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4.0 Learning by doing: Enterprise solutions to poverty

Guest post by: Shell Foundation

Article Overview: the Shell Foundation experience in catalysing pro-poor enterprise development

4.0 Learning by doing: Enterprise solutions to poverty

Since its launch in June 2000, the Shell
Foundation has been pursuing a structured journey
to learn how market forces can be harnessed to get
affordable products and services to poor people,
and which interventions and what kind of agents
are most effective at catalysing the emergence and
growth of pro-poor enterprise – especially SMEs.

We’ve also explored how best to take advantage of
the corporate environment we operate in so as to
advance our charitable objectives and have observed
carefully under what conditions and through what
mechanisms large companies can most effectively
contribute to development in general and pro-poor
enterprise growth in particular.

At the outset of our journey we acted much like a
traditional foundation. We consulted widely,
publicised our areas of interest and then sifted
through countless proposals submitted by professional
NGOs and non-profit organisations. We
used rigorous selection criteria to decide between
proposals and wound up using our grant money to
support a large number of relatively small, one-off
projects scattered across many countries.

Most early projects were competently completed
by our grantees. But for reasons explained below,
we now judge many of these to have ‘failed’
because they did not leave behind initiatives
capable of surviving or going to scale without our
ongoing support or that of other donors.

Largely in response to that experience, we have been
deliberately evolving to something more akin to a
‘social merchant bank’. In essence, this means we
work with strategic partners and jointly deploy our
money, project development and financial
engineering skills and networks to launch what we
hope will ultimately become scalable, financially
viable enterprise – and market-based initiatives
that deliver measurable financial and social (propoor
and pro-environment) returns. (see annex 1)

There is still more to learn. But over time our
approach has begun to bed down and has started
to generate interesting insights and some
encouraging results. And it is this accumulated
experience that provides the empirical grounding
for the four aspects of the Shell Foundation
‘approach’ we describe below and illustrate with
examples in Section 3.

Financial viability

When we consider providing support to a propoor
enterprise either directly or indirectly through
some form of intervention or initiative, our
experience23 leads us to look first at how the issue
of financial viability is treated by other finance, by
those running the implementing of the
intervention and by the enterprise themselves. If
financial viability is not given primacy in their
plans and actions, we do not offer support.

The reasoning is simple. Achieving financial
viability is not just about ‘making a profit’. Many
things happen as pro-poor enterprises become
financially viable. First, they rely less and less on
relatively scarce aid money, which is a good thing.

Second, achieving financial viability usually means
they can start to grow, thus employing more poor
people directly or through their suppliers. Third,
through the ongoing process of innovation and
problem-solving that accompanies growing
financial viability, they are able to provide more of
their customers – poor people – with more
appropriate and more affordable goods and services.

Our experience is that the best way we, as a donor,
can help this process of poverty reduction is by
ensuring our support is provided on terms that
help and require the target enterprises to become
ever more innovative, efficient and profitable at
what they do as a business.

Going to scale with local
capital and local capacities

We next look at the interventions proposed to us
(financing schemes, training programmes,
enterprise incubators, market development
projects) and assess whether they are designed to
‘go to scale’ (via growth or replication) using local
capital and local capacities.

Again, the reasons are straightforward. There will
never be enough aid to provide the support
required to the millions of pro-poor enterprises
that need it. So the reach and scaleability of any
aid or donor-funded interventions will always be
severely limited compared with need.

Moreover, foreign grant money – however well
intentioned – almost always comes bundled with
other things – distant knowledge, foreign skills, other agendas – whose presence for too long can
‘inhibit’ learning opportunities for the enterprises
and local support institutions in ways that increase
risk and inhibit growth.

Foreign support can play a vital seed-capital role –
and indeed is doing so in the current wave of propoor
private equity funds and ‘blended value’
investment vehicles focused on providing financial
support for a scattered portfolio of social
entrepreneurs.

However, what we look for are pro-poor enterprise
or pro-poor consumer interventions that are
designed to be taken up as quickly as possible by
local suppliers – of capital and skills – and whose
income stream has the potential to become less
and less dependent on grant funding. Essentially,
we set out to use our funding and other assets to
‘buy down’ the risks associated with the
engagement of local capital and capacity in local
enterprise development.

Transferring business DNA

We have found that if our interventions are to
successfully feature viability and scaleability, then
our partners need to be adept at applying business
thinking and business principles to how they
operate and to the interventions they propose.

What we have in mind here is the deployment by
our partners of the same set of skills and
entrepreneurial instincts – what we call ‘business
DNA’ – that business people everywhere use to
identify and assess business opportunities and then
overcome the problems that must be solved en
route to setting up and operating an enterprise.

These include understanding the market and
knowing who your customer is, what they want
and will pay for. It also means assessing and
dealing with risk, instinctively seeking to keep costs
down and ensuring the security and quality of
input and final product supply and distribution.

Our experience suggests that the presence of
business DNA in our partners usually means they
will be particularly enterprising as they search for
solutions. And as a consequence, they are best able
to convert our support as a donor into large
numbers of pro-poor enterprises able to survive
and grow after the subsidy stops.

Obviously more than just business DNA is needed
to cope with the complexities of running an
enterprise in the context of poverty. Indeed, the
ideal is where best practice from the poverty and
business worlds can be integrated. And of course,
there are IDC with no business record who have
been able to engineer successful pro-poor
enterprise interventions that also deliver valuable
social benefits.

But our experience is that most actors from the
non-profit or the public sector do not take easily to
the business way of tackling problems – even if
they ‘talk the talk’ of business. This is not a
criticism or anybody’s fault. It is simply a
recognition that either by virtue of education,
experience or inclination, many civil society actors
(at all levels in the IDC and including policy
makers and policy advisers in developing countries)
do not have business DNA in their make-up. They
are, in effect, commercially illiterate. And, in our
opinion, these characteristics greatly reduce their
ability to develop successful business – and marketoriented
solutions to poverty. Indeed, the
widespread lack of business DNA and real
commercial experience in the international
development supply chain arguably reduces the
ability of the IDC to solve many poverty
problems.

And in our opinion the absence of this greatly
reduces their ability to develop successful business
– and market-oriented solutions to poverty. So in
the case of our partners, and of course with their
permission and full engagement, we put a good
deal of effort into transferring businesses DNA
into them via various routes set out in the case
studies to follow.

Harnessing the valuecreating
assets of MNCs

Our core arguments so far – that enterprise and
business DNA are keys to eradicating poverty and
that a great deal more of both are needed –
underpin the social benefits offered by the final
element of our approach.

Simply put, our experience as a donor operating
alongside a major multinational has convinced us
that big companies possess a wide-ranging set of
tangible and intangible ‘assets’ that can be of huge
value in the fight against poverty, especially via an enterprise-focused attack. So we consciously and
transparently seek to deploy these assets in support
of our work and that of our external partners
wherever we can.

The ‘assets’ we are referring to fall into three
categories:

First and most fundamentally, established
business is a vast repository of the generalised
business DNA that is encapsulated in people,
knowledge and techniques likely to be found in
great profusion, especially in big business.

The second asset category falls under the
heading of ‘convening power’. This is shorthand
for the subtle and overt ways by which a
company’s track record, reputation, brand,
political reach and financial clout makes other
people listen and respond to what the company
has to say.

And the third category includes the company –
and sector-specific physical and market
knowledge-based assets that lie at the core of the
unique processes of value creation and capture
on which every company relies.

Usually, all these asset classes are fully and properly
deployed in the interests of the business and its
shareholders. And when business operates well in
developing countries, this is a huge source of social
value via jobs created, taxes paid, technology
transferred, and so on. But typically these are not
the assets MNCs offer, or are asked to use, in order
to discharge their CSR or sustainable development
commitments.

What our experience suggests is that deployment
of these private value-creating assets via pro-poor
enterprise interventions, could offer a huge but still
unrealised contribution to the efforts of the IDC
and poor countries to make poverty history.

Related Articles
  6.3 Come Together: Enterprise solutions to poverty
  6.0 Propositions and conclusion: Enterprise solutions to poverty
  1.15 Building an employment agenda: Working Out of Poverty
  1.9 Building local development through cooperatives: Working Out of Poverty
  1.19 Building trust: Working Out of Poverty

Article Tags: development, enterprise, enterprise, enterprise growth, Financial viability, intervention, poor people, Shell Foundation, Shell Foundation, viable enterprise



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