In this, the first of two blogs, Jon Shepard draws together existing strands of thought on partnerships between large corporations and ‘impact enterprises’, and throws in recent experience from work with several corporate accelerator programmes. Until recently, Jon led EY’s work with impact entrepreneurs in the emerging markets.
I’ve often worked at the intersection of multinational corporations (MNCs) and smaller, BOP-focused ‘impact enterprises’, some of them led by the most extraordinary entrepreneurs on the planet. Much of the help corporates offer them is time bound investment or technical support to strengthen their businesses. From time to time, though, the opportunity presents itself for a longer-term corporate/enterprise partnership. Conceived and executed well, these partnerships can combine the agility, risk-tolerance and market insight of ‘small and growing businesses’ (SGBs) with the ability of MNCs to execute at scale. The results can be sustained commercial value for both parties, and much greater access to affordable life-changing goods and services for low-income customers. This potential is what makes these partnerships worth pursuing. But it can also create a little more noise and ambition in the sector than the reality justifies.
There’s been some great work done already on the promise and challenges of corporate/enterprise partnerships, most notably by Acumen/Business Fights Poverty and the Unreasonable Institute , alongside papers from Nesta and the GSMA. Most of this was done a few years back, so I thought it could be useful to consolidate and build on it, reflecting my own experience and that of a range of entrepreneurs, corporates and investors I’ve spoken to in the last few months. Let’s start with the case for seizing partnership opportunities. We’ll get to the challenges and roadblocks in the next blog.
Average tenure in the S&P500 is now under 20 years. At this churn rate amongst our largest companies, in 10 years’ time around half of them will have folded, merged or been supplanted. Spurred by the ghosts of Kodak, Blockbuster and other companies that failed to react quickly enough to this turbulence (or creative destruction, depending on your perspective), and conscious of their own in-built short termism and relative lack of agility, forward-thinking MNCs now look to smaller, entrepreneurial businesses not as irrelevant, or as no more than distant threats, but as sources of innovation. Other pressures have emerged too. In many sectors – FMCG, consumer durables, smartphones – markets in the advanced economies are at or close to saturation point. So expectations of growth can often be met only by turning to emerging markets in low and middle-income countries. BoP customers in these markets are risk averse, often hard to reach – digitally or physically – and have, by definition, low purchasing power. Smaller enterprises that deliberately target them often have far greater understanding than MNCs of how to appeal to their buying values and serve them cost-effectively. Large corporations are also increasingly held up to considerable scrutiny by governments, customers, NGOs and other stakeholders, not least their own employees. They are expected to behave ethically, to source and produce goods and services transparently and with due regard to the wages and conditions of those who work in their supply chains, and to demonstrate that they are net contributors to the Sustainable Development Goals (SDGs). Partnerships with small businesses who supply and distribute on their behalf, and who are innovating new commercial answers to the challenges posed by the SDGs, can allow MNCs to respond creatively and sustainably to these pressures.
On the other side of the equation, partnerships with MNCs can offer considerable value for small and growing businesses (SGBs). Balancing their deep market insights and nimbleness in testing, improving and iterating products and services, they often lack critical enablers of growth. These include capital to invest in equipment, marketing or talent; the ability to access to a sizable customer base; cost-effective distribution networks; and sufficient management team experience or bandwidth. In the right circumstances, global companies can help solve these problems. They have scale and resources, crossing borders with operations tuned for scale, powerful brands and extensive customer networks. And they typically have highly qualified and experienced employees, attracted by higher salaries and clear career paths, who are able to transfer skills and knowledge to SGBs.
Finding the opportunities
So with all that potential for shared impact and commercial value, opportunities for partnerships are worth going after hard. The first step is to identify those opportunities. The right framework can help a lot, so building on several great, existing models and my own experience, I offer one below in the hope that it’s useful to practitioners.
Assembling the right components
If what seems like a promising partnership opportunity has been identified, the conversation can move on to ‘the model’. What needs to be in place for the partnership to work? Again, building on recent experience and previous thinking (particularly, in this case, Acumen and Business Fights Poverty), here’s a consolidated framework I’ve found useful.
I’m the first to admit that none of this is quick or easy, and that the chances of sustained success are more often low than high. The challenges involved in making these partnerships work are considerable, and deserve a blog of their own. That’ll be here next month.