Company Profile: A Case for Impact Investment

It’s no wonder there’s an air of helplessness that lingers over the streets of Kampala, Uganda. Negative messages abound. One source of these messages comes from an unexpected and unintentional place. At any moment a pedestrian walking along the street can read names like “Save the Children”, “Food for the Hungry” or “Mercy Corps” bannered across the side of white sport utility vehicles as they speed by. These vehicles roam the city and town centers of the roughest parts of the world, carrying people who deliver services to those in dire need. Pedestrians walking to work, teens hawking goods or students waiting patiently for their bus may see these vehicles and think “the people sitting inside are here because we, Africans, need help.” I wonder if these rolling billboards tell them “there’s a problem here, and foreigners have come in to fix it.”

The words jump out at you. “Save”, “Feed” and “Mercy.” It’s clear these words originate from a legitimate need for NGOs to ensure that donors in the U.S. and other developed countries know that what they are doing is critical. These donors, and the NGOs they support, are making a difference. No one would argue that. Read through their annual reports and you’ll be happy to learn about the tons of food that have been distributed with their help. Or the thousands of vaccinations that have been given to children. Or, even the number of lives that have been saved from the streets. It is truly impressive. What these donors and NGOs may not realize is that on the other side of the world, there’s another side to this story that isn’t being told. A story that warrants not only our attention, but also an innovative response.

The story begins by asking some questions. What impact is this NGO having on the rest of the population who does not receive direct benefits? What does the street peddler, the university student, or the local business owner feel when they see “Save” and “Feed” drive by them day-in and day-out? Do these names empower people to be agents of change?

Let’s follow one such pedestrian. She is on her way to work at a small business situated tightly on a small plot of land in the industrial area of Kampala, just over the railroad tracks. Her company–let’s call it “Up and Coming”–has been in business eight years, but lately times have been hard. Employees receive decent salaries and most of the employees are doing their best to live out their dreams of educating their children and owning homes. The business pays taxes, and now employs about 20 men and women who work ten hours a day.

When Up and Coming started there were only seven employees, and it achieved impressive year over year growth of 35 to 50%. But now things have slowed. The business has graduated from micro status and is at the threshold between a small and medium size enterprise. To pay Up and Coming’s staff and keep its margins, the company must bid on bigger projects. In order to meet the demands of these contracts, they need to buy the supplies, and because Up and Coming does business in a cash economy, it is forced to take out short-term loans from a local bank. The rates from the bank are 28%. The business targets a 33% margin and must now make a decision: not to compete and lose the contract, or take the loan and pray all of the other factors that impact their cost (electricity, gas prices, grain costs, a riot in Kenya) don’t strike. Up and Coming has 5% wiggle room.

Management decides to take out the loan and satisfy the obligations of the contract. But because of the bureaucracy, red tape and forms, the customer [an international organization] takes four weeks to pay. Time is expensive due to the bank’s terms, and the business nearly goes under. Up and Coming must hold off on paying its employees, and a few (the more talented) get frustrated. One even leaves.

After that, Up and Coming can’t compete on a number of government contracts because it can’t handle the size or the intense requirements that are embedded at the bottom of the request for proposal (RFP). So, the enterprise see a modest 5% growth.

Now let’s follow Up and Coming for the next two years. Growth remains tiny in comparison to the early years. But the business has saved enough to buy another machine that will increase production to a point where Up and Coming can finally compete on something bigger. Up and Coming changed how it packages product, and the business achieves certification from the International Organization for Standardization (ISO). Management keeps accurate books so that they can offer audited financial statements—a definite badge of honor. They play by the rules and work hard to pay employees on time. Things start looking up.

Finally, the day comes when they get a break. A government request for proposal (RFP) has been released asking for help with some development work financed by an international government grant. It’s perfect, and appears to be written to Up and Coming’s strengths; there is no question that it can meet the terms of the contract. Up and Coming has significant inventory, it’s hired 30 more staff, and established itself as a quality company with a good brand. Management prepares a sales pitch and gets ready for a chance to present.

As they arrive at the meeting, the sales team finds out that a few other companies are competing on the same RFP. Two of the companies are known competitors which Up and Coming is positioned to beat. The other, however, is a newer company that has a government minister “consulting” for them. The company has some impressive marketing tools but no real track record. The minister, who is with the new company’s team, walks out of the room just as Up and Coming is entering to give its pitch. He’s laughing and shaking hands with the members on the panel. The sales team’s sprits begin to flag; they fear this sale won’t have much to do with their ability to deliver.

The team does its best though, and they can confidently propose the lowest price among the bidders. As the team from Up and Coming leaves the building, it’s a bit more hopeful. But they call a week later to find out that, sure enough, the company with the minister on board was awarded the contract.

Within another year the business is experiencing severe financial problems. Up and Coming is on the verge of going under because of the high cost of capital on their remaining loans.

This is when I meet with them. I go to their office, on a hot day in January. I find their managing director waiting for me. She’s strong and proud, yet clearly veneered with a layer of bitterness and doubt. I can see it in her body language, and I’m mentally preparing myself for a battle. Business awards and pictures of her with the President of Uganda are hung around the office. Samples of her product are neatly displayed on a rack, and the table is tightly kept.

“So. What are you looking to do?” she asks as we sit down. I can sense that she knows (she later told me she read through our web site), but wants to hear it from me. I ease into my story that I have given at least a hundred times. I speak for about five minutes and she listens patiently. I reach the end of my introduction and finish by saying that what we really look for, most of all, is good, ethical leaders that our company can support as they grow their business (I’ve already done some background checking on her and she comes highly recommended).

My closing line must have finally done it, because she starts shaking her head and laughing. “I don’t believe that leadership is what a business needs anymore.”

“I’m sorry - What?” I ask. I really thought I had misheard her.

“I’ve tried ethics. I believed in leadership,” she continues. “I don’t think LEADERSHIP is what is required for a business to succeed here. You don’t win with ethics. People that cheat are the ones that get contracts.”

I cautiously sympathize with her, and she goes on. “The U.S. doesn’t want to see Africa improve. You’re here to have jobs. The U.S. has been in Africa a long time. So, tell me. Why just now do you want to invest? What are your motives? Is this some ‘out of the box’ thinking that has resulted from your poor economy?” I was intrigued by her logic.

I reassure her that we are trying to lay the groundwork for a new model: market-driven development. I tell her that there are groups in the U.S. that have slowly been organizing–that are trying to find new ways to partner with the businesses in developing economies. People that want to support small and medium-sized businesses. People who understand that it’s time for a change; the African business world must catch up. I closely manage my tone as not to imply too much hope.

She nods her head, like she’s heard this all before. “Are you just going to talk about changes like you always do? Or are you serious, and want to have a real discussion?”

I’ve heard this under the breath of many of the business owners I’ve been meeting with for the past two years, but she was one of the few that came right out with it. I have begun to realize that RENEW is at an interesting place, sitting between two skeptical players that want to work together, but don’t know how. The idea sounds great, but instead of business, we’re playing poker—each side wondering if the other is lying or really has a hand worth playing.

A strong part of me believes that we can successfully broker a relationship between these players. Another part of me fears she’s right. That our work may not play out, that this idea might be too early or that excuses will always come up—a down economy, not quite enough information, or “just a little more time.”

Having had to set clear expectations with everyone that I meet with, I’ve practiced my answer to her question more than once. This time however, I feel a bit more convicted. I look her in the eyes and say, as honestly as I can “I don’t know the answer to that. I don’t know if I can do anything for you. I’d actually ask you to expect that I can’t. We have a long way to go and a lot to learn.” But I tighten my grip on my chair, lean in and deliver a line that every member of our team has said at some point when things get rough: “All that I can ask is that you let us try. Change has to start somewhere.”

She studies me for about ten seconds (felt like two hours), and then seemingly satisfied with my answer, slowly straightens up in her chair and lets a warm smile creep across her face. Pushing back her hair, she shifts focus to her laptop and says, “Would you like a presentation on our company?”

Relieved, I smile and politely nod with a soft “Yes.”

She delivered an impressive PowerPoint presentation; an honest display of her company’s business model (with flow charts), their financials, there strategy for the future, and the challenges they are up against. I am impressed, and we agree to have RENEW represent Up and Coming in the U.S.

“I’ll keep you posted” I say, and desperately hope that I am able to come back with good news. As I pull out of the plot, I take notice of the cars on the road. There are large, beat up flat-bed trucks creeping slowly around massive pot holes. There are smaller cars running goods back and forth between warehouse and supplier. There a boda bodas weighed down by large steel rods, wood, and boxes. But, in this industrial area I don’t see any white SUVs around. As I played our conversation back in my head I wondered if the words on the sides of those SUVs had finally gotten to her. I went back to her question. I truly hope we are not just talking...