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Tuesday, March 17, 2009

Guest Post: Never Waste a Good Crisis

By Josh Weissburg

President Obama and Secretary of State Hillary Clinton are fond of reminding the press that leaders should "never waste a good crisis." During times of upheaval, people are scared, but they're also willing to try something different. That applies in both the political and business worlds.

Renew LLC, was launched in the midst of upheaval. Incorporated two years ago because we saw an opportunity to grow small businesses in developing markets, Renew was designed to implement a set of new ideas about what investors who rethink their model can accomplish in markets largely "hidden" by their lack of structure. 

Of course, another sort of upheaval quickly followed. Just as Renew launched its on-the-ground operations in East Africa in November, global markets fell into disarray. The fallout is still falling out. In the meantime, Renew, one company among many in the burgeoning BOP/double bottom-line/social enterprise/pick-your-descriptor marketplace, is determined not to "waste" the present financial crisis. 

First, the basics: Renew is a social investment intermediary that sources SMEs for U.S.-based investors, conducts due diligence, manages the investment, and provides life of the investment consulting to support business growth and gauge social impact. In the strictest sense, those are its service offerings. But during the two years that the company has been working with investors and entrepreneurs, we've come to envision more than the addition of an investment intermediary to the marketplace. 

We see an opportunity to create a new set of expectations between capital and the entrepreneurs and managers who shape investment capital into enterprises that create value and generate return. We believe investors should be able to generate meaningful financial return and see sound governance at work when they deploy capital to SMEs in developing countries. And we believe that managers of these SMEs should hold themselves and their employees to the sort of ethical and operational standards that will allow them to compete globally in the 21st century.

We're not the only ones. Last summer, a group of 35 scholars and business executives assembled to lay out a road map for reinventing management to make it more relevant to a volatile world. (These findings comprise a February 2009 Harvard Business Review article titled "Moon Shots for Management.") The group, which included luminaries like C.K. Prahalad and others familiar to NextBillion.net readers, was inspired by a collective desire to help managers overcome what they call "ambition-deficit disorder. What, we asked ourselves, was management's equivalent to unpacking the human genome, inventing a cure for AIDS, or reversing global warming?"

The group synthesized its discussions into a list of 25 grand challenges for managers in the 21st century. At least half of these will make immediate sense to many NextBillion regulars. (For example: "#1 Ensure that the work of management serves a higher purpose; #2 Fully embed the ideas of community and citizenship in management systems; #13 Develop holistic performance measures; #22 Enable communities of passion; #23 Retool management for an open world.")

Similarly, throughout the course of Renew's initial market research on investors in the United States and managers in the developing world, we saw "ambition-deficit disorder." To be sure, in some areas investors exhibited too much ambition; financial markets are undergoing severe corrections as a result. But when it comes to the fundamentals of finding, investing in and building ethical, well-managed businesses, capital markets have not been keeping up with what's going on in developing countries. To a large degree, illusory returns in developed capital markets obscured real opportunities in new markets. Take this growing business in Kampala, for instance. In fact, the same February 2009 issue of the Harvard Business Review cited above featured an article titled "Now's the Time to Invest in Africa" as one of HBR's "Breakthrough Ideas for 2009." The Managing Director of the International Monetary Fund, speaking this week at a conference in Tanzania to examine the effect of the financial crisis on low-income countries, said much the same thing.

There is opportunity aplenty in the midst of this crisis. The "Moon Shots" group and others working to create a shared code of conduct for managers, taken together with recent studies on the prospect of a true impact investing marketplace (see the Monitor Group's excellent report) offer an alternative to the myopic view that investors and managers tend to suffer from as they evaluate investment opportunities and craft strategies for business growth. Renew aims with its services to provide a template -- and real-life examples -- of how impact investing meets better management in practice. But we are one small part of a large marketplace. No one with similar goals should waste this crisis.

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