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Investors Can’t Ignore the Human Capital Challenge for Social Enterprises

By 3p Contributor

By Sal Giambanco

We at Omidyar Network have invested close to $1 billion in social enterprises. And like any investor, we want the companies in our portfolio to meet their scale, return and impact goals. While it is commonly understood that funding is a big issue facing entrepreneurs as they grow their businesses, we have found that our investees are often equally starved for talent — a perspective validated by newly released research.

While hiring, developing and retaining the best people is challenging for nearly every business in every market, it is particularly difficult in emerging markets, where the talent gap is stifling social enterprises’ ability to scale. Fundraising may get all the attention, but while that gets easier for later-stage startups, human capital challenges grow tougher. The Human Capital Crisis: How Social Enterprises Can Find the Talent to Scale surveyed 628 social entrepreneurs in 59 countries, and the percentage of entrepreneurs ranking talent as “very challenging” increases from 25 percent to 45 percent as companies mature.

The research was conducted by one of our investees, RippleWorks, with analytical support from McKinsey & Co. The research confirms what we hear from entrepreneurs from India to South Africa to Brazil: Local talent is in short supply, and seasoned senior talent is expensive and often beyond startup budgets. The top-ranked challenge — by nearly 40 percent of entrepreneurs — was not having the funds they needed to hire. While we know this to be true, we believe there are things that can be done to overcome these challenges.

It takes more than a CEO

Having data on the state of human capital in emerging markets validates our experience and can help entrepreneurs and investors prioritize the talent that we think is so critical to the success of social enterprises.

When we meet with founders, we usually end up advising them to make recruiting a higher priority. It always takes longer than founders think to bring on the senior leaders needed to scale their company, and it takes personal involvement from the CEO to attract and select the right people.

CEOs who prioritize recruiting as a crucial part of their role are more successful at hiring the talent they need to scale. Fred Swaniker, founder of African Leadership Academy and African Leadership University, has built strong teams and talent pipelines for all of his organizations. Swaniker devotes half of his time to recruiting, noting: “A huge part of the recruiting for an organization like mine is the vision of what we are building. Whoever joins my team needs to be sold on that vision. Who better to hear that from than me?”

Just as CEOs need to hone their pitch to investors, they also need to articulate a winning argument for why a qualified candidate should join their team. An effective value proposition should emphasize mission-driven and challenging work, a healthy and inspiring company culture, and professional development opportunities. We have found that when our portfolio companies are able to clearly articulate a strong employee value proposition, they are able to overcome market challenges, and hire and retain incredible talent.

Investors need to step up

We hear time and again that human capital support is one of the most valued ways we support investees. And yet we also hear that in many cases entrepreneurs are reticent to share human capital challenges with investors. The research underscores that the best mentoring is founded on trusting and deep working relationships. As investors, we need to strive to be more effective mentors, to create the space for open conversations about human capital needs, and to be part of the solution. We have the opportunity to help founders focus on the right things, like prioritizing recruiting and developing high potential employees. We can also make connections and provide funding to enable startups to invest in relevant training and development.

Our founder, Pierre Omidyar, is an entrepreneur. He knows the value of investors who provide mentoring alongside funding. As a result, we have a human capital team dedicated to helping our portfolio organizations address talent challenges. We focus primarily on recruiting and leadership development, but also extend additional support through making connections to relevant specialists and industry experts. We have also made investments in organizations like Endeavor and RippleWorks to strengthen entrepreneurial ecosystems. These organizations have different but complementary models for providing the type of relevant and specialized mentoring that this research found to be most helpful for scaling companies.

The talent challenge in emerging markets is well-known, but this new research shows us how significant it is for social enterprises in particular — and how important it is for startups to invest early in talent in order to scale successfully. This report makes entrepreneur needs clear, and we hope it helps both entrepreneurs and investors to prioritize talent and work together to overcome these challenges to more effectively reach scale.

Image credit: Taylor Nicole via Unsplash

Sal Giambanco leads human capital at Omidyar Network, where he helps develop and scale the talent at the philanthropic investment firm and its portfolio organizations. Follow him on Twitter @onsal.

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