There are lots of barriers to creating a thriving social business in Africa. Some of the biggest:
> Access to startup capital -- it's really hard to get the first few hundred thousand dollars to set up proof-of-concept. This capital must be unrestricted. Given the high risk of most startups, this is commonly philanthropic capital. But intelligent philanthropy does a lot of due diligence (to vet the awesomeness of the idea and the entrepreneur), which takes time.
> Access to growth capital -- once you've proven the concept has a lot of potential, it's even harder to get a few million dollars to hire key organizational leadership and to prove that the business can reach some minimum scale (e.g. several thousand beneficiaries). This capital is best if unrestricted. If this growth capital comes from philanthropy, it means you have to invest a lot of resources in fundraising (a lot of founder's time, plus building a small fundraising team, which costs money). If debt/equity, terms must be super flexible to account for different business models and cash flows, risk profiles, ownership structures, etc. If there is transition from donor-funding to debt/equity funding, this can be tricky to manage for all stakeholders (most donors don't understand business models; most investors don't understand social/environmental mission and ways that social enterprises do business).
> Access to stellar human capital -- once you've got money, the biggest challenge is getting superstars to come work for long-term. It's not hard to get talented young expatriate staff for 6-12 months on a cheap stipend, but retaining them is difficult given their career/education ambitions. While there is not a huge pool of super talented local staff, they are certainly out there -- the problem is they cost a lot of money given that all the big NGOs and established businesses are paying huge salaries to entice the best local talent, inflating salaries for top talent. The bottom line is that, while there is great management out there, it is expensive and it takes some time (with a few mistakes) to build the right executive team.
There are certainly lots of other miscellaneous challenges to building a social business in Africa (building effective partnerships, developing scalable operational systems, developing a strong Board of Directors), but if you can get sufficient flexible capital and great staff, then amazing things can happen.
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Dear Tevis Howard,
According to your experience what are the main barriers or challenges so that social business model can thrive?
Cheers,
The Changemakers's Team
Dear Violeta,
Thanks for your question.
There are lots of barriers to creating a thriving social business in Africa. Some of the biggest:
> Access to startup capital -- it's really hard to get the first few hundred thousand dollars to set up proof-of-concept. This capital must be unrestricted. Given the high risk of most startups, this is commonly philanthropic capital. But intelligent philanthropy does a lot of due diligence (to vet the awesomeness of the idea and the entrepreneur), which takes time.
> Access to growth capital -- once you've proven the concept has a lot of potential, it's even harder to get a few million dollars to hire key organizational leadership and to prove that the business can reach some minimum scale (e.g. several thousand beneficiaries). This capital is best if unrestricted. If this growth capital comes from philanthropy, it means you have to invest a lot of resources in fundraising (a lot of founder's time, plus building a small fundraising team, which costs money). If debt/equity, terms must be super flexible to account for different business models and cash flows, risk profiles, ownership structures, etc. If there is transition from donor-funding to debt/equity funding, this can be tricky to manage for all stakeholders (most donors don't understand business models; most investors don't understand social/environmental mission and ways that social enterprises do business).
> Access to stellar human capital -- once you've got money, the biggest challenge is getting superstars to come work for long-term. It's not hard to get talented young expatriate staff for 6-12 months on a cheap stipend, but retaining them is difficult given their career/education ambitions. While there is not a huge pool of super talented local staff, they are certainly out there -- the problem is they cost a lot of money given that all the big NGOs and established businesses are paying huge salaries to entice the best local talent, inflating salaries for top talent. The bottom line is that, while there is great management out there, it is expensive and it takes some time (with a few mistakes) to build the right executive team.
There are certainly lots of other miscellaneous challenges to building a social business in Africa (building effective partnerships, developing scalable operational systems, developing a strong Board of Directors), but if you can get sufficient flexible capital and great staff, then amazing things can happen.
Best wishes,
Tevis