At the 2019 ANDE Annual Conference, Global Director, Peter Righi was invited to moderate a session which asked the question, “What should financial sustainable peer networks look like?” Lead discussants for the session included Johnni Kjelsgaard from Growth Africa and Jacob Zikusooka from Transformational Business Network (TBN).
The top three take-aways were:
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1. Financial sustainability is not as clear-cut as it seems
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The session began with a level-setting conversation around the definition of financial sustainability in this context. Peter gave the example of CEED Slovenia, a center that is able to sustain itself almost entirely by charging entrepreneurs to participate in the network as opposed to other CEED centers that rely on a mix of grant funding from development projects and fees from entrepreneurs.
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In addition to ensuring entrepreneurs have skin in the game, charging entrepreneurs might seems like a silver-bullet solution to sustainability, but participants noted that in many markets, particularly where large multi-lateral donors and NGOs have saturated the market with free services, selling peer networks to entrepreneurs is extremely challenging.
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Jacob recounted that when TBN first began charging entrepreneurs, default rates were high until they began mandating a certain percentage of the fee be paid upfront to participate in the network.
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Johnni from Growth Africa offered a lesson learned when they tried to come up with a work-around to this challenge by charging investors for the service they provide. Johnni half-joked, “In our experience, investors have a short memory when it comes to the services technical assistance providers offer them. I once had an investor tell me to my face that no investable entrepreneurs had ever come out of [Growth Africa],” when in fact that investor had invested in eight of Growth Africa’s entrepreneurs.
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Jacob echoed the sentiment, citing multiple examples of times TBN was “cut out of the deal” or not even mentioned in the press release celebrating an investment deal that TBN helped facilitate. These two examples hurt business service providers because it devalues the impact that organizations like CEED, Growth Africa, and TBN have on getting companies investment ready but more importantly the work they do to help companies grow in a stable sustainable way.
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2. There are trade-offs to creating a financially sustainable program
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One point that resonated with participant is that, while diversifying the funding sources of a program is a great way of ensuring financial sustainability, there are trade-offs. One risk of this strategy is ‘mission-drift.’ Inevitability, every donor supporting an entrepreneur network has a different sub-area of focus. If a given donor requires an organization to bend its model too much to meet the donor’s specific objectives, that organization risks straying from its original impact goal.
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Jacob said that TBN has had to say no to certain projects for this reason, explaining that “saying no to money when your program is fighting to survive is very hard to do. At the end of the day, if we have to stray so far from our mission that we don’t serve our entrepreneurs, there is no point.”
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Johnni added that there are also financial costs associated with ‘juggling grants’ noting that staffing for a large multi-year grant looks very different than for several small short-term contracts. Peter discussed how staffing in CEED centers that charge entrepreneurs is very different than staffing in centers that work primarily on projects. One participant echoed this point saying, “There are people who can implement a program and there are sales and marketing people, and it is rare that those skillsets overlap.” For this reason, staffing a center with diverse revenue streams is more costly.
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3. Despite the challenges, there are promising ways to encourage the development of more financially sustainable programs
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Peter raised the point that charging entrepreneurs is critical because it ensures that the most committed entrepreneurs are the ones that show up. Jacob agreed pointing to the fact that often the entrepreneurs that received scholarships were the ones that did not show up.
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One participant offered an important insight saying, “I had a full scholarship to Harvard, and I showed up for class every day because I worked for that scholarship and I understood the value.”
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Peter Righi agreed saying, “[Entrepreneur support networks] need to be confident enough in the services [they] are offering to communicate their value and make the sell.”
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Another potential solution to the trade-offs mentioned above is that donors offer longer contacts. Many entrepreneur support programs have the potential to arrive at a more financially sustainable version of their organization, but it often takes more than two years to implement.
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Similarly, there is a movement in the small and growing business sector to work more collaboratively with large multi-lateral donors to co-create projects. This would allow both organizations to ensure their objectives are being met and mitigate the risk of mission drift. Before the Request for Proposals is issued, donors could benefit the broader ecosystem by requesting input and feedback from capacity building organizations and other relevant stakeholders, leveraging membership networks like ANDE.
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While this riveting discussion only scratched the surface of this important question, CEED is grateful for the opportunity to push it to the forefront through its ANDE membership. We congratulate ANDE on their 10-year anniversary and will not be waiting until next year’s conference to implement these learnings. We would also like to thank Johnni and Jacob for their openness and brilliant contributions to this conversation.
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