
besides the entrepreneur seems to either be a.) far away from strategic
decisions, or b.) inexperienced and unsure about their technical expertise,
danger ahead.
Personally, if I had millions of dollars that I was thinking
about investing for “social good,” I’d take a few thousands and go on one hell
of an expedition around the world (Jim
Rogers did this and had a blast!). I’d
take my sector(s) of interest, identify a few countries with a lot of activity,
and go spend a few weeks visiting them.
Will it make you an expert? Not at all.
But it will give you the ability to picture the environment and the
people to a much more vivid degree. Many
people take these trips with an eye to what’s NOT working, or what could be
improved. I would suggest going the
other way—focusing on what is working, what has changed in recent years,
because there’s a lot that can be learned studying the successes and
multiplying them.
Don’t have the time?
Hire someone like me to take the trip for you and report back on what I
see. #dreamjob
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