Tough choices: the top five issues providers of advisory support need to crack
"So, the landscape is messy... there are no guiding rules on what works best"...this was one of the first reactions when discussing our initial findings that emerged from reviewing the landscape of non-financial support to inclusive businesses, with team members of USAID's acceleration team earlier this year.
But as we interviewed organizations and heard how they are improving their offer, we found the challenges they are tackling fall neatly into five operational issues:
1) Enterprise outreach, selection and allocation of support
Organizations that provide only advisory support, such as accelerators, usually need to create a portfolio of clients through outreach and selection. This process needs careful design. Reaching the 'right' enterprises - most in need of the support, most able to absorb it, and most suitable against the provider's objectives - is difficult. The degree of selectivity of applicants varies. There is some evidence that selectivity pays off, yet investment for selection needs to be in balance with volume/value of support.
Some providers of advisory support already have a pre-selected portfolio of investees or grantees. A challenge fund or impact investor, for example, has a defined pool of companies and has to choose how to allocate advisory support across them. Equal allocation amongst investees is easy and transparent, but may not be the most effective. Differentiating the level of support between enterprises enables interventions to be targeted to those likely to make good use of it; predicting additionality, however, can be hard in practice.
Selection and allocation of support are difficult precisely because fundamental questions in the space remain unanswered. These are: how much extra value can enterprises generate due to advisory support, does value exceed cost, and which ones can do most? In the absence of this, there is a risk of wasting resource on enterprises that are artificially kept alive due to support, that will fail anyway despite support, that flourish anyway irrespective of support, or change little due to the support.
2) Assessing enterprise needs and designing support packages
Assessing enterprise needs and tailoring support is the most important aspect of effective support. Tools range from intense, but unstructured dialogue between enterprises and support providers to structured tools like application and assessment forms, often used in combination. Experience shows that different issues need to be addressed to ensure the effectiveness of needs assessment:
- Entrepreneurs may have a too narrow or incorrect perception of what they need, so self-assessment alone is not ideal. For example, many think capital is their biggest and immediate constraint, and whilst this may be true for some, often in reality this turns out to be not the case.
- Needs assessment requires a certain skillset. It is time consuming but beneficial, and indeed already an indirect way of providing support.
- Enterprise needs are not static, so once understood, they need to be addressed rapidly. And later will need to be assessed again.
- Enterprise capacity to absorb support should be assessed. This includes enterprise commitment and buy-in.
There is a risk, particularly for donor-funded programs with specific development objectives, that true needs of enterprises applying or selected do not match donor objectives for the support. In other words, entrepreneurs that do apply may think any free support is better than nothing, but in reality, may have needs that are unlikely to be addressed by what the program offers.
Once needs are understood, how to actually choose which tools to use is the next step. The array of tools and their pros and cons is covered by my colleague Christian in 'Types and tools of advisory support'.
3) Selection of service providers
Service providers can be internal or external to the organization managing the overall support offer. In practice, there is often a mix of both, with hands-on fund/program management combined with external one-to-one experts, although the support provided by internal management teams may not always be classified as advisory support. Finding the right external provider is key, both with respect to skills and expertise but also regarding fit/relationship with the client. We heard tales where the international expert added great value, and tales where they simply didn't fit, didn't get the problem, missed the right solution for the context. Needless to say, involving enterprises in the selection process is important.
4) Pricing of support
Approaches to pricing advisory support are evolving fairly rapidly. Current options for the contribution expected from the enterprise range from nothing except their participation, in-kind match funding, financial match funding, a percentage share of an investment, equity stake, or fees for services (fully commercial or subsidized prices). Some see a gradual trend towards greater enterprise contributions.
There are three drivers underpinning the evolution of new pricing models:
- desire for enterprises to co-invest; payment is one way to ensure 'skin in the game;'
- appreciation that they might not be able to afford to pay at the time they need advisory support most; so payment either needs to be small or delayed;
- desire to develop a more sustainable ecosystem for Business Development Services: a long-term financing mechanism that enables growth of high-quality support services needs contributions from enterprises, but cannot rely on this alone.
Models based on deferred fees and a blend of client and donor financing are emerging to reconcile these three pressures.
5) Progress monitoring and gathering of feedback
Some advisory support is highly valued. Some is not. Do not assume it's always effective! So feedback to improve the offer is essential. Some organizations have substantially changed what they provide, how or by whom, based on feedback.
Providers can build in feedback gates at multiple stages of the cycle: feedback on each event or delivery of advice and feedback annually on providers, and on the overall offer.
In addition to specific lessons across the five operational issues, we identify the importance of two cross-cutting principles in matching clients’ needs and the service provider's offer.
- Respecting core business fundamentals: business success will depend on a lot of the 'boring stuff' which any business needs. The ultimate value of advisory support will depend on whether the enterprise gets these in place. Value will also depend on whether advisory support is aligned with business processes, particularly calendars and timing.
- Carefully designing and defining the service offer: although flexibility is needed, so is clarity. Clarity on what is and is not provided should reduce the risk of deploying support to enterprises that cannot make good use of it. As the landscape of support gets more crowded it is ever more important to clarify what services fit where.
This blog covers some of the key findings from a forthcoming USAID Report Landscape survey on acceleration and technical assistance for inclusive business.
The authors of the blog were part of the authorial team of the report, from Ashley Insight and Endeva. More blogs covering other aspects of this report include:
- Types and tools of non-financial advisory support
- 5 lessons learnt on providing non-financial support to inclusive businesses
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.