High expectations of entrepreneurs, hard assessments by BIF and IAP: 2 new reviews
Just how big is the gap between what entrepreneurs say they will achieve, and what happens in practice? And in the absence of a crystal ball, what tools and criteria do we use to assess the likely trajectory?
These questions are addressed in two analyses recently published by the Business Innovation Facility, in its Portfolio Review at the end of Year 2, and Innovations Against Poverty in its Analysis of Cycle 2.
The two programmes both aim to facilitate development of inclusive businesses, though the portfolios are different.
Over half the majority of companies supported by the Business Innovation Facility are large companies, building out from their core business to develop a model that is inclusive. One third are small companies whose core business model is inclusive and growing from a small base. While most are at early stages, the total portfolio already reaches 1.9 million people at the Base of the Pyramid.
In the first and second Cycle of Innovations Against Poverty applications, the vast majority were small companies, at early stages of inclusive business development, mostly operating in Africa.
The BIF Review goes beyond describing the type of company and business model, to assessing whether they have low, medium or high likelihood of reaching commercial viability and development impact. While the majority of projects rank ‘medium’ on both counts, some variation is already emerging. Three projects already rank ‘high’ on both indices. If ambitious estimates translate into success, particularly in the projects focusing on low-income consumers, the portfolio could reach 3.5 million people by the end of 2013.
Of 236 applicants to IAP’s second Cycle of funding, only 11 (5%) received a grant.
The IAP analysis does not only describe the sectoral and geographic characteristics of applicants and successful grantees, but looks at how they fared in the application process. On average, unsuccessful applicants scored substantially lower than successful ones on the commercial viability criteria and on development impact. The difference on other IAP criteria (innovation, additionality)and cost-sharing commitment) was smaller.
Agricultural projects are by far the largest group of applicants so far, but have a low success rate: just 7% compared to 15-19% for projects in the energy, health and sanitation sectors. The unsuccessful agricultural projects clearly scored lower on both commercial viability and on innovation, compared to the successful ones.
These two reviews by BIF and IAP are comparing different things: BIF the current operational portfolio of just over 30 projects, IAP the hundreds of applicants and their conversion into an handful of grantees. But both are providing rich information on the diversity of inclusive business hopefuls. Both large and small companies, established and start-up, emerge as good prospects for inclusive business. While producer-focused supply chain projects may do well, consumer-focused projects selling goods and services to low-income markets clearly offer high potential for growth and success at scale.
The reviews tackle in different ways the gap between high expectations of entrepreneurs and what a donor-programme can support and can truly expect them to deliver. Ideas and enthusiasm are abundant. Strong business plans are less common. But in both programmes there are initiatives that have a strong case for combining commercial and development success. We expect only a minority to truly reach scale, but it is difficult at this stage to predict which of the companies covered in these reviews will be familiar case studies of success a decade from now.