Lessons on Building Successful Social Ventures in Clean Energy

Guest Blog

Since publication in 2018 of the book “Building Successful Social Ventures” (BSSV) by Jim Koch and myself, I have had the opportunity to mentor five clean energy social ventures through Miller Center for Social Entrepreneurship — Earthspark, Gham Power, EOSOL, THI, and Village Energy. While mentoring, I have used the BSSV business plan paradigm with each. We did not require the social entrepreneurs involved to buy or read the book, and, while complementary, the Miller Center curriculum guides we used does not specifically follow the book’s outline of the paradigm. However, in each case, working with the organization required covering all nine elements of the BSSV business plan paradigm — Mission, External Environment, Market, Operations, Organization, Business Model, Metrics, Operating Plan, and Financing — although not necessarily in BSSV order. For each organization, I worked with a mentor-partner, each of whom made major contributions to the development of the venture’s business plan. As often mentioned during the 17-year history of Miller Center, “mentoring is the secret sauce.” However, as always, all credit for progress goes to the social entrepreneurs and their staffs who do all the work — mentors and the curriculum only provide guidance and possibly some motivation.

This note uses the nine elements of the BSSV paradigm to describe my observations on the key elements of the business plans developed by the five organizations working with the Miller Center curriculum. Unlike BSSV, which contained lessons learned from nearly 200 organizations over eight years, the observations here are derived from work with only five organizations, with which we worked for about 10-12 months each, except for one organization where we were involved for several years. My hope is that these observations may help other social ventures, maybe even those not working in the clean energy market.

Overview of the Five Social Ventures

The organization with which my co-mentor, Bob MacDonald, and I worked the longest was Earthspark, beginning with Earthspark attending Miller Center’s In-Residence program in 2012, with only occasional interactions until Earthspark returned to attend the 2018 Accelerator program, and with periodic online interactions until recently when Earthspark obtained $5M in financing. During that time, Earthspark transitioned from selling solar home systems and appliances in villages in Haiti, first to installing one of the first mini-grids there, and then to developing and funding a business plan for more than 40 mini-grids in one region of the country. They also developed the Sparkmeter for use in mini-grids and spun it off into a separate company which is the leader in mini-grid meters, having sold over 100,000 meters in more than 25 countries.

In early 2019, co-mentor Jonathan Propp and I began working with EOSOL Madagascar, a social venture which arranges financing that enables them to construct and then create subsidiaries to operate solar mini-grids. When we started, EOSOL had constructed six mini-grids averaging 250kwatts and serving anchor, commercial, and residential customers, financed by a combination of grants (50%-60%), debt, and equity. They had also arranged similar financing for six more mini-grids and were working on a business plan for 20 more. EOSOL was operating in three regions of Madagascar. The entire interaction of over ten months with EOSOL was conducted online.

Also in 2019, co-mentor Mark Palmer and I began work online with GHAM Power in Nepal in preparation for their attending the In-Residence Accelerator program at Santa Clara University in the summer of 2019. Gham Power already was successful in implementing solar power projects for commercial sites in Kathmandu and southern Nepal and was working on a business plan to grow their business through widespread deployment of their solar pumps and agricultural management software in southern Nepal. I was fortunate to be able to visit Gham Power in 2019 prior to their attendance at the Accelerator.

Local co-mentor Min Chan Win and I began work in early 2020 with Techno-Hill Industries (THI), which had constructed around 20 mini-grids, serving about 5,000 customers in the islands of southern Myanmar. THI was part of a group of companies developing solar power systems in Myanmar and was developing a business plan for a 4-year, 10-fold expansion, as part of a business plan “competition” organized by a Myanmar NGO — a competition that THI won. Like EOSOL, our entire program with THI was conducted online.

In approximately the same time frame, co-mentor Tracy Pirnack and I began a business planning curriculum with Village Energy, which was conducted entirely online. Village Energy had been developing, installing, and operating commercial solar systems in four cities in Uganda since 2008 and was seeking to greatly expand their business in their existing branches and to add branches in other cities.

Summary of Observations on Each Element of the Business Plan

Mission: The key lesson regarding mission statements is the importance of focus, both in terms of geography and products. Interestingly, the most successful of the five ventures, in terms of systems installed, was Gham Power, who focused their mission and operations on a single market — solar water pumps in southern Nepal. Although Gham Power had business opportunities with other products (e.g., commercial solar systems and mini-grids) and in other regions of Nepal, they were able to stay focused on solar water pumps for small scale farmers in southern Nepal and pursue other opportunities only if they had available staff capacity and guaranteed financing. Similarly, all the other four organizations needed to focus their missions on specific geographies and products.

External Environment: All five organizations needed to deal with external effects on their businesses — conditions outside their direct control. The most dramatic external effect was on Earthspark in Haiti. Although the president of Haiti had declared rural electrification a priority of his administration, there was no government financing available. While Earthspark had support from officials in over 40 local (village) communities, getting government approval to begin the operation of mini-grids proved to be a substantial problem. Developing a process to secure government approval became a major element of Earthspark’s business plan during their 2018 Accelerator effort, but it was not until late 2019 that approval to operate the second mini-grid was obtained. For THI, the most significant external factors were both positive — government and NGO support for their work, and the geography of the southern islands making it too expensive to try to add them to the national grid.

Market: At the beginning of each engagement, the target markets for each organization needed to be segmented and staged to enable meaningful progress. All the organizations found it useful to engage local government officials and to secure their support. All the organizations used direct sales, sometimes via branch offices, with person-to-person sales and word-of-mouth advertising. In some cases there was competition, and in Gham Power’s case, the national grid did reach many of their potential customers. In all cases, competitive advantage came from quality products (e.g., reliable power) and a quality organization (that met its commitments).

Operations: All five organizations needed improvements in operations. Since none of them manufactured products, most of these improvements were designed to increase sales force productivity. The most important aid in achieving these improvements was a sample business case for potential customers illustrating the economic benefits (to the customers) of the clean energy solutions. While health benefits such as reduced tons of carbon dioxide are of interest to funders of clean energy companies, they are of lesser interest to potential customers, and therefore of no benefit to a sales force in terms of converting leads into sales. Delivery, installation, and service processes were important and needed to be documented. Customer aids, such as Gham Power’s software for assisting with crop choice, watering times, and crop pricing, were of major value.

Organization: All five organizations had good leadership — capable of raising money and providing direction for the organization. The most notable shortfalls were the lack of a CFO or controller to help the CEO or managing director with financials and the lack of written operating procedures to train personnel.

Business Model: Because the customers are generally poor, with limited cash flow and no financial reserves, the business model for clean energy requires using grants, long term debt, or other sources to finance capital purchases. It also requires that customers are able to lease the products/services or financed to purchase them and that the short-term payback on products is easy to explain. In the cases of Gham Power and Village Energy, financial payback by customers was less than one year, meaning the products/services, including financing, were paid for in less than one year. The payback period for mini-grids is often ten years or more, but sales of electricity generally cover annual operating expenses. Where grants were used to finance equipment purchases, the business model was much more robust.

Metrics: Probably because of the demands of financial backers, all five or the organizations routinely collected metrics. As mentioned above, in addition to revenue and expenses, the most useful operating metric is cash flow, and the most useful impact metric is lives affected, including the specifics of the impact such as improved health or education. Gham Power’s impact metric — the number of beneficiaries who did not need to leave home to find income — was particularly insightful. The work of all the organizations creates an impact on the local economy, but only EOSOL had metrics for this impact, measuring the increase of the villages’ attractiveness: +10% new inhabitants coming from surrounding villages, +20% new hotels, +20% new small businesses, opening of cinemas, cyber shops, etc.

Operating Plan: During my 25-year experience as an executive in Silicon Valley, doing an annual operating plan was the most necessary, but also the most work and least exciting task I performed. Not surprisingly then, creating an operating plan turned out to be the most difficult element in the business plans for all five organizations. The goal was to get an annual operating plan with monthly targets for action items, revenue, and expenses. It took considerable encouragement and effort to get these. Once developed they became key documents for measuring progress and for developing detailed and consistent financial plans which could be updated with actual results. The operating plan for the next fiscal year also turned out to make multi-year financial projections more reasonable (e.g., if you are only growing 50% this year why do you expect to grow 200% next year).

Financing: All five organizations needed financing plans for their capital expenses and for their customers’ purchases of products/services. Even with short payback periods, none of the organizations’ customers had adequate financial reserves to purchase products and services upfront. Yet, financing customers could contribute to the revenue and profits of these social ventures. To finance the organizations’ capital needs, grants were the most common source, with low-interest debt being the second most common. Equity financing was not often available and did not provide the post-financing benefits (e.g., advice, follow-on financing, or business assistance) that equity financing provides in Silicon Valley. And equity financing with expected financial return turned out to be onerous rather than helpful. However, except for EarthSpark (where financing for work in Haiti is difficult), arranging financing does not require “friends and family,” as grants and loans are relatively easy to arrange for clean energy businesses.

Results of the Miller Center Engagements

All five of the organizations were able to develop business plans, at least at the level of PowerPoint presentations with accompanying financials. All the organizations have reported they felt the engagement was beneficial. All the organizations are making progress in executing their operating plans. Two of the organizations — EarthSpark and THI — received financing during the period of the engagements, and the other three — EOSOL, Gham Power, and Village Energy — have maintained adequate financing for their plans. And all five of these social enterprises continue to deliver meaningful impact, improving lives and helping to solve energy poverty in Haiti, Madagascar, Nepal, Myanmar, and Uganda.