This post originally appeared on WRI Insights.
By Aram Kang and Giulia Christianson
One of the greatest challenges of our time is achieving economic development without harming the planet and local communities. Entrepreneurship can play a critical role in solving this dilemma.
In fact, entrepreneurs and the small and medium enterprises (SMEs) they create contribute up to 78 percent of employment worldwide and more than 29 percent of GDP in developing economies. These types of businesses play an invaluable role in creating jobs, spurring community growth, and alleviating poverty. Some of these SMEs create even more value by generating clear, measurable environmental benefits.
But these entrepreneurs face a host of challenges when it comes to growing their businesses and succeeding. As Global Entrepreneurship Week is celebrated across the world this week, it’s a good time to examine the importance of environmentally focused entrepreneurs as well as the difficulties they face.
It’s a Hard Business to Be In
The majority of environmental SMEs in developing economies fail in their first few years of operation. WRI’s new publication, Voices of the Entrepreneurs, collected excerpts from interviews with 32 entrepreneurs supported by WRI’s New Ventures program. While these particular entrepreneurs are on the path to success, many cited several challenges they faced along the way, such as accessing finance, attracting and maintaining quality human capital, tackling limited markets and mindsets, overcoming unsupportive policies, coping with risk and uncertainty, and distributing their products and services.
What Is New Ventures?
New Ventures provides business development and investment facilitation services to environmental entrepreneurs in emerging markets. Since 1999, New Ventures has supported 367 SMEs in six countries (Brazil, China, Colombia, India, Indonesia, and Mexico) and helped facilitate US$337 million in investment capital to these companies.
Here are a few insights and stories they shared:
- Financing is a huge hurdle: SMEs are typically too large for micro-finance, but too small for commercial finance. Acquiring the funds to get up-and-running can be especially challenging. Impact investors—investors who funnel money into companies, organizations, and funds specifically to generate social/environmental impact and a financial return—have emerged to help finance environmental SMEs. However, actually unlocking funding can be a devastatingly slow process. Luis Felipe Avella Villegas is the CEO of Factoria Quinoa, which helps small producers in the Andean region cultivate fair trade quinoa. “The world of impact investment is so slow compared to the world of traditional investors,” he said. “And this is not good for creating results and supporting companies like ours…because when the company is in this stage of growth, we need to move quickly with everyone in the chain. The investor can’t say to us, ‘I really like your product, I love your project, but I want to wait maybe one or two years.’ Because that does not work.”
- Human capital forms the base of a successful business: Without a strong team, a company does not have a solid foundation to build on—and it’s not always easy to attract and maintain quality employees. “One of the most important things is a great team,” said Caio Bonatto, co-founder and CEO of Tecverde, a Brazilian company that produces energy-efficient, low-cost, wood-frame housing. “And when we talk about the team, it’s not just the people that work with you inside your office, but the people that work with you outside your office—your social network, the people that really believe in your company and make some efforts to help you. And we realize that it’s those people that make your company a success.”
- Distribution challenges make it hard to reach scale: “Once we had solved technology and affordability problems, we realized the problem was, how do we go to the village to sell the product?” said Mayank Sekhsaria, co-founder of Greenlight Planet, which designs and distributes solar-powered lanterns to rural customers in India and Africa. “The biggest challenge was, and remains, distribution. How do you go the last 50 kilometers? We have the solution [the product]. How do we scale it up, replicate it, and grow faster?”
Scaling Up Environmental Entrepreneurship
Luckily, there are many organizations working to help these businesses grow. Accelerator groups like New Ventures help entrepreneurs develop solid business plans and skills, link them to networks of mentors and supporters, and showcase their business models to investors. Other groups that also help SMEs expand their impact include philanthropies, impact investors, policymakers, corporations, and international development institutions.
We’ll be exploring how some of these SME facilitators work in our ongoing environmental entrepreneurship series. We hope that by highlighting both the challenges and solutions SMEs face, we can raise awareness and help environmental entrepreneurship grow in developing nations. After all, ensuring that environmental SMEs reach scale can have a global impact—environmental entrepreneurs provide the innovative business models, technologies, products, and services that can shape growth that’s truly economically and environmentally sustainable.