The disadvantaged sectors of the population not only require assistance to cover their basic needs; they also need that the conditions be created so that they can mobilize as producers. A way of achieving this is through inclusive ventures, new economic players who seek to combine equity with efficacy and responsibility. Who can help set them up? What is their approach and work methodology? How do they spot opportunities and get organized in order to seize them?In the November issue of Opinión Sur (1) we pointed out that support for disadvantaged sectors of the population cannot be limited to covering their basic needs during emergencies; what they need is that the conditions be created so that they can mobilize as producers. We stated that one of the strategic areas for entrepreneurial action towards capital formation at the base of the social pyramid is that of inclusive ventures. These represent a new way of structuring productive activities, which gives origin to a new economic player who seeks to combine equity with efficacy and responsibility. In this article we systematize the already sketched out characteristics of an inclusive venture and focus on introducing the subject of inclusive venture developers.
Characterization of an inclusive venture
An inclusive venture is a productive unit that brings together scattered small producers using modern business engineering. They are medium-sized organizations that, due to their scale and management capacity, are able to access more promising opportunities. They may take the form of a franchise, a cooperative, an export consortium, a service provider catering to the needs of a small producer network, a locomotive agribusiness or a community supermarket that organize and channel the production of small farmers.
In an inclusive venture small producers share in its ownership as well as in its results associated with local players (private, public or civil society stakeholders) and a strategic partner, who contribute knowledge, technology, access to contacts and markets, and modern ways of structuring and managing ventures. In today’s knowledge-based economy, non-financial added value weighs as much as, or more than, financial capital.
Ownership of an inclusive venture should be structured in such a way as not to hinder but, instead, ensure an effective management and full observance of its social and environmental responsibility. It will therefore be necessary to establish management and surveillance modalities and instances that may reconcile the owners’ interest to conduct a proper follow-up of the operation with the managerial flexibility required to ensure effective decision-making.
If it proves successful, the inclusive venture becomes an accumulation node; eventually, its surpluses might be allocated to other productive initiatives in the same value chain, thus securing the viability of projects that cannot be materialized today. Please refer to the example of the broccoli packer in the above-mentioned last month’s article.
In an inclusive venture, contact between different cultures and the existence of a diversity of interests pose challenges and tensions that need to be properly addressed. The small producer perspective, with executive functions fulfilled by an individual or a family, is not the same as that of a larger economic organization where specialized division of functions is a must. Likewise, values, attitudes and reactions in relation to success, effort and adversity of community organizations, small producers, strategic partners and local governments differ. In this context, it will be necessary to work with dexterity and transparency to build agreements and overcome misunderstandings between those seeking to contribute their effort so as to turn cultural and interest diversity into a valuable asset.
The outcome of an innovative experience such as a modern inclusive venture depends on who leads it, how it is articulated, and the degree of efficacy that is actually materialized. The risk consists in falling into a naive voluntarism or, driven by a cynical determinism, being skeptical about any innovation. What we need is to be certain about the course and goals, apply creativity, manage to align interests and know how to get organized in order to access opportunities in a sustainable manner. What remains to be answered is who might be in a position to promote the establishment of inclusive ventures and how it might do so.
The inclusive venture developer
This type of Developer is a unit specifically created to assist in the setup of inclusive ventures. It may be a private entity or a public-private partnership, having solid ties with the scientific and technological community. It should be run with a high level of professionalism by a reduced team having expertise in the business world and the ability to work in multicultural environments. Their job consists in spotting promising economic opportunities and organizing the way in which these can be seized, with the focus being placed on favoring low-income communities. The aim is not to create “poor people’s ghettos” but, rather, effective productive ventures. Hence, the Developer should strive to establish alliances with strategic partners who are capable of contributing contacts, information, modern business management and engineering, market and funding access.
An Inclusive Venture Developer is different from an incubator in that the latter operates by selecting entrepreneurs’ initiatives it sponsors via technical and logistic assistance until the start-up is mature enough to operate on its own. Conversely, this Developer sponsors inclusive ventures, whether existing or in the making (in which case, it receives them and provides them with assistance), or whether it has to identify opportunities and then structure the inclusive venture or ventures. Whatever the case may be, the business expertise of the Developers’ team is essential to spot opportunities that others overlook or would not know how to capitalize on.
A Developer studies local potentiality, assuming it will be possible to count on the complement of other technological, financial and organizational resources. That is, it does not just inventory what actions have been implemented so far in the community to sustain prospective new initiatives; rather than that, it seeks to determine what new actions might be tackled in an immediate future with the support of certain catalysts. On this basis, it explores expanding market niches in search of opportunities for developing businesses that may benefit groups of low-income families. Then it assesses ways in which an inclusive venture might be established so that it may capitalize on any of the opportunities identified, for which purpose it should define what stakeholders might take part in it, what purposes are to be sought, what supports are required, and what the general criteria will be for distributing possible results.
A Developer’s action is focused on bringing together scattered small producers into a medium-sized economic organization. Based on modern business engineering, the Developer, together with participating stakeholders, defines the appropriate venture structure, strategic orientation, managerial team and the accompaniment it will be in a position to offer. These elements having been defined, the inclusive venture’s managerial team is recruited, and it is such team the one who designs the first business plan and starts up operations.
The knowledge needed to successfully set up and run an inclusive venture is already available in the market; yet the opportunities for that knowledge, and the financial and organizational conditions required to transform it into a productive activity, to effectively reach the base of the social pyramid are scarce. Those who lag behind, or are marginalized, access residual or scrap knowledge and hence, in addition to the economic and financial gap, they are further faced with a huge information and knowledge gap. Closing that gap has become one of the greatest challenges encountered today in the fight against poverty and inequality in our countries in the Southern Hemisphere. An Inclusive Venture Developer is one of the various tools that may channel experience and knowledge of excellence to small-producer communities who today suffer from enormous disadvantages due to their isolation and minimum scale.
Synergy with microfinance entities
A Developer may complement and leverage its activity with that of a microfinance institution. The customer base of a microfinance entity is made up of small producers who are basically granted microcredits, which are necessary and worthy, yet insufficient to ensure their economic viability. The result of small production depends on several other conditioning factors: scale, market access, state-of-the-art management, insertion into promising value chains, etc. For its part, a microfinance entity needs to collect interest on the basis of the type of guarantee and operation expenses that its pulverized small credit portfolio requires.
By establishing and accompanying the management of an inclusive venture, a Developer solves several problems that condition the profitability of microfinance institutions. To begin with, small producers are no longer scattered; instead, they are integrated into a medium-sized organization created to seize a promising opportunity. Hence, as they aim at a good market niche and operate with the appropriate scale and modern management, their success possibilities increase and, consequently, their credit risk decreases. Each small producer may continue to borrow from a microfinance institution but its viability, and hence its creditworthiness, is founded on the inclusive venture it has joined. The microfinance institution thus takes on a lesser risk and saves considerably on operating costs, as it is able to manage a large number of microcredits as a whole.
In addition, an inclusive venture is a medium-sized business that has access to other funding sources: contributions from the public sector and its small producers, private investors, a strategic partner, civil society foundations and organizations, development funds, institutional credit, among others. Thus, the inclusive venture and the microcredit-financed small producers complement and leverage one another.
Funding of an inclusive venture developer
The financing of an inclusive venture developer contemplates two different instances. As with any business, at the start-up stage (organization and two first years), it has to expect to rely on its founders-shareholders’ contributions. They will have to bear the set-up costs, as well as a significant portion of the operating expenses. From then on, the developer has to seek to secure its financial sustainability.
In general, its sources of income will primarily come from success and technical assistance fees. The former are a sort of “sweat equity”, which is no other thing but a share in the results of the venture earned as a compensation for the effort contributed to set up, structure and start up the inclusive venture; when the venture matures and distributes dividends, the Developer shares in them. On the other hand, technical assistance fees remunerate the accompanying effort made by the Developer in relation to each inclusive venture in its portfolio. Both types of fees are determined on a case-by-case basis depending on the nature and magnitude of the work undertaken.
The setup of an inclusive venture developer
The Inclusive Venture Developer setup process may begin with the submission of an initiative to a group of local leaders interested in promoting employment and income generation at the base of the pyramid. This involves the conduct of one or more working sessions where the nature of this type of developer organization is analyzed, and the feasibility for establishing it in the intended community is assessed.
In its consulting program, Sur Norte and Opinion Sur use a Working Session Profile that is then tailored, on a case-by-case basis, to the needs and specific circumstances of each community. The goal is to end the working sessions with the creation of a small, qualified task force. Then comes the definition, as a joint effort with the sponsor group, of the Developer’s setup road map and an accompaniment program to help tackle, as progress is made, the challenges and setbacks that, no doubt, will crop up.
(1) Article Inclusive ventures to abate inequality and poverty, Opinión Sur # 75, November 2009