Organisational Mentoring: Behavioural Change and Shared Value for SMEs

At UnLtd we work with some pretty amazing social entrepreneurs.  Our work in the Ventures team is to help them grow incredible social businesses to deliver impact at real scale.

The challenges for an ambitious entrepreneur on this journey are manifold: how to be an inspirational leader, how to recruit and retain wonderful people, how to plot a credible growth strategy, how to successfully market and sell your products, how to make accurate financial projections.  It’s not an easy path to take.

Some of the best support received by our Big Venture Challenge winners has come from successful commercial entrepreneurs who have already travelled the path and successfully scaled one or more businesses themselves.  Many have come via our partnership with the Supper Club who are promoting our work to their members (all founders of high-growth businesses turning over at least £1m, frequently much more), and helping create relevant matches by sector experience and expertise.  

Working with these individuals has helped our winners – all chosen for their ambition and potential to scale – because they can pass on valuable lessons from their own journeys, sharing their successes and failures and thereby (hopefully) reduce the risk of our social entrepreneurs making the same mistakes they did.  They also help our cohort think in a more commercial manner, get inside the mind of investors and plot short-cuts to rapid growth.  

But there’s a lot more that can be done.  These individual entrepreneurs are (in the most part) supporting our winners in their spare time, in an individual capacity and out of the goodness of their heart.  I’d like to see a scenario in which not only are our social entrepreneurs working with their commercial counterparts, but also in which different members of each of their respective teams are working together: Financial Director with Financial Director, HR Manager with HR Manager, Head of Sales with Head of Sales. This is ‘Organisational Mentoring’ provided by family-owned or entrepreneur-led, private companies that have successfully scaled.   

The challenges of scaling social ventures are not limited to helping the entrepreneur diagnose the challenges and opportunities – but in offering practical support and industry expertise to successfully implement the chosen strategies. For a social entrepreneur, this would involve your team having regular contact with a larger commercial business from a similar sector and sharing a range of resources: not just knowledge … this could be office space, contacts, template documents and suppliers.

So why should the mentoring company engage in this?  The numerous corporates that currently offer mentoring programmes with social entrepreneurs do so for three main reasons: to aid in staff development; to boost their CSR programmes; and to get exposure to an innovative new growth sector.   All three equally apply for medium-sized businesses too.

• Professional development of staff. Privately-owned SMEs have their own growth agendas.  They want to grow their teams and must therefore develop their managers.  One-on-one mentoring programmes have proven efficacy in developing the leadership, communication and interpersonal skills of the mentor.
• CSR Outcomes: Small private businesses traditionally don’t have CSR programmes – it is somehow reserved for large companies that can afford the ‘luxury’ of CSR departments.  But as CSR is increasingly being augmented by the notion of Shared Value – whereby the organisation actually creates commercial value out of the social value they create (and vice versa) – the opportunities for all companies, large and small open up.  Some forward thinking corporates are even considering dissolving their CSR departments and instead encouraging ‘Shared Value’ strategies in each department of their business.  For SMEs (with less ingrained thinking and no shareholders to convince), it is easier to build this culture early, than it is for corporates to dismantle it.
• Better innovation: Crucial to any SME’s growth strategy is building a culture of innovation. To my mind, the single most compelling feature of the social ventures we work with – above and beyond the social value they create – is their ability to approach a long-standing problem with an entirely novel perspective, challenging pre-conceptions and delivering a disruptive solution.   Indeed the mere process of bringing different worlds together creates innovation: research from Stanford Business School shows that diverse, horizontal social networks are three times more innovative than uniform vertical networks.

Over time, informal mentoring and co-innovation may lead to more formal partnering, co-production, joint-ventures… all of which opens new markets and new revenue streams to both organisations. The barriers that may prevent social ventures from working with major corporates – differences in culture and scale for instance – are greatly reduced when working with smaller privately-owned businesses.

 

How Ambitious Social Entrepreneurs can really get Investment Ready

These last couple of months have been a busy time for all of us at UnLtd involved in the Big Venture Challenge: a call for the 25 most ambitious social ventures in England that are seeking debt or equity investment to scale their operations. 

 

When applications closed at the end of June we were overwhelmed (figuratively and literally) with the response of 640 applications. We’ve now reduced that to 41 for interviews, that start today.  The good news is that the competition was fierce and there were some truly exceptional applications – way more than the number we have capacity to interview.  Thankfully many came from entrepreneurs that we already know and work with but, equally pleasingly, many came from those we don’t.

 

As any funder will tell you, there’s always a sizeable number of applications that, whilst impressive in many ways, don’t quite tick all the boxes. This time we explicitly marketed for ‘the most ambitious’ social entrepreneurs in the country and that was a box that was certainly ticked by almost everyone.  But ambition alone is not enough.  A number of applications highlighted a gap in the sector between the ambition of the social entrepreneurs (i.e. those that think they’re investment ready) and the reality of expectations from the investment community (i.e. their requirements of ventures in order to actually be ready for investment).

 

To me, this isn’t wholly unsurprising.  I’m pleased the response to BVC can put to bed the view, held by some, that social entrepreneurs somehow don’t want investment. They’re clearly flocking to it.   But I’ve worried for sometime that the hype around social investment will lead too many social entrepreneurs to rush full-speed towards the dollar signs, forgetting about the boring middle bit of actually building sustainable business models.

 

When doing the application assessments, I tended to go straight to the question about customers: who’s buying their product, how much are they buying and for how long are they contracted? And what sort of shape are their customers in?   What value are they getting from this and who else could they be buying from?

 

Whilst many of the BVC applicants took the time to forecast impressive hockey-stick projections, not all detailed who they thought would be buying their products, let alone actually showed us they’d gone out and tested the market with these customers before approaching us. 

 

Of course, not all social ventures can or should target the private sector.  And many of those that target the public sector do a fine job of managing their sales pipelines and projections – but in general terms this is a tougher job, particularly when tendering is involved.  Whilst most SMEs working in B2B supply chains lack real security of contracts, if their customer is healthy and they’re doing a good job, it’s a very good start. The first lesson I learnt on my first day in sales was getting repeat sales is a hundred times easier – and manifold more valuable – than sourcing new sales.

 

Many social enterprises are still of the mindset of accepting the uncertainty, bureaucracy and whimsical nature of public sector tenders and grant-makers as a necessary part of what they do. It strikes me this is a very different kind of selling from the one I know in the private sector: much less focused somehow and giving much less confidence to make realistic projections.  And I also don’t think this is as attractive to the investment community – for a number of reasons.

 

Talking to an investor recently he echoed this.  He’d be much happier with his potential investees working with the private sector.  And not just for the securing of revenues.   Beyond strong sales pipelines, the other big piece of the jigsaw missing from the social investment market – particularly those investors like him looking for equity stakes – is readily available exits. 

 

Recent EVCA data showed trade sales as consistently the most frequent exit route – around 25% of all exits over the last 4 years – vs around 5% on IPO .  Yet, our sector obsesses about things like the Social Stock Exchange without any dedicated focus on putting in place an M&A market.   Operating within private sector supply chains is clearly a piece of this jigsaw: it places you in an industry, where other businesses – customers or competitors – can see your value.

 

For now, most of the investments in the social space are debt-based – but this means not enough risks are being taken.  To attract equity investors there must be the possibility of exits.  And, amongst other things, I suspect this requires a shift in mindset amongst social businesses to build their business models around the private sector / B2B landscape.  Exits are, of course, important as they provide financial incentives for investors and entrepreneurs alike to invest their time and money in delivering social value.

 

If the early indicators from the Big Venture Challenge show anything, I think they show the need for teams like UnLtd Ventures to put more focus on spotting talent early and working with them over a period of time before introductions to investors are hurried.  There’s a vast amount of money flooding to our sector at the moment.  It would be a tragedy if it just as swiftly returned from whence it came, convinced there was no market for it.  It feels like we’re only going to have a limited amount of time to prove not only that we want it, but actually that we can use it.

 

Surely there’s a role for organisations like UnLtd to work with the most scalable ventures not on which investors to approach and how to ‘sell’ to them, but on which potential large customers to approach and how to sell to them… To build a market that understands the value of working with social businesses and to work with them to put a value on these relationships to their financial bottom line.  So that when investors eventually enter the picture many more boxes are ticked. 

 

And what does this require…?  Well, after the flood of individuals from financial backgrounds to the social sector in the last few years, maybe we now need an influx of just good old fashioned sales people to help sniff out those big wins…