HOW A PAN-AFRICAN SOCIAL ENTERPRISE IS DELIVERING A SCALABLE AND IMPACT-DRIVEN MODEL TO SUPPORT SMEs
Entrepreneurship is often touted as the silver bullet for Africa’s youth employment challenge. If we can strengthen small businesses, they will create jobs, and more young people will find dignified work. Simple, right? The problem is that most entrepreneurship training is failing. That doesn’t mean we should give up on small and medium sized enterprises (SMEs). But it does mean a different approach is required.
At African Management Initiative (AMI), we are passionate about empowering entrepreneurs to build their businesses and create jobs. We are equally passionate about disrupting the current “training workshop” paradigm. SMEs have the potential to lift millions in Africa out of poverty and are central to the growth and development of the continent. Over the past few years, entrepreneurship training programmes have mushroomed across Africa to help SMEs address challenges such as financial education, business training, and access to finance. The problem is that many of these programmes simply don’t work. Evaluations have shown that classroom-based training has very limited impact on actual business outcomes—entrepreneurs who take traditional training programmes don’t seem to perform any better in terms of revenue growth, productivity, profitability, business survival, or job creation, than those who don’t. Given the cost of delivery, and the opportunity cost for entrepreneurs spending time in class instead of running their businesses, this is not good enough.
But where does that leave us? Is there a model that can deliver impact for entrepreneurs in terms of business growth and job creation at a price point that is viable at scale? We think so.
Recent academic research suggests that business growth stems not from improving the individual competencies of entrepreneurs, but from embedding good management practices into the business itself. Academics from Stanford and MIT have found strong correlations between a list of core management practices and firm productivity, profitability, sales growth and survival. They have tested this thesis with a range of organizations—from large companies in Western countries to micro, small, and medium enterprises (MSMEs) in Kenya, Nigeria, Ghana and others.
This insight has powerful implications for the way we support emerging market SMEs. At AMI, we have responded by flipping the traditional entrepreneurship training model on its head to provide a new practice-based approach that delivers real results. In collaboration with researchers from MIT, AMI has identified 24 simple but effective business practices that are based on the research cited above, and adjusted for local relevance, and are centred around five core business pillars—Strategy, Customers, Money, Operations and People. We then help entrepreneurs identify which management practices they are currently missing and help them to plug those gaps by providing simple, practical tools, along with the right support and accountability. For example, we still help entrepreneurs manage their cash flow, but instead of teaching them how to manage cashflow through a series of workshop presentations, we provide them with a simple cash-flow management tool and hold them accountable for using it in their business every month, with support from their peers. It’s a small shift in approach, but a powerful one. It is also relatively light touch and cost-effective at scale.
HOW DOES A PRACTICE-BASED APPROACH WORK FOR ENTREPRENEURS?
We have identified four key components for implementing a practice-based approach that works.
- Business diagnostic: Instead of forcing all entrepreneurs through the same one-size-fits–all curriculum, we invite each entrepreneur to create their own roadmap for success. We do this through a structured diagnostic survey, which helps teams select four core practices that they believe are most critical to the success of their business. This creates buy-in from the start and increases the likelihood that business owners will adopt new habits.
- Tools: Instead of content-heavy, theory-based learning, we focus on providing entrepreneurs and their teams with the simple tools they need to develop good business habits. These tools can be accessed, downloaded and used online (web or mobile) anytime, anywhere from our easy-to-use platform and are adaptable to any business. They focus on basic business habits such as tracking stock, keeping good financial records, regularly surveying customers, and planning for the future.
- Peers: Adults learn best when interacting with peers, and entrepreneurs tend to be particularly social. So, we have embedded peer learning into the heart of our programming. Participants are grouped into small support groups called ‘pods’, where they hold each other accountable for implementing their chosen practices. Well-structured peer learning drives down the cost of programme delivery without sacrificing impact, while also helping entrepreneurs expand their networks.
- Metrics: Many SMEs simply do not know what is happening in their businesses, and so don’t know where to focus their energies. It is compulsory for participants of our programmes to track core business metrics every month. Not only does this help us monitor our own impact, but it gives entrepreneurs visibility into core business drivers, and introduces them to the critical habit of measuring success and making data-based decisions.
The good news is that the practice-based approach is working. Our sample size is still small, but on average, revenue in 2018 increased as much as 60% and profit increased 45%, with slight variations depending on the specific cohort. Participants in all programmes using the practice-based approach are reporting tangible business improvements, with 75% of businesses of one programme securing seed financing. The approach has been tested with both urban and rural SMEs and has yielded results in both settings and across multiple sectors. We are conducting a Randomised Control Trial with a team at MIT in 2019-20 to more rigorously test the impact and deepen our understanding of why and how this approach works.
Entrepreneurship will continue to be a way out of poverty for millions of people in Africa, both for business owners themselves and those they employ. We need solutions for supporting them that are scalable and have tangible business impact. The practice-based approach provides a promising way forward.
Learn more about the ways AMI’s practice-based approach has impacted the lives of people across the continent:
AMI is thrilled to announce a $4.5M programme supporting around 7,000 young Rwandans to build their skills and businesses in the hospitality and tourism sector.AMI is joining Hanga Ahazaza, a US $50 million initiative from the Mastercard Foundation focused on increasing employment opportunities for young people while expanding the hospitality and tourism sector in Rwanda. Hanga Ahazaza will equip … Continue reading AMI launches $4.5M partnership with Mastercard Foundation in Rwanda
About AMI and the job: AMI is a social business pioneering a scalable approach to workplace learning for Africa. We use a blended approach, combining a mobile app, in-person workshops and on-the-job practice to help businesses develop productive and motivated workforces, entrepreneurs build thriving enterprises, and job seekers advance their careers. AMI is expanding rapidly. … Continue reading AMI is hiring: Digital media specialist
Role description: The Product Manager will report directly to the Chief Product Officer and be responsible for the overall product development related to AMI’s learning application(s). In coordination with the CPO, the Product Manager will spend time with customers and prospects (and do significant user testing), lay out strategic roadmaps for product development, detailed scoping … Continue reading AMI is hiring: Product Manager
ABOUT AMI AND THE JOB: AMI is a social business pioneering a scalable approach to workplace learning for Africa. We use a blended approach, combining a mobile app, in-person workshops and on-the-job practice to help businesses develop productive and motivated workforces, entrepreneurs build thriving enterprises, and job seekers advance their careers. AMI is … Continue reading AMI is hiring: Senior Business Development Manager
Human capital is a key challenge for many SGBs. Getting and keeping the right team in place is critical to propel ventures to scale – yet founding teams often struggle to find the right fit. Many investors in African companies have told AMI they want to focus more post-investment support on developing talent within their investee companies. But they often aren’t sure how to develop a talent strategy that cuts across their investment portfolio.
AMI hosted a roundtable discussion in Nairobi last month for around 30 early and growth stage investors into East Africa interested in adopting more proactive talent strategies for their portfolio companies. We shared 3 models we’ve seen used to provide post-investment human capital support, and hosted a candid discussion around what is and isn’t working.
AMI identified the following three broad buckets for ways to engage around talent at a portfolio company level. We heard from various investors, who shared how they are using different approaches to help their investee companies build out the teams they need to scale.
Facilitative model → This could also be described as the ‘matchmaking’ model. The facilitative model is used when investors help companies understand their talent needs, identify and introduce them to quality providers, and then show them how to engage. The investor’s role here is primarily diagnostic and facilitative, and aims to support needs that are specific to each founding teams/organisation. Some investors are using TA funds to finance these interventions.
Examples: For AHL Ventures, talent is one of the main post-investment challenges that companies across their portfolio face. They often work with their companies on creating a talent plan or helping them directly acquire talent. They also refer investee companies to talent providers, where appropriate, using experience on what has worked with other portfolio companies to inform recommendations. For example, AMI has worked with AHL to train employees in several of their investee companies, including MKOPA, PowerGen, EthioChicken and Equity for Tanzania.
A different approach within the facilitative model was shared by CDC Group, which is developing an online directory for investee companies providing information on different human capital services available, including services specific to talent development – training, recruiting etc. CDC aims to make this directory available more broadly with the goal of also building the broader ecosystem (see supply-side model below).
Direct model →The direct model differs from the facilitative model, as it works to identify a very clear need across the investor’s portfolio, instead of working on a case-by-case basis. This model is focused on solving a specific challenge, for example developing middle managers, hiring CFOs or working on enterprise sales. The goal is to offer a structured programme or intervention that cuts across the entire portfolio. This approach is becoming increasingly popular as investors deepen their understanding around critical talent challenges, and is often funded by a blend of investor/TA subsidy and direct payment by the company.
Examples: Acumen identified a need across its portfolio to strengthen middle management skills and build leadership bench strength below the executive team. They first partnered with AMI 3 years ago to develop cross-portfolio programmes for both middle and senior managers and now run at least one programme annually. Interestingly, Acumen started by subsidising the programmes significantly, but has gradually phased this out. Companies now pay directly, and many have worked this into their annual planning and budgeting processes.
Shell Foundation took a similarly direct approach, offering AMI management programmes to companies across its portfolio on a cost share basis, after identifying management skills as a cross-cutting need. In this case, Shell Foundation allowed companies to engage AMI on their own terms, but provided the cost-share to make this possible. More than 100 have continued to work with AMI on a fully commercial basis, demonstrating that investors can often play a catalytic role in demonstrating the value of human capital services to companies.
Finally, Investisseurs & Partenaires (I&P) hosts a pan-African entrepreneurship club for its portfolio companies, where portfolio companies are invited to exchange ideas and debate on various issues including recruitment and retention. I&P also hosts seminars on specific topics of interest to entrepreneurs.
Supply-side support →A small and growing group of investors are working to strengthen the ecosystem of human capital providers itself, either through grants and investments into supply-side players, or through experimentation with innovative sector-building models.
Examples: Shell Foundation is working with Argidius Foundation and Bluehaven to develop a Talent Facility to encourage and enable early-stage enterprises to invest in talent even when cash is constrained. Bluehaven, AHL and I&P have all invested directly into human capital providers such as AMI and Shortlist. And both Bluehaven and Argidius Foundation have provided grants to build the talent ecosystem more broadly.