From October to November 2015, B-Space ran an Inclusive business incubation program which identified 10 Ugandan SMEs that were not investor ready with the goal of developing a pipeline of investable social businesses that could be linked to Oxfam’s Inclusive Business Impact Fund ONII (ON Impact Investments) or other social impact funds.
Out of the 10 selected Inclusive SME’s of diverse business range, 9 were provided with BDS (Business Development Services) support while 1 had a sub-sector market viability study performed by the ONII Country liaison office. These 10 SMES were : Capstone Ltd(Menstrual Hygiene Management, Sanitary Towels),Yellow Star Ltd(Cereals processing & value addition), Kati-Farms Ltd(Fish processing & Value Addition) ,Opit Investments Ltd(Grain aggregation & milling),Global Traders Ltd(Sun Flower Oil processing), Be-Organic Ltd(Fruit processing), Geoffman Enterprises Ltd(Chili aggregation & processing), Ladwong Ltd(Land tillage services),Bamwe agro tech Ltd(Apple seedling multiplication) and Ensibuuko Ltd(ICT Financial solutions for SACCO’s). The incubation program which was ground breaking in many ways resulted into the findings and lessons summarized learned below:
Demand for incubation services in Uganda is high – There is a high demand in the Uganda SME sector for incubation and BDS (Business Development Services) support. Even without advertising dozens of SMEs approached BSpace requesting to be included in the incubation program. Months after the pipeline was closed BSpace is still getting requests and inquiries about the incubation program
Uganda has a high entrepreneurial spirit – In a recent global survey conducted by UK-based business-networking group Approved Index, Uganda was ranked the No. 1 country globally for having the most entrepreneurs per capita, many of them women. While Uganda is not short of entrepreneurs, what is lacking are the proper skills and capacity to nurture entrepreneurial ideas and to manage business ventures in an effective, efficient and professional manner
SMEs are willing pay for BDS support – While execution of this project does not demonstrate lessons for sustainability in BDS offering, two important lessons learned are that relevant and customized BDS can unlock willingness by SME’s to pay for BDS. However some form of initial subsidized BDS offer is necessary to get them convinced to participate in any paid for, subsidized or cost sharing BDS arrangements.
The donor community is picking interest in incubation programs – The ONII program has caught the attention of donors in Uganda with one donor expressing interest in funding an ONII successor program. This resonates with an observation made by BSpace in its interaction with players in the donor community; that donors prefer to partner directly with the private sector to engage the same sector.
There is a missing link between incubation and impact funding – Discussions with market actors in the impact investment space revealed that there are many accelerator and incubation programs in Uganda which provide different forms of BDS services but very few of them provide funding as part of their offer – yet nearly 100% of the applicants mention affordable funding as a key need to nurture their start-ups or scale up their businesses. This means that there is gap in the market to link accelerator and incubation program ‘graduates’ to affordable finance
There exists a “missing middle within the missing middle” – While most impact funds in Uganda target a minimum investment of USD 100k there is a higher need for funds below the USD 100K segment (especially USD20k – USD 50k) that is not being met by the current supply of impact funds. Funders make no apologies for ignoring this segment arguing that the investment risks and transaction costs are the same across all investment ranges yet ROI’s are very low for the <$100,000 segment making it un-attractive. This points to another gap in the market – A tailored offer for investments below USD 100k and commensurate BDS services to feed this investment pipeline
Building an incubation pipeline through networks works – In building an incubation pipeline, tapping into networks is a more cost effective and impactful way of identifying and accessing high quality leads. Often these leads have already undergone some due diligence checks, and are also actively seeking support, and are therefore more incentivized and prepared with basic documentation, business structures, etc. Alternative strategies in pipeline creation such as media adverts, tend to be laborious- due to the high level of filtering required to get to the good leads.
Stringent incubation criteria can be a hindrance – While the focus on a clear set of tough parameters is useful, it’s worth noting that the SME space in Uganda is quite limited in terms of good SME leads (Inclusive, socially responsible, profitable and growing SME’s). Related discussions with fund managers of other Impact funds like Yunus Social Business and LGTVP reached the same conclusion. More flexibility on the criteria especially the minimum turnover threshold is recommended
Tailor made Incubation takes time to develop and execute – In this incubation program we developed tailor made BDS offers for each incubate. Unlike generic BDS, tailor-made BDS took longer than anticipated to develop and execute e.g. developing a new brand for a product can take weeks of back and forth discussion between designer and business owner with no decisions being made; A Go- to-market strategy takes three months to develop and execute
Harnessing and measuring the full impact of an incubation program needs time – While the outputs of the incubation program are easily realizable and quantifiable, realizing and measuring some of the outcomes (effects of the outputs) takes much longer and may go beyond the project life e.g. The impact of a new brand strategy to an SME’s sales volumes and market share OR the impact of product rationalization to an SME’s profit margins
The classroom experience is indispensable – Bringing together SME owners was not in the initial plans of this incubation program, however with some similarities and cross cutting themes emerging it was deemed the most effective way of dealing with this development. This worked in favor of the SME owners who harnessed business ideas and solutions from fellow incubates and not the consultants.