10 Key Lessons for Solar Enterprises: Insights From SELCO’s 26 Years Doing Business in India
Earlier this year, we stepped down from the board of SELCO Solar Light Private Limited after more than 10 years volunteering as directors. SELCO, based in Bangalore, is well known as a pioneering Indian off-grid solar company. It just celebrated its 26th anniversary.
At the time we joined the board, we were two of the very few female renewable energy impact investors, and we were working with different organizations. Christine had seen SELCO develop over the years in her work with E+Co, then a non-profit solar energy enterprise investor and a founding supporter of SELCO. Richenda came to SELCO as a founding board trustee of the Good Energies Foundation. She first got to know SELCO as it struggled with the impact of decisions made by previous investors that almost destroyed the company.
Both E+Co and Good Energies Foundation, along with the Lemelson Foundation, brought in a fresh equity infusion, following a renegotiation of IFC debt, to help the company survive and build back to profitability. It wasn’t immediately clear that the approach would succeed, but it did. SELCO has remained profitable ever since, and has offered a dividend payment to its investors for the last several years.
But the company’s greatest achievement cannot be counted monetarily. Its true success has been measured in the transformation of the lives of the hundreds of thousands of families and businesses, schools and clinics it has served. They have all benefited from having off-grid solar power, either as their introduction to electricity, or – increasingly – to help provide a reliable source of energy to complement still-unreliable grid power.
As we reflect on our time on the board, we want to share 10 lessons that these many years working with SELCO have taught us. We offer them up hoping they may be helpful to other impact investors and social entrepreneurs across the off-grid energy sector:
Find investors who bring more than money
Social enterprises need to identify and work with equity investors that fully align with the values/principles and mission of the company. That is, they need investors who bring “more than money.” This requires the CEO and senior management at the company to be transparent with those investors about their business plans, and to develop financial models built on realistic projections.
Find an acceptable financial return and maximize the social return
These wise words were given to Richenda in 2007 by a colleague at Good Energies, and they made eminent sense then. They remain a guiding principle for our work with investors and small businesses, including SELCO.
Embed the mission in shareholder agreements
Having its social mission front and center in the shareholder agreement provided comfort to SELCO’s founding CEO, Harish Hande. He was rightly worried about the risk potential for bringing on investors not totally aligned with the mission, who might try to take the company in a different direction over time.
Put your vision ahead of trends and hype
SELCO has remained faithful to its vision, refusing to be swayed by sector or investor hype or the latest business model trends. The company had a vision for its business model and how to address customer affordability. When Pay as You Go (PAYG) took off, it became the dominant approach for energy access for off-grid customers. SELCO observed this new market and concluded that for its customers and context in India, it didn’t fit. It has shown that there remains a successful energy access sector beyond PAYG. Don’t dismiss it.
An inspiring leader is not enough
A brilliant, visionary CEO is massively inspirational, but not enough. Harish Hande, the company’s Magsaysay award-winning CEO, has said that the only job he ever wanted was to work in SELCO. But at a certain point it became clear that SELCO had outgrown its early systems. Rather than undertake the typically painful founder replacement process seen often in the venture capital industry, Hande stepped aside as CEO and became Chair of the Board, and SELCO brought in a new operations team, with Revathi Kannan as the president and Mohan Hegde as the COO. This required the acceptance of a woman president in a still patriarchal society, but the move quickly brought results: Kannan came to SELCO as a top Indian accounting graduate. Unheralded at the time and very modest, she successfully strengthened the internal financial management systems that anchored the company’s further growth and success. When she decided to step back after several years, to make sure more grassroots colleagues took over prominent positions, she left a stronger business in her wake. Women’s leadership works.
Don’t succumb to pressure to scale too quickly
SELCO – and individually, we as board members – came under pressure from outside investors and others over the years to scale SELCO rapidly. But for SELCO, scaling meant steady growth, plus an open-source approach to training others – from early-stage energy enterprises to policy makers – in its processes to help build the sector. It recognized that India’s diverse array of energy challenges couldn’t be addressed through just one social enterprise. So instead of focusing only on maximizing growth, SELCO has grown in part by diversifying. It started this process first with a separate SELCO Foundation, established in 2010 to help with needed R&D to innovate solutions for customers for whom a commercial approach is not accessible. It also focused more on the poorer parts of the country, and even launched an investment fund to invest in local social entrepreneurs tackling energy access challenges across India.
Focus on the right metrics of success
SELCO has never been only about the number of electricity connections it makes. It has always been about helping people and families solve their energy challenges, backed up by reliable after-sales service provided through 60 sales and service centers. It views itself as a provider of solar energy solutions, aggregated from a range of manufacturers, as a means for households, schools and micro-businesses to solve a problem. This approach has underpinned the growth of the business and built the trust of its customers and partners. This may be one of the most distinctive characteristics of the company.
Invest in your team
SELCO has always invested in its team, nurturing, coaching and building them up. During the pandemic, its primary concern has been to ensure that employees and their families are taken care of. It was able to provide modest cash payments to those families, and has avoided making any layoffs. This approach has also provided a pipeline of new leadership: SELCO’s current CEO, Mohan Hegde, comes from the ranks of the early team. With 20 years of service at the company, he was supported and nurtured in leadership positions over the years.
Seek out beneficial partnerships
SELCO’s success has relied on a carefully nurtured ecosystem of support, and these strong partnerships have helped enormously. SELCO’s growth has been supported through its longstanding partnerships with regional banks, built on banker-to-banker outreach and through relationships with local Indian microfinance institutions like SKDRDP. It has developed a deep understanding of customers’ needs, and has relied on closely aligned partner organizations to help meet those needs.
Don’t overlook the social impact of job creation
SELCO has always been a job creator, and providing employment amplifies its social impact. Today more than 800 people work across the SELCO family, as local sales and service staff, and in the SELCO Foundation and SELCO Fund. SELCO’s services have also created thousands of additional jobs across Karnataka and in other Indian states. The company has collaborated with microfinance organizations, rural banks and other financial institutions to increase access to revenue-generating appliances, which has enabled local smallholder farmers and entrepreneurs to grow their enterprises and hire others in their communities. It has also seeded local job creation by supporting social entrepreneurs across Africa. This includes through the SDG7 Hubs project, in which SELCO Foundation is partnering with the Aspen Network of Development Entrepreneurs, Sustainable Energy for All, IRENA and others.
There are only nine years remaining until 2030, when the world pledged to achieve the global goal of universal energy access outlined in Sustainable Development Goal 7. Yet nearly 800 million people globally still lack access to even basic electricity to power their children’s education, their homes, their workplaces and their health care centers – even during a global pandemic (though SELCO Foundation has been helping on that one).
Today, though off-grid energy companies and their customers are still struggling due to COVID-19, there is strong evidence that customers value access to electricity. While their payments may be late, many have chosen to spend their lean incomes on energy access. SELCO’s 2020 sales levels show continuing demand for access to energy and the life-enhancing services it powers. As the world moves toward a period of pandemic-focused stimulus and efforts to build back better, we therefore encourage investors of all stripes to look at the off-grid renewable energy sector and assess the acceptable financial return and maximized social return that these companies can deliver. We encourage those same off-grid energy enterprises, and the impact investors and business capacity developers that support them, to reflect on the 10 lessons we’ve shared above. We feel that after 26 years and hundreds of thousands of improved lives and livelihoods, SELCO’s work is well worth learning from.
Photo courtesy of DFID – UK Department for International Development.