The Mumbai launch of Monitor’s sharply insightful From Blueprint to Scale: The Case for Philanthropy in Impact Investing marked the last stop on its world tour. India – the home of Monitor Inclusive Markets and several of the case studies explored in the report – was an apt landing point for the panelists to reflect on the insights garnered from across the globe that will help them to further develop and put into action the ideas from the report. The esteemed panel included:
Geeta Goel, director of Michael & Susan Dell Foundation
Ashish Karamchandani, partner of Monitor Group
Harvey Koh, associate partner of Monitor Group
Vishal Mehta, co-founder and partner of Lok Advisory Services
Sachindra Rudra, India director of Acumen Fund
The panelists discussed several aspects of the report, touching on the four phases of pioneer firm development, or the phases through which a typical social startup will proceed: Blueprint, Validate, Prepare, and Scale.
This very first stage is defined by the social entrepreneur creating an innovative solution for the poor. This requires intense immersion with the target population, resulting in an initial business plan and prototype. At this point, ecosystem players should provide seed funding and innovation support.
Next, the social entrepreneur will attempt to prove that commercial viability and scalability is possible – this involves iterative market trials. At this stage, it’s important to note that the product, technology, and business model could change significantly based on market feedback. That’s why there is a need for patience, patient funding of field trials, and capacity building at this stage.
Now, the social enterprise has fully launched its product, but major barriers remain: driving awareness and adoption among consumers and strengthening the value chain (e.g. supplier capabilities, new distribution networks), among others. At this point, funding to the aim of market-building can be very helpful. Goel, of the Michael & Susan Dell Foundation, explained: “You can’t create a market by seeding only a few enterprises – [you have to look at] the entire value chain.”
Finally, the enterprise will reach the point where it is set for expansion, and capital with the aim of scale will help it to achieve its goals.
Unfortunately, the journey from Blueprint to Scale can take several years – Monitor estimates that in India, “inclusive firms take more than a decade to reach a reasonable level of scale.” So, it becomes crucial to invest in the Blueprint, Validate, and Prepare phases to ensure they are completed well and quickly: these will set the course of the enterprise for decades to come. Currently, the majority of impact investors focus on Scale, while most social enterprises are still struggling to move through the first 3 stages. We should take microfinance as an example – only after $20 billion in subsidies over 20 years did the sector establish commercial viability.
The good news is that if funders and incubators can recognize and target their resources toward the several lengthy stages before Scale, it’s possible to speed up the success (or failure) of social enterprises. Failing quickly – by the way – can as valuable as succeeding quickly, allowing the entrepreneur to move on quickly without burning out, to eventually create something more valuable. And it’s important to make failures public, as Acumen Fund’s Rudra articulated: “Talking about failure is a public good.”
Enterprise philanthropy, the “ultimate risk capital” as detailed in the report, is a powerful tool to direct to the first three stages. Unlike in the investment world, philanthropists have an appetite for funding the process of developing and trying out new ideas, a process which in and of itself usually produces social good. Moreover, they are far less concerned than investors about potential copycat competitors entering the marketplace, since that too produces social good.
The Four P’s of Enterprise Philanthropy guide the capital to its most effective use: aligning the Purpose between funders and entrepreneurs, creating a Profitable Proposition so that funders are never subsidizing the product itself, creating disciplined Progression through milestones, and keeping (patient) Persistence for several years.
(From left to right: Geeta Goel, Ashish Karamchandani, Vishal Mehta, Sachindra Rudra, and Harvey Koh at the Monitor forum in Mumbai.)
It’s not only the philanthropists who can contribute. Mehta, of Lok Advisory Services, touched on creative ways that one can think about investing:
1. Managing more than one fund that feeds into each other, in order to think longer term.
2. Thinking beyond fee structures for revenue for the fund (Lok Foundation supports their fund).
3. Using different entities to provide different instruments (debt/equity).
4. Getting closer to the action by employing people who are good at operations (and can help the enterprises) over employing only people with investment experience. He believes that if an investor can tweak these issues, she will be better equipped to support her social enterprises.
Moreover, there are a number of incubators and business plan competitions – as documented in a new report by Giz - who are already supporting social enterprises from the Blueprint to Prepare phases: more such entities have to enter the support ecosystem and existing entities should refine their offerings.
So how do we collectively go about this? If “donors, funders, and investors can work together toward a common goal” (Goel) and think about “how to build markets, not firms,” as Koh reiterated, we will be well on our way to launching the first generation of scaled social enterprises expanding their impact across the world.