Francisco Noguera

Net Impact: Unreasonable People and The Role of Entrepreneurs in Shaping Tomorrow’s Markets

JElkingtonLast Saturday morning was gray, rainy and windy in Philadelphia, but it didn’t keep the Net Impact conference from building momentum. I began the day attending a session led by the Base of the Pyramid Protocol team. It was interesting to get a closer feel of this tool; a detailed summary of the session will be posted here in NextBillion by its organizers (NextBillion co-founder John Paul, Patrick Donaheau, and others) so stay tuned for that.

At the end of this session I walked down to prepare for the next panel “Unreasonable People: The Role of Entrepreneurs in Shaping Tomorrow’s Markets”. It was moderated by Virginia Barreiro, Global Director of New Ventures at WRI. Panelists were Agnes Dasewicz from the Grassroots Business Fund, Ben Powell from Agora Partnerships and John Elkington, co-founder of Volans Ventures and author of the book that inspired the panel’s title. ?WRI’s New Ventures team decided to host this panel and spark a conversation about the role of intermediaries like those represented by the panelists in supporting entrepreneurial solutions to the challenges of poverty and environmental degradation. We believe that the conversation was timely due to the critical stage that this “sector” and the world’s economy as a whole is undergoing. As expected, the panelists and an audience of ca. 80 students and professionals delivered a dynamic and thought provoking session.

Following is a summary of the issues discussed. (By the way, several questions remained unanswered after the panel due to time constraints; if you are interested in following up with the panelists on any of the topics discussed, please comment below. We’d be glad to keep the conversation going here in NextBillion).

Quoting Katherine Fulton’s remarks at the Social Capital Markets Conference, we believe that there is a strong call for the sector to overcome its current stage? of “uncoordinated innovation” and enter a period of definitions, increased efficiency, coherence, one of proven results and impact; one in which efficiency and coherence is needed on behalf of the organizations that are working to help entrepreneurs get their ventures off the ground; one that places greater less emphasis on spotlighting entrepreneurs and shifts attention to institutions and organizations; one in which environmental sustainability is viewed as a core component of any entrepreneurial venture.

Virginia began by inquiring about the panelists’ about their personal motivations to get involved in the space of entrepreneurial solutions to social and environmental challenges. Agnes began by reminding the audience about the origins of IFC’s Grassroots Business Initiative and how it eventually turned into Grassroots Business Fund. GBF support organizations that have a chance to attract commercial financing, replicate and/ or scale up their models, not only locally but globally. These organizations face constraints to access commercial capital, and most importantly, capital different to that offered by an organization like IFC or the World Bank. This realization motivated Agnes and GBI to create an organization suited kind of businesses needing different financing than the one World Bank was positioned to offer.

Ben’s story is quite different. He began by starting a miniature golf course in Mexico, thus realizing the power of small businesses to provide economic opportunity for the poor. That led Ben to conceive an organization that could support these small businesses and effectively bring them to “the next level”. He devoted his time as a student at Columbia Business School to conceive a two-fold project that was able to advice small business entrepreneurs and provide them with investment to strengthen and grow their ventures in Nicaragua. The result is Agora Partnerships, which he now runs together with his partner Ricardo Teran and will soon expand into other countries of Central America.

John Elkington was next. Mr. Elkington’s experience goes back a long way when he was involved with the beginnings of SustainAbility (long before the term gained the buzz it enjoys nowadays). He also worked with the Schwab Foundation for Social Entrepreneurship, equally supporting this movement and that of corporate citizenship from its very beginnings. His latest commitments involve Volans Ventures and seek to bring to social ventures the same principles he has applied in his work with large corporations through SustainAbility and other endeavors. Through Volans, he is supporting the growth of a new generation of social enterprises, focusing on the issue of scalability.

After this introduction, Virginia turned the panel to address the question of “where this space is going” and what the “next frontier is”. Ben began by remarking his vision of what may come out of the Aspen Network of Development Entrepreneurs initiative. The idea is to build a movement similar to that of microfinance, this time focused on the segment of small and growing businesses under the premise of promoting formal economy ventures, which is where real value is captured, real innovation takes place and real high-value jobs are created for the most vulnerable segments of the population. Building a coherent and efficient ecosystem of support for this segment is an enormous task, and it requires donors and foundations to provide subsidies for patient capital and technical assistance to be delivered to these businesses. It also requires standardized ways to measure social and environmental impacts, which ultimately make the case of why this work adds value to the society.

In fact, this movement is now facing a tipping point. Granted, the Friedmanesque view of “maximizing social value by maximizing profits” is no longer viewed as sustainable, and a handful of intermediary organizations have been able to assist successful businesses in this space and achieve considerable scale in their operations. Yet this is the time to really prove that this approach to face social and environmental challenges (supporting small businesses in developing countries) can really achieve the results so many praise and hope for. In Ben’s words, “the low hanging fruit, most of the best small businesses have already been invested in. The question now is how to go deeper and find the next generation of businesses that can maximize social impacts.”

Agnes’ view is a bit more skeptical, especially in the midst of an economic crisis. Her view is that the investment aspect of this space will be hurt and tighter times may be underway for the organizations looking to invest in this space, which calls for innovative ways to address funding challenges. John Elkington backed Agnes in her skepticism; in fact, his assertions predicted a harder and longer crisis than most analysts have assessed. Acknowledging that he many as well be playing the role of a “Halloween monster”, he predicted an economic dowturn lasting at least another eight or nine years.

Two other aspects discussed during the panel. The first was the need to shift the focus from the “entrepreneurial superstars” to lasting institutions and organizations. In John Elkington’s words “… very often it’s not only about finance; the brokerage function of these organizations (brokerage of knowledge, best practices, contacts, management tools, etc.) is what’s most critical.”?

The second one was the need to incorporate principles of environmental sustainability in the activities carried out by intermediaries. A lot was commented on this issue but I found Agnes Dasewicz’s view to be the most compelling one. Although every organization acknowledges the importance of incorporating environmental impact considerations in their investment, they simply lack the capacity to make this assessment with the rigorousness it requires. This may sound simple and rather obvious, but it was perhaps the most important I heard in all the discussion. It leads me to end of this post with the following thought.

The next step is for this space to become a true ecosystem of support for small businesses. But ecosystems, by definition, are complex and diverse. Let me put it this way: this space doesn’t need a lot of new investment funds. Instead, existing funds need to grow and become very, very good in designing innovative financial vehicles, in writing up the term sheets for these deals to happen. Likewise, organizations that focus on mentoring must become better and better in mentoring, avoiding the temptation of creating funds of their own. Also, a new breadth of organizations who understand the challenges of horizontal disciplines (like environmental due diligence, impact assessment, credit rating, etc.) must surface and assist all the funds, mentors and others in this spectrum.

Hopefully, ANDE will be a forum for this trend to materialize. Meanwhile, thank you for reading and to those of you who attended the panel. Comments and further questions are welcome and encouraged.