A reflection on the big picture and nitty gritty of TAF's core business support to SMEs

“At Databank we have come to embrace the challenges which accompany a technical assistance facility, such as the close monitoring and constant review required to ensure convergence of commercial and development objectives. Through experiencing this strategic partnership with TAF, our conclusion is that for private equity investors to provide excellent returns, and at the same time achieve impact at both business and community level, there is greater need to continue using blended investor models.”

Dennis Matangira, Senior Managing Partner, Databank Agrifund Manager Ltd

The challenge

The Technical Assistance Facility (TAF) of the African Agriculture Fund (AAF) is in its sixth year. As a public-private partnership that seeks to increase the development impact of the AAF investments, TAF has been instrumental not only leveraging private sector capital to enhance the lives of beneficiaries in portfolio company value chains, it has also succeeded in lifting the portfolio of growing companies into the next growth phase. This is especially so with the TAF SME Component which provides core business support to SMEs that have received investments from the AAF SME Fund (subsidiary fund of the AAF) independently managed by Databank Agrifund Manager Ltd.

The journey of assisting SMEs through their “growing pains” has been an interesting one to say the least. In traditional private equity, investments are made on the strength of the business model, the potential for returns and, importantly, the management team in place. In the traditional sense, the assumption is often that little needs to be done for the business from an operational point of view to generate adequate returns. More often than not, taking a company public or de-listing a company can do enough to generate the desired return for the fund manager and in developed markets, private equity transactions are typically arbitrage related.

Africa is a different beast and, coupled with an agriculture and food value chain investment focus, the architects of the AAF sought to challenge the traditional way of investing by blending capital from the private and public sector to ensure overall success. For the SME portfolio companies, TAF was given the mandate to provide robust post-investment support alongside the investments to ensure businesses meet their full potential. Context is important here, as some of these SMEs operate in markets that are highly concentrated, institutionalised and lack the adequate infrastructure to promote further investment in a sector. Some have typically been built off the back of institutional sales which are highly volatile and subject to political and ideological changes at very short notice. Businesses thus have to adapt to these dynamic conditions and ultimately ensure that their existence is predicated on the need to solve a pain point in the market as opposed to “filling a gap”.

The approach

Solving a pain-point requires big-picture and long-term thinking. Through the SME Component, TAF supports small, medium and growing businesses which typically don’t have the time or resources to think big and long term – they have to worry about funding salaries and wages at the end of each month and in some cases, this is never always guaranteed! Figuring out the pain-points typically leads to a greater understanding of the unique selling point(s) for the business and this can be illuminating especially where owners and CEOs are stuck in the day to day operations and don’t have the time to really reflect the solution or value addition that their business provides for its customers.

The design of TAF’s business development support (BDS) projects is something of a ‘panel beating’ exercise, where the TAF team, the Fund Manager and the companies themselves co-create practical ideas to build capacity and improve business performance. To ensure alignment and success, TAF has found this process needs to be guided by the following principles:

• Empathy – really getting to know the people at the heart of the enterprise and understanding their challenges and concerns.
• NOT prescribing – oftentimes businesses become jaded with external support especially when it comes in the form of prescribing certain interventions without really understanding and importantly listening to the people that are at the coalface of the business day in and day out.
• Distilling the big picture into actionable chunks – strategy for many businesses is short-term and impulsive and typically is reactionary in nature. By speaking directly to, and assisting with, the development of the vision, mission and values statement of the business, TAF is able to clearly understand and prioritise where BDS interventions will have the most impact.
• Local conditions matter – appreciating localised conditions and ensuring these are taken into account when designing interventions specifically about how they feed into the big picture of the business, is paramount. In a business context, assuming market systems, economies and people are the same across countries and even businesses typically leads to failure as what works in one scenario might not necessarily work in the other.

Bringing these four elements together allows for tangible BDS projects to be crafted that speak directly to the needs of the business and ensures that TAF is inextricably linked to their growth.

Into the nitty gritty

“It is not just about signing a contract with a service provider and getting on with it. A hands-on approach is essential. The TAF team need to be strong characters to work with the CEOs of AAF portfolio companies who are highly commercial and extremely busy dealing with the pressures of operating in difficult African environments.” Sarah Marchand, TAF Director, TechnoServe (2011-2015)

Well designed and targeted projects are one thing, ensuring that we get results is something else. Getting into the weeds of project implementation is paramount for the successful delivery of project outputs and involves a large amount of heavy lifting. Both service providers and companies require assistance with project management and specifically steering which we have found to be a useful tool to not only assist with guiding the direction of projects, but also holding both service providers and in some instances, businesses to account. For instance, Guanomad, a guano (bat manure)-based fertiliser business in Madagascar, was looking to expand into the export market and required assistance with a market entry strategy. TAF further identified that in order to penetrate these markets, product quality and consistency would have to be addressed given the stringent regulations in these markets. The unique nature of the inputs meant that applying an ISO 9001 or HACCP accreditation was simply not enough and that the business required a more bespoke solution to its quality management system.

The service provider contracted proposed an innovative solution but it was clear from the onset that TAF involvement was paramount to ensure the project had adequate buy-in from the business and that the service provider was well supported. From coordinating between stakeholders to literally assisting with the sample collection process in the caves where the guano is extracted, in many respects, we are not the sales people in the shiny suits, but rather the mechanics in the workshop.

This hands-on approach ensures that projects have a higher probability of success, companies have confidence that projects will return the desired outputs and importantly, project outcomes are linked back to key business metrics that speak directly to business owners. This last point is especially crucial – business owners don’t have time to peruse through reams of qualitative data, they want to know how this project is affecting the business from a financial perspective and TAF is often tasked with finding creative links and explaining these links qualitative indicators and business performance outcomes. With almost 14 BDS projects either in design, procurement or in progress, exciting times are ahead as TAF outcomes start to scale and “rolling up our sleeves” takes on a new meaning.

“TAF brings to my memory the song “you will never walk alone” as they have indeed been a huge pillar of support ... they have surpassed our expectations as they are constantly there to share ideas and help channel them in the right direction. TAF have become a great act in the Top Crust script.” Tosan Jemide, Managing Director, Top Crust, Nigeria

This blog is a part of the June 2017 series on advisory support for inclusive businesses in partnership with USAID and the African Agricultural Fund’s Technical Assistance Facility, both of which deliver advisory support and have new analysis of it just launched (AAF’s TAF) and forthcoming (USAID).

Read the full series for more lessons from seven different providers of advisory support and stories of success from entrepreneurs.