The Venture Partnership Foundation (VPF) is a group of senior venture capitalists, private equity fund managers and business people who support promising social entrepreneurs in achieving scale. This post is the first in a series addressing how VPF’s portfolio of social entrepreneurs have overcome challenges that offer interesting comparisons for any entrepreneur and looks at the challenges faced by one of the most rapidly growing social enterprises that VPF has backed: Promoting Equality in African Schools (PEAS).
In just six years, PEAS has built a network of 22 low-cost, sustainable private secondary schools in remote areas of sub-Saharan Africa, where only 25% of children have access to secondary school. Founder and CEO John Rendel (recognised as ‘one to watch’ by the Courvoisier Future 500) based PEAS’ extraordinary last three years’ income growth of 1000% on a business model that combines a UK charity with in-country social enterprises. His entrepreneurialism was recognised at this year’s UK Civil Society Awards, where PEAS won both the International Development and the Overall awards. What were the three greatest challenges in growing PEAS so rapidly?
1. Securing growth funding as a social entrepreneur
PEAS’ biggest challenge was raising funding for salaries so that staff could work full time on growing the organisation. The scarcity of growth funding is a critical limiting factor for hundreds of small social enterprises structured as charities. Whereas in a fully commercial context investors understand that growth requires investment in people, donors often refuse to fund ‘inefficient’ charities that spend ‘too much’ on salaries. Investing for the future, in a way that ultimately generates greater social impact, becomes very difficult, because few donors offer unrestricted funding (which can be spent on salaries and fuelling growth), and income is almost always tied to specific projects. ‘I want to see where my money goes’ is the understandable agenda behind these restrictions. Unfortunately, this reduces the organisation’s total social impact, because it reduces the availability and thereby increases the costs of generating unrestricted income, which reduces efficiency and stifles overall impact growth. Although a donor’s funds may be directed to a specific project, and seem more efficient when assessed in isolation, the organisation as a whole becomes less efficient as a result. Those same funds could have greater impact if they were provided without the strings attached. John’s advice to donors interested in growing social enterprise is to follow VPF’s example and provide unrestricted funding on the back of confidence in the organisation’s team, vision and strategic plan. In John’s words, “how can you trust the project, no matter how much you try to control spending if you don’t trust the organisation?” It follows that if you trust the organisation, why not let them control spending (as you would if you took minority equity in a commercial start-up)? Ambitious social entrepreneurs need to identify the costs of growth early on and focus on persuading pioneer supporters that these are worth paying, as investing in growth will ultimately create more social impact.
2. Sticking to the basic principles
Another challenge has been avoiding corruption when setting up schools. PEAS initially spent months trying to secure free land from Ugandan local governments, but quickly realised it was safer (based on cleaner expectations) to buy from private landowners to secure long-term tenure and de-risk further investments in their schools’ expansion. John holds that “a strict policy of never paying bribes may prevent the opening or force the closure of a school, but gives our staff the confidence to say “we just don’t ever pay bribes”, which then helps reduce the number of solicitations.” When asked for a bribe (e.g. to register a school), PEAS contact increasingly senior officials until the corrupt subordinates are reprimanded. They also find inexpensive ways of recognising officials who have supported PEAS, for example by making them guests of honour at school launch ceremonies. John’s view is that “sticking to important principles can make growth more complicated, but it is pointless to support developing countries if you propagate practices that destroy trust and development itself.”
3. Finding the right people
PEAS now have a very talented team, but recruitment is a very difficult part of growing a strong organisation. The best advice John ever received from an entrepreneur was “you will definitely make mistakes, no matter how brilliant your judgement, so prepare for them.” That preparation involves surrounding yourself with good people, which means investing in HR consultancy and an HR team as early as possible. John told us that “alongside investment in monitoring and evaluation capacity, a strong HR department is likely to be undervalued by entrepreneurs, especially those who, like me, have never worked in a large organisation.” Any early stage investor also knows that they are buying a stake in the team, and that good ideas need good people.
VPF supports social entrepreneurs who exhibit the characteristics of their commercial counterparts. Most entrepreneurs follow Churchill in describing success as moving from one failure to the next with no loss of enthusiasm, and this has certainly been PEAS’ approach. Getting to where they are now has required six years of hard slog, involved a series of mistakes both big and small, and hopefully has been as much fun for PEAS as it has for VPF as a financer and pro bono supporter.
Related: How to setup a social enterprise