Guest post by Mary Mwangi and Brenda Wangari
In recent years, we have seen more capacity building support directed towards locally-led enterprise support organizations (ESOs) such as accelerators, incubators, seed funds and consulting practices. These ESOs are at the frontline, providing critical business development services to local entrepreneurs. In Africa and many developing regions, such entrepreneurs are key drivers of job creation, innovation and social and economic development.
However, the challenge is that many ESOs are small and growing businesses themselves, facing the same challenges as those they support, such as attracting and retaining the talent they need, understanding the market and their position, and designing programs and services with the user in mind.
Argidius Foundation embarked on a journey to find out what effective business support services look like. Over seven years, the foundation supported over 50 ESOs active in East Africa and Central America. Each ESO tracked the performance of the businesses it supported for up to five years, and reported on changes in revenue, jobs created and financing secured. The foundation supported external evaluations of the different programs to identify the drivers of effectiveness and areas for improvement.
Additionally, Argidius Foundation along with others supported the Global Accelerator Learning Initiative (GALI), which tracked enterprise performance data from over 300 global accelerators that support early-stage, growth-driven startups through training, mentorship, and financing.
Through these efforts, Argidius Foundation identified five critical factors that distinguish impactful business development services from the other kind. These practices were codified in the SCALE framework. SCALE provides a set of evidence-based good practices that improve the effectiveness of business support programs.
“SCALE has been designed as a package that helps any ESO to redesign their programming. People have adopted many mixes to build better results. It’s deliberately designed not to be a prescriptive framework of do this one thing, but rather here is a way to think differently about how you deliver services to improve your effectiveness” Nicholas Colloff, Executive Director, Argidius Foundation
Selection is all about getting the right intervention for the right business at the right stage of its development. For business development services (BDS) to be effective, they must be targeted and tailored. There is no one-size-fits-all solution in BDS. Good selection criteria help the ESO tailor their interventions to specific profiles of enterprises. For cohort-based programs, selecting the right mix of entrepreneurs facilitates peer-to-peer learning. Thoughtful selection helps ESOs identify entrepreneurs who are motivated to grow and ready to make the necessary changes to succeed. Designing multi-stage interventions where the intensity of support increases as the businesses evolve is an effective way to ensuring that ESOs invest their limited resources in the businesses that are best placed to put what they are learning into practice. Leveraging relationships with current and former clients and partners is also a good way to ensure that your pipeline is filled with businesses that meet your selection criteria.
Charging for BDS supports effective selection as businesses will only pay for services that they see value in. Additionally, when enterprises pay for BDS, they have skin in the game and are likely to be more engaged and driven to turn this investment into the business outcomes they want. The million-dollar question is, “How does an ESO determine the right price point?” The answer is testing, testing and more testing. Test different pricing models to find the right model for you and your clients. For example, freemium-premium models where some content or part of the intervention is offered for free but the enterprise is required to pay for additional support. Or you could opt for a shared success model where the fee is based on mutually agreed upon outputs or outcomes. This could take the form of a share of equity or equity participation. An ESO could also charge a commitment fee paid at the beginning of the program which the enterprise can get back (or a percentage of it) on meeting set participation criteria. Ensure that the model chosen is a good fit for your organization and consider the capacity and costs involved in realizing these revenues. ESOs should also test the price point. Too low and you lose the desired impact on engagement, too high and you might price yourself out of your target market.
The third characteristic is addressing problems. You would not believe the amount of business training that simply follows a curriculum of what people think (often rightly) that a business should know, delivered to a fixed sequence, and then has no discernible effect. People learn best by solving problems. ESOs should help entrepreneurs identify and define their specific problems in real time. The ESO can support the client to design tailored interventions to address their specific challenges, then help them learn how not to have that problem again. Involving peers who have faced and overcome similar challenges is also an effective and motivating way of addressing problems.
Evaluating enterprise performance is the fourth characteristic. Most ESOs collect data; lots of it. More often than not, these data are collected to fulfil reporting requirements. While it might keep their funders happy, this does not help ESOs learn about and improve their own performance. ESOs need to invest in measuring the extent to which enterprises supported are growing and how the intervention is contributing to that growth. Gathering feedback to understand what is working and what is not should be a priority. ESOs then need to turn these insights into program improvements. The capacity to collect appropriate data and turn that data into insights that inform program design requires significant investment in the organization’s internal capacity beyond any individual program.
This brings us to our last characteristic, leading by example. ESOs are often wounded healers. Like the enterprises they support, they need help to overcome the barriers to their own growth. An ESO needs to have a clear and focused strategy with the leadership and capacity to deliver on it. This requires access to appropriate finance to invest in building teams, capacity, systems and governance structures that ensure that the organization has the resources it needs to deliver on its mission and is accountable to its stakeholders. Unfortunately, most of the funding available for ESOs is program-restricted and /or short term, leaving little room for them to invest in their own development. While this is starting to change, ESOs need to diversify away from relying on restricted program funding.
One case study highlighted in the SCALE report is Village Capital. For the last 10+ years Village Capital has specialized in supporting high-growth-potential impact ventures around the world. They learnt through GALI and adjusted how they delivered programs to improve their effectiveness. For example: focusing on quality over quantity of applicant pools, detailed program design focused on reflective rather than prescriptive tools, and a strong emphasis on good mentor matching. They have used many of the key tenets of the SCALE framework directly in their investment-readiness programs to support over 1500 ventures to raise over $4bn in follow-on capital and service over 40 million customers.
In 2020, Village Capital in collaboration with Argidius worked with 13 locally-led ESOs in the Uganda Ecosystem Builders program, an ESO Accelerator. One participant, Kyusa, is a non-profit that incubates and provides micro-grant funding and business development consulting for small and micro youth-led businesses. Some of the businesses they have supported include a graphic design studio in an informal settlement and food production business selling groundnut paste:
“After seven years of offering free services, the program challenged us to shift from offering free programs to paid-for services and we have not turned back. The start was slow, but we have been able to attract a new calibre of start-up entrepreneurs that are able and willing to pay. The beauty of paid-for programs is that participants are way more active in the program. They feel the pinch of their money. We are also attracting entrepreneurs who are more committed to growing their businesses. This move has helped us diversify our revenue streams and we are putting a little more weight on generating earned revenue. We are clear about how and who we are targeting. Going through the program was a real wake-up call for us. We are certain that no matter the changing tides we can stay afloat with the new business model we are using.” Noeline Kirabo, Executive Director – Kyusa, Uganda.
Results shared by Kyusa and other ESOs in the Uganda program who have embedded SCALE are promising. They are adding to a growing body of evidence of practitioners who have increased their impact on the businesses they support by implementing these practices.