The top 12 lessons from our BDS incubation program
In 2015 Oxfam Novib contracted BSpace to develop a pipeline of investment ready social Small and Medium Enterprises to fit it’s ONII fund criteria. The Oxfam Impact Investment Program’s aim was to contribute to the development and promotion of a vibrant social impact investment ecosystem in Uganda in order to enhance economic livelihoods and social inclusion of small farmers, women & youth.
As a result, 10 Inclusive SME’s across a diverse range of business activities were identified and included in the incubation program. 9 were provided with BDS support while one was supported to undertake a sub-sector study on market viability. Below are the key findings and lessons learned from our implementation of this incubation program:
Demand for incubation services in Uganda is high – There is a high demand in Uganda SME sector for incubation and BDS support. Even without advertising dozens of SMEs approached BSpace requesting to be included in the program and 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. So Uganda is not short of entrepreneurs. What is lacking are the skills and capacity to nurture their entrepreneurial ideas and to manage their business ventures in an effective, efficient and professional manner
SMEs can 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 customised BDS offer can unlock willingness by SME’s to pay for BDS. However some form of initial subsidised BDS offer is necessary to get them convinced to participate in any paid for, subsidised or cost sharing BDS arrangements.
The donor community is picking interest in incubation programs – The ONII program has now 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 having reached a “point of fatigue” in working through Governments 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 who 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 incentivised 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 having 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 tailored 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, realising and measuring some of the outcomes (effects of the outputs) will take much longer beyond the life of the project. e.g. The impact of a new brand strategy to an SME’s sales volumes and market share OR the impact of product rationalisation to an SME’s profit margins
The classroom experience is indispensable – Bringing together the SME owners was not in initial plans. But with some cross cutting themes emerging it was deemed as the most effective way of dealing with this development. This turned out to be a good decision as some of the SME owners picked business ideas and solutions to their SMEs not from the consultants but from their fellow incubatees