Archive for August, 2010
The Benefits of Doing Well, and Doing Good
Can companies do well by doing good? To my mind, almost all companies are able to make profits while solving a problem rooted in society. For instance, Hemant Sahal, a VIT University undergraduate, has created Callmat, a chemical product which makes water fit for drinking. Sahal’s business has great potential to thrive, because the product is cheap and can solve a common problem in India. In an interview by the Spanish newspaper La Vanguardia, Sahal claimed that if he can not invest the profits made in society, he will have failed in his project.
According to Rosabeth Moss Kanter, who writes here, if a company can integrate the benefits that it offers society more closely into its existing business, that integration can be very sensible and beneficial for the business. Moreover, she highlights that some smart companies are finding that including a focus on benefiting society in their mission can help yield competitive advantage by creating a corporate culture that leads to high performance and profits.
On the other hand, Kanter argues that there are a number of reasons why incorporating social good into strategy can improve a company’s long- term performance.
- Can help motivate employees.
- Help to maintain a cohesive culture despite the diversity.
- Can help spark innovative thinking by exposing employees to new ideas and perspectives.
Also, the writer points out that the reason many companies now want to enter emerging markets is because those markets are growing. But companies are discovering that there are so many social and environmental needs in emerging markets and those needs can be a good source of new product or service ideas that people will pay for. For instance, in November 2006, Danone launched a yoghurt called Shoktidoi, designed to provide a response to the nutritional needs of Bangladeshi children at an affordable price.
Furthermore, for surviving, companies have to do some good for society to continue doing well financially. Fundamentally, companies that are not somehow doing good will eventually have problems. For Kanter, information about a company’s behavior anywhere in the world is more readily available to people all around the globe. That is why most companies try to invest part of their benefits in their Corporate Social Responsibility programs.
In conclusion, Kanter agrees that thinking about creating societal benefits through business should be part of setting strategy. If, as a business leader, you start thinking deeply about growing your company, in the future that means thinking about unsolved problems and unmet needs. Solving some of those problems and addressing some of those needs can, if done well, benefit both your company and the larger world.
Three Mistakes Made in scaling Up New Ventures
Most organizations feel that the job is done when they have successfully prototyped the first product or the initial service and are now selling to the first outlet or set of users. They’ve defined success as developing something customers want.
But reality is much different. The journey has just begun. Many fledgling companies and many ventures within established companies fail to capitalize on successful prototypes because they make one strategic error: they do not understand scale-up. In this post Robert Moore looks at three common mistakes in the transition from promising start-up to full scale venture.
Charles Baden-Fuller and Ian MacMillan recently wrote for the Harvard Business Review blog on a topic that is very important to every one of the businesses here at Villgro. From Coir Atlas which provides bamboo/jute alternatives for the wood separators used in steel transportation to a rural BPO called Desicrew, all of the Villgro Incubatees have or will realize a need to shift their customers and products if they are going to scale.
In just this last month I have seen each of these issues in many of the Indian social businesses. While this article talks about the difficulty in scaling correctly in general it is vital that the social enterprise sector think about these concepts early on especially because the social goals they want to meet makes this transition to scale even more complex.
The three basic concepts introduced by Baden-Fuller and MacMillan are
- Realize your customers are not the same as users
- Recognize that first users are not the same as scaling users
- Anticipate that first products are not the same as scaling products
While it is easy to see the user of your product as the customer it is also important to look for other revenue streams that might not be the end user. If you take Wonder Grass for an example, their goal is to sell their affordable housing product to both the village end user and to other organizations that will provide the houses to the end users. If Wonder Grass solely relied on the ability for the villagers to buy their product then it would take much longer to grow to scale.
The authors’ second and third points are where complexity develops in the social enterprise sector. Many social businesses have a particular customer or user in mind when starting the business because of the social benefit they hope to create. When starting small it might be easy to reach your intended user but growing to scale can involve issues with unmanageable distribution channels or even being tempted to focus on a more accessible user who isn’t as bad off and won’t provide as much of a social benefit. Another complexity of this space is that normally the transition from your first to your scaling products would indicate an increase in revenue potential but in the social enterprise space sometimes it means taking a cut in the ultimate earning potential your company can make, especially if that transition involves trading financial return for a social one.
In this sector there are a lot of companies who have taken many years to figure out who their scaling user or what their scaling product and the only reason they are still in business is because they have been supported by the entrepreneur’s previous successes or been given grants to address the social need they are trying to impact. The rest of these social enterprises however do not have the luxury of wasting time and if they aren’t careful will find themselves with customers, users, or a product that does not scale. If they take these ideas of scale into account now the issue of scale will be much easier to accomplish and they will be able to successfully take their impact to the next level.
ANDE Impact Report
In a previous blog post, Devyani Srinivasan wrote about the Dangers of Poor Research. In a follow-up post, she examines another research report brought out by the Aspen Network of Development Entrepreneurs (ANDE), drawing our attention to some limitations of the report. Devyani is an independent consultant. This article was originally published on her personal blog, Devyani Writes.
In an earlier post, I had pointed out some weaknesses in the research methodologies of the Ashoka and Beyond Profit surveys of social entrepreneurs. At around the same time that the results of these two surveys were published, ANDE also published its own impact report. ANDE is the Aspen Network of Development Entrepreneurs. How does their report compare to the Ashoka and Beyond Profit surveys?
In brief, the ANDE report is more transparent about how it arrived at its results than the Ashoka and Beyond Profit surveys. However, there is some variability in the completeness and clarity with which the data is presented.
Although ANDE’s report describes itself as an “impact report”, it is really only two sections that are about ANDE’s work. In addition, there is no mention of the methodology used to collect the data in these two sections. Despite the strengths of the report, this is a major weakness.
The two sections that are on ANDE’s work are titled, “ANDE’s Role and the Impact of Our Members”, and “ANDE’s Efforts To Grow The Sector To Scale”. Of these, the latter section consists of straightforward reporting on ANDE’s activities over the year. Therefore I will focus only on the section titled, “ANDE’s Role and the Impact of Our Members”.
In this section, it is Figures 9-14 that I would like to comment on. All figures report results in terms of percentages. In my earlier post I had said that the problem with using percentages alone is that we have no way of knowing if these results are due to chance, because these results were not tested using a test like the chi-square or t-test. However, I realized that I need to explain this further.
Chi-squares or t-tests are needed if you are collecting data from a sample of respondents, and using your results to generalize about the larger population that they (supposedly) represent. Using percentages is not a problem if you have collected data on the entire universe that you are studying. Look at Figure 13 of the ANDE report, for example. The figure is titled, “How ANDE Members Fund SGBs’ Financial Needs”. We are told earlier in the text that ANDE members who invest in SGBs (Small and Growing Businesses) manage 51 funds (23/24). The N=51 at the bottom of Figure 13 tells us that data from all 51 funds is represented in this figure.
Similarly, Figure 11 is also quite clear. It shows how many ANDE member funds have a target return range of 0-5%, 5-20% and above 20%. Here, as in Figure 13, the universe should be 51, as that is the number of funds that ANDE members investing in SGBs manage. However, it is explained that for this figure N=48, as three ANDE member funds did not provide their target IRR range. The only flaw in this figure is its titling. It is titled, “ANDE intermediary target benefit: Percent of ANDE member funds with target IRR range”. This suggests that respondents were asked a yes/no question, such as, “Do you have a target IRR range?” Instead, respondents were probably asked a question like, “What is your target IRR range?” and their responses indicate the spread of ranges. In addition, IRR is not defined in the figure, nor is there a glossary.
Other figures are more ambiguous. There is no N given for Figure 10. Since the title of the figure is, “ANDE intermediary target size: Percent of ANDE member funds with target average investment size”, should we assume that N=51? The title also suggests a yes/no question as with Figure 11. Figures 12 and 14 both say that N=70, and includes both funds and capacity building providers. Yet the term “capacity building providers” is not explained anywhere else in this section.
The text in this section is well-supported by footnotes, and doesn’t leave room for misinterpretation. Where the report says that, “ANDE members have made 2,499 investments in SGBs totaling $830 million (26/27)”, we can see from footnote 15 that this information was collected from all 51 ANDE member funds. Where it says that, “33 ANDE members spent $96.8 million on technical-assistance activities (26/27)”, footnote 17 tells us that data was not available for the remaining ANDE members. And the $1.7 billion in additional funding that ANDE portfolio companies have secured is, as footnote 19 tells us, based on reporting by 21 funds.
It is important to note that, as in some of the above examples, ANDE has most likely underreported their results rather than extrapolate where data is not available. This is to be appreciated. The one exception I found, where the footnote did not explain the text well, was 16. If you read the text and the footnote together, it says, “Among those funds that reported historical investment-size information for these past investments, 96 percent of the total number of investments made were investments under $2 million (26/27)”, excluding one ANDE member fund representing 450 investments that did not report quantity under $2 million. We don’t know what the total number of respondents was (those that reported historical investment-size information), and we also don’t know why one fund was excluded.
The Dangers of Poor Research
In this blog post, Devyani Srinivasan, an indepdent consultant, takes a look at some of the issues to be aware of while conducting social enterprise research. This post was originally published on her personal blog, Devyani Writes.
In the last year, Ashoka and Intellecap’s Beyond Profit have both conducted surveys of social entrepreneurs. Ashoka describes itself as the global association of the world’s leading social entrepreneurs, whom it elects as Fellows. The Ashoka survey was conducted to understand how their Fellows have changed systems. This phrasing already suggests a bias that Ashoka Fellows have changed systems, one that is carried through in the way the survey was designed and conducted.
Beyond Profit is the social enterprise magazine of Intellecap, a social investment advisory firm. Their survey was conducted to better understand social enterprises, and the people who lead them, in India. While India is described as having a high degree of social entrepreneurship, it lags behind in research in this field. Therefore, initiatives to conduct research on social entrepreneurship in India are much needed. However, this initiative by Beyond Profit, along with the survey by Ashoka, are marred by weak research methods.
The first limitation to both the Beyond Profit and Ashoka surveys is that neither of them go beyond percentages in reporting on the results. For example, the Beyond Profit survey reports on the percentage of respondents who are men (and women), who fall within a certain age group, and whose work falls within a certain sector. The Ashoka survey says of their Fellows that, “these people are incredibly focused on achieving their goals with 93% pursuing their original objective after 10 years. 80% of them are seen as leaders in their field and 90+% of their ideas are replicated by other groups” (4/6). The Ashoka survey also calculates the percentage of Fellows who have changed the system in one of five ways.
The problem is that we have no way of knowing if these results are due to chance. If the authors had conducted a chi square or t-test on their results, it would give us the probability that these results are due to chance. For example, a probability of 0.001 would mean that the results are highly significant in statistical terms, that is, the results are very probably true.
In addition, these tests only work if you have a random sample, and there is good reason to believe that in neither the Ashoka nor Beyond Profits surveys was this the case. Out of all the Ashoka Fellows elected in 1998,1999, 2003 and 2004, the total number of Fellows with current contact information from those years is 315. 172 of those Fellows returned surveys, and this was used to calculate a response rate of 55%. However, we don’t know how many Fellows current contact information is not available for. This is especially important because it is quite likely that the Fellows for whom current contact information is not available may be those whose social enterprises have closed down or are inactive.
The Beyond Profit survey was conducted using an online platform, and was distributed to Intellecap’s database of social entrepreneurs in India, as well as to the networks of Ashoka, Dasra and Unltd India. The sample size for this survey is 118, as that is the number of people who responded. However, as readers we do not know the universe from which this sample was selected. How many people was the survey distributed to? Do Intellecap’s database, as well as the networks of Ashoka, Dasra and Unltd India, cover all social entrepreneurs in India? Alternatively, was the survey only distributed to a sample of social entrepreneurs to begin with?
As it was up to these social entrepreneurs to respond to the survey, it is quite likely that all those who did are similar to one another in some way. For example, they might be all in a younger age group, and therefore more comfortable with using the Internet to respond to surveys. Therefore this sample is unlikely to be random, and most probably suffers from what is known as self-selection bias.
There is one section in the Beyond Profit survey in which it is acknowledged that those omitted from the survey are likely to have influenced its results. The report states that, “One element to keep in mind is what the data doesn’t tell us. Because we didn’t survey people who almost became entrepreneurs, but didn’t follow through because of negative reactions from family, it is difficult to judge just how prevalent family pressure is” (5/7). However, those omitted from the survey are likely to have influenced all of its results, and this is not acknowledged throughout most of the report.
As long as social enterprises in India do not have their own dedicated legal form(s), it may be difficult to know how many social entrepreneurs there actually are. In a context in which a comprehensive database of social entrepreneurs in India is not available, it makes sense for Intellecap to use their own database and other networks to contact potential respondents. In fact, this is a legitimate research method and is known as snowball sampling. Snowball sampling is suitable for qualitative research, where the main purpose is to gain a rich and complex understanding of a specific social context or phenomenon. The problem is that the Intellecap survey seems to use this method for quantitative research, where the emphasis is on eliciting data that can be generalized to other geographical areas or populations.
For example, the Intellecap survey says that “…there are actually more men than women in social enterprise today” (2/4). Similar statements, which generalize from the sample to the universe of Indian social entrepreneurs, are made throughout the report, including with regard to age, experience, motivation, revenue generation and sector. However, without a random sample, and without testing for the statistical significance of the findings, it is misleading to make these generalizations.
Another limitation that both the Ashoka and Beyond Profit surveys suffer from is the lack of triangulation. In the social sciences, triangulation refers to using more than two methods in a study to double (or triple) check the results. The Ashoka survey, in which Fellows were self-reporting on their achievements, could have certainly benefited from triangulation. In the Beyond Profit survey, triangulation could have been particularly useful in cross-checking certain pieces of information, such as on revenue generation.
A final area in which the Beyond Profit survey errs is in the statement:
…Not surprisingly, people from a for-profit background are more likely to choose a
for-profit structure for their own social enterprise. 63% of respondents who came
from a for-profit business background chose to work in a for-profit structure, while
only 17% of people with non-profit experience switched to a for-profit structure (3/5).”
The claim that, “people from a for-profit background are more likely to choose a for-profit structure for their own social enterprise” leads us to believe that there is a correlation between the background of social entrepreneurs and the legal structure they choose for their social enterprises. However, establishing a correlation between these two phenomena requires regression analysis.
The simplest form of regression is linear. If you plot the data collected on a graph, regression analysis will create a single line that best summarizes the distribution of points. The typical distance between the line and all the points indicates whether the regression analysis has captured a relationship that is strong or weak. There is no evidence of regression analysis in the Beyond Profit report.
In addition, the statement discussed above begins with the words “not surprisingly”. This suggests that it is because a social entrepreneur used to work in a for-profit that he / she chose the same legal structure for his / her social enterprise. When one variable (in this case, legal structure of social enterprise) is inferred to be because of another variable (in this case, background of social entrepreneur), this is known as causation. Causation cannot be measured from this study because both the variables were measured together in a setting.
One of my former colleagues described the Ashoka report as impressive and inspiring, and I don’t mean to detract from the achievements of their Fellows by pointing out the weaknesses in the research. A strong research methodology would have made these achievements even more impressive, as they would have been supported by firm evidence.
Clean Sweep: Supporting Entrepreneurs in the Energy Sector
In this day and age, most of the world is worried about climate change. That is why instead of delivering energy through top-down initiatives like large-scale utilities, E+Co looks for small enterprises that can take hold locally. Rather than bringing in Western business experts, it hires regional field staff who recruit and support entrepreneurs in their own communities. Moreover, its efforts are inspiring others to see the connections between energy, poverty, and climate change. Alvaro Illanas Cerezo summarizes Susie Boss’s article “Clean Sweep” from Stanford Social Innovation Review, below.
Energizing entrepreneurs
E+Co’s portfolio proves that there’s no shortage of clean energy ideas or entrepreneurs in emerging markets.
A report stated that willing entrepreneurs represent an abundant but largely untapped resource. It also noted, however, that technical assistance for small business is simply not available in many developing markets.
E+Co unleashes this entrepreneurial potential with a three-part model that combines technical assistance with capital.
- Part 1: It helps entrepreneurs develop solid business plans. Field staff use a toolkit and their understanding of local issues to help would-be entrepreneurs analyze their market and select clean energy products. The business development process is thorough but not over-sophisticated. Similarly, the organization prefers proven solutions to cutting edge technologies.
- Part 2: It lends seed capital, typically $25,000 to $500,000 at average annual interest rates ranging from 8 to 12 percent. Getting to yes requires approval from an independent, unpaid investment committee made up of finance professionals. The experts bring a deep understanding of niche energy markets and small- to medium-sized enterprises.
- Part 3: It provides access to growth capital.
Measuring everything
E+Co relies on concrete metrics to convince diverse investors to fund the organization. A triple bottom line scorecard rolls up data from 30 indicators across three categories: financial, social, and environmental. E+Co admits that it can be swayed by stories of lives improved, but he’s also hard-nosed about numbers, and so looks to the scorecard to see that the portfolio’s average annual return is 8 percent.
Grant funding has become a smaller piece of the pie now that loan repayments generate revenue to reinvest.
E+Co is similarly analytical when it comes to evaluating risk. Although the organization steers clear of untested energy ideas, it sometimes approves demonstration projects that bring proven products to new markets.
Growing the space between
E+Co must now make sure the funds keep flowing. Its loans fall into what its CEO calls the space in between: bigger than microfinance but smaller than corporate-size deals. This “missing middle” is unfamiliar territory for many public and private investors. The main goal is to start a movement, so that small and growing enterprises have ready access to capital. Global acceptance of microfinance has taught E+Co the value of aggregating players to speak with one voice.
Have you had any experience in supporting small businesses in the energy sector? Share your experience with us in the comments section.
What Social Enterprises Can Learn from India’s UID Project
UIDAI, based in New Delhi and chaired by Infosys Technologies Ltd co-founder Nilekani, aims to assign 12-digit universal identity numbers to more than 600 million citizens over the next four years. This article in the Mint describes the current team, the significance of the UID, and the challenges the program faces as it starts the first large scale national tests over the next six months. In this piece, Robert Moore talks about what social enterprises can learn from India’s UID project.
Here at Villgro our incubatee companies not only spend a lot of time figuring out how to successfully market new products or business strategies to rural India but also how to learn from their mistakes when they fail. An issue that all of them come across is that the Indian market is disparate which forces them to incorporate tweaks in their marketing plan for each area that they want to market to. This causes trouble when trying to quickly scale their companies but our incubatees are not alone, with large MNCs dealing with this same problem and most recently the Unique Identification Authority of India as it launches its first large scale national test.
The unique identity program, also called Aadhaar, is a program designed to assign a 12-digit identity number to a majority of Indian citizens over the next four years. Coming from the USA where we have the social security number, I can definitely see how having a UIN will make the lives of Indian citizens better – especially those who have no other formal means of identification such as passports or drivers licenses.
But the social implications don’t end there. This is a massive undertaking in marketing and something this big will truly provide some great opportunities to learn more about the Indian market. To complete this task an advisory team has been formed which includes Kiran Khalap – Founder of Chlorophyll brand consulting firm, D.K. Bose – one of India’s most experienced social marketers, Praveen Tripathy – President of Pidlite Industries which is regarded as one of the smartest marketing companies in the country, Santosh Desai – chair of Futurebrands, and Sumeet Vohra – marketing head of Proctor and Gamble India.
There is a great quote by D.K. Bose on the project that goes “Marketing quite often is seen as an effort towards profiteering, an effort towards extorting people’s motivation. This, meanwhile, is concept marketing, value marketing, intangible marketing. When you promote education, you don’t say ‘I’m marketing education’. You’re marketing certain values and concepts.” This quote is significant because it describes a challenge the social entrepreneurs in India also face every day. I often feel that they aren’t given the credit they deserve as they are not only creating profitable businesses in difficult markets but molding values and introducing new concepts as well.
As the Unique Identifier Authority spends the next six months launching a learning program and a large scale national test, social entrepreneurs should pay close attention to its successes and failures as it will provide valuable learning for how to ultimately reach more and more of the many markets that make up India.
It Takes a Village: Making Communities a Part of the Solution
Often simple solutions to the problems that affect a community do not find their way to the masses; for example, making clean water available and affordable for all. In the Lake Victoria area of Kenya, Acumen Fund, along with other organizations have been running a multi-year study to evaluate the impact of providing sanitation and clean water in schools. Nick Pearson, an East Africa Portfolio Associate writes on the Acumen Fund blog of the benefits of a simple ‘cost-benefit’ analysis that the students employ to understand the benefits of the clean water initiative. The benefits (see image) are clear to see. Pearson talks about how several projects have involved the community to provide a workable solution, including carbon financing as a method to defray costs.
Mayank Jaiswal takes a look at the community-level involvement described by Pearson to understand two ideas:
- The concept of ‘Shock advertising’ and power of simple concepts
- Analyze the causes and delineate solutions to the problem of why seemingly simple self evident solutions are not reaching the masses that need them.
Simplicity is very powerful, this is an oft repeated quote but one can see it in action on this board at the local primary school in Kenya. The key is to boil down all the research and analysis into a simple story that is easily understandable and logical. The icing on the cake is when such a story can be told with a frugal use of words. The school board utilizes all these concepts to bring the point home.
The board also combines another interesting tactic of advertising which has been used campaigns like ‘Quit smoking’ and ‘Speed kills’. The ‘shock’ effect of reading the costs of things like illness, mortuary, and coffin push people, through fear, to act and change habits. Another shocker worth noting is the price comparisons of drinking treated water versus untreated water, which is in multiples of 100s.
I found this combination of simplicity and shock advertising an enticing proposition and worth a mention.
Another aspect of the solution that catches the eye is – if this is so simple why do people not do it or going a step further why are such solutions not readily available in the market? After some rumination and field visits, there are a few reasons which I could identify and I have also professed solutions to the issues.
- No infrastructure is available to get the problem resolved – let us take the case of clean drinking water. Before a Naandi, Byrraju or WHI came into the picture it was simply not possible for most of the villages to set up a water purification plant. The reasons were several – technical inaptitude, non availability of finances, lack of knowledge of operating such facilities. The organizations mentioned earlier provide turnkey solutions to village communities and which is key.
- There have been cases when even after the purification plants were set up, many community members did not use it. The reasons varied from being peeved since the community was not involved in the decision making to the members not liking the taste of the ‘treated’ water! These issues can be solved by involving the community all along the way and marketing the product using members of the community. For example, the water treatment plants are marketed vigorously by female marketing officers in the community.
- ‘Tough love’ is important. The idea of say providing cheap drinking water is that the people actually drink it! If coupons for water that never expire are distributed people hoard them for a rainy day or may not use them out of laxity, but innovative approaches like expiring the coupons, if not used within a certain timeframe forces the buyers to use the water and thus benefit.
- Accountability – a criminal waste would be if a resource is set up but is not utilized due to negligence in operations or improper maintenance. This is a very common problem in the developing world, if proper checks and balances are put in place it can be ensured that the desired benefits reach the community. For example Naandi Foundation prominently displays the telephone numbers of higher management at the water treatment plants so community members can inform them in case of any issues or inconveniences due operational lapses on part of the ground staff.
We can see that developing insights after field and desk research and analyzing the data thus gathered is important, but one should not forget the role of implementation. This is especially true for the harsh and unforgiving conditions in which many of the social solutions have to operate.