Catalyzing SME Growth Through Business Plan Competitions: Innovative Examples from Latin America

Washington D.C., March 9th 2011

Introduction
The problem at hand and Evaluation of Methodology
Strategic planning Access to capital Other problems Overview of BPC impact study and results

Who we are

Background
The role of entrepreneurship in poverty reduction

Next Steps
Results Lessons learned Beyond BPCs

Q and A

TechnoServe is an nonprofit international development organization providing business solutions to poverty

Empower people in the developing world to build businesses that break the cycle of poverty Work in more than 30 countries throughout Latin America, Africa and Asia Founded in the U.S. in 1968 2009 revenue of $50M Obtain funding from diverse sources including U.S. and foreign government agencies, multilateral organizations, corporations, foundations and individuals
3

From BPC we evolved to SME Promotion, and then to Business Accelerator

Began with McKinseybased BPC format for 15 competitions between 2002 and 2006

From BPC we evolved to SME Promotion, and then to Business Accelerator

Follow up of Central America effort began in 2003

From BPC we evolved to SME Promotion, and then to Business Accelerator

SME Promotion effort created in six countries in 2008 with MIF grant. Replication in Africa in 2010.
6

From BPC we evolved to SME Promotion, and then to Business Accelerator

Evolving to Business Accelerator models by 2012

Agenda
The problem at hand and Evaluation of Methodology
Strategic planning Access to capital Other problems Overview of BPC impact study and results

Who we are

Background
The role of entrepreneurship in poverty reduction

Next Steps
Results Lessons learned Beyond BPCs

Q and A

2,502

Latin America lacks thriving SMEs

Increase and decrease in poverty in L.AC between 1999 and 2007 (relative to 1999 figures) * 27% 4.5% Big Businesses by size in LAC Conglomerate

MSE

TNS Focus

Micro

1999

2004

2007

Entrepreneurship development is key to effecting change

9

* In terms of number of people living on less than $8/day Source: Universidad de los Andes

2,502

Despite strong entrepreneurial activity in Latin America, the region lags in Business Development Training
Overall Entrepreneurial Activity L.A.C. Business Development Training

Europe

North America

Training in L.A.C. needs to be taken to the next level

Others

Source:

GEM 2008 and TechnoServe analysis

10

TechnoServe focuses its efforts on three key areas

Issues for SMEs at an early stage Training in key aspects

Entrepreneurship in L.A.C.

Difficulty Accessing Sustainable Markets Difficulty Accessing Capital

11

Agenda
The problem at hand and Evaluation of Methodology
Strategic planning Access to capital Other problems Overview of BPC impact study and results

Who we are

Background
The role of entrepreneurship in poverty reduction

Next Steps
Results Lessons learned Beyond BPCs

Q and A

12

We continuously evaluate and develop our entrepreneurship programs

2003-2006 Central America 2008-2012 South America and Africa, Haiti 2012

Implementation

Innovation

New Focus

Adjustment

New Focus

Impact Evaluation Conclusions

Reformulation

M and E

Conclusions

The BPC is a cornerstone of the solution envisioned by TechnoServe

BPC Basic Process Convening and Filtering Convene businesses in different industries that are looking to start or grow Business Plan Development Training Filtering Final Selection and Award Provide seed capital to most promising businesses

Provide practical Selection based on training for creating a quality of business useful business plan plan

Selection

1st Round Training

2nd Round Training (Finalists)

Winners

Key Questions

Is our selection process effective? Are we attracting strong applicants? How can it be improved?

How useful is it? How does impact breakdown amongst groups?

How effective is it? How effective is our selection?

What happens to the winners?

Study Methodology (Summer 2009)

Preparation Process Data Collection Data Analysis Employed a process to approximate randomized sampling (credible counterfactual) to measure true impact Multiple regression analysis allows us to control for a variety of variables and see impact of specific pieces of training Simple comparisons demonstrate robustness Confidence in measurement of impact Wide variety of metrics analyzed

Research plan based on 4 interns administered previous study by Harvard survey over phone Professor Bailey Klinger and Reached out to each person other academic papers multiple times at different Survey designed based on times of the day, both via input from senior phone and email TechnoServe team members Each survey checked by Interns thoroughly trained supervisor. Data double checked and compared with previous surveys

Results

Survey efficiently designed with study goals and methodology in mind Interns prepared

Large dataset, confidence in data integrity, and reduction of response bias

Dataset
590 entrepreneurs surveyed: 60% participants, 40% non-participants Almost 85% of the people we spoke to completed the survey

Sector Company Information Annual Sales (by year) Annual full time and part time employees (by year) Demographic information (age, education) Entrepreneur Information Previous companies founded Other companies founded after competition (including sales, employees, capital raising, formality)

Capital raised (by source, before and after BPC) Level of formality Year and reason for failure

Key areas of training Additional training desired Use of business plan

16

The BPCs had a strong impact on sales growth

Impact of Acceptance on $ Sales Growth (a)
2-Year Sales Growth ($) $18,000 $16,000
ing : 14 6%

Notes on Analysis

$14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0

Impact of Other Factors

Multiple regression and other analyses confirm a strong impact, even controlling for selection bias
Series3 Strong impact also seen in 1-year Series2 sales growth, capital raised, initial Series1 success, new business survival rate and rate of formalization

rain

Imp

act of T

Impact of Training

Key Insights

The BPCs as a whole have a strong impact

Non-Participants

Participants

(a) Based on multiple regression analysis, controlling for age, gender, year, country and selection bias. Other factors include these variables as well as unobserved differences.

Phase I (Business Plan Training) Appears to Have an Impact

Impact of Phase I on $ Sales Growth (a)
2-Year Sales Growth ($) $12,000 Impact of Other Factors Impact of Training

Notes on Analysis

$10,000 Impact of training NOT significant

Neither multiple regression nor other methods found a significant impact of phase I, BUT data set is small and selection bias exists Series3 Impact of Phase I not other KPIs
Series2 Series1 found across

$8,000

$6,000

Key Insights
$4,000

$2,000

The impact of training is not statistically significant at a 95% level. This means that there is a very good chance that it does have an impact.
Non-Participants Participants Not Accepted as Finalists

$0

The standalone impact of Phase I is ambiguous

(a) Based on multiple regression analysis, controlling for age, gender, year, country and selection bias. Other factors include these variables as well as unobserved differences.

Phase II (Business Plan Improvement) and the Prize Awarding Have a Strong Impact
Impact of Training on Sales Growth(a)
2-Year Sales Growth ($) $50,000 $45,000
:2 53 %

Notes on Analysis

$40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 Non-Finalists

fP ha se

II T

Impact of Other Factors

rai ni

Regression analysis, controlling for age, gender, country, year, selection bias shows strong predicted impact, even controlling Series3 for effect of prize Series2
Series1

ng

Impact of Training

Results robust through a variety of techniques and across other KPIs

Key Insights

Im

pa ct o

The second round of training combined with the possibility of the prize has a significant impact on business success and growth
Finalists

(a) Based on multiple regression analysis, controlling for age, gender, year, country and selection bias.

Prize Awarding Has a Very Substantial Impact

Impact of Prize on Sales Growth(a)
2-Year Sales Growth ($) $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 Finalists (NonWinners) Winners Impact of Other Factors

Notes on Analysis

Results robust through a variety of techniques and across other KPIs Selection bias is not controlled for Series3 due to a small sample size
Series2 Series1

f Pr

ize :

483

act o

Key Insights
Impact of Training

The prize is a major advantage, however we could not test the impact of the prize without training. Focus groups and 1-on-1 interviews suggest that the prizes impact was multiplied by the training.

(a) Based on multiple regression analysis, controlling for age, gender, year, and country. Selection bias is not controlled for as all finalists are assumed to be of high-quality.

Imp

TechnoServes Original Participant Selection Methodology was Not a Predictor of Success

Adjusted Score vs. Sales Growth
$400,000 $350,000 $300,000 2 Year Sales Growth (US$) $250,000 $200,000 $150,000 $100,000 $50,000 $0 (3.0) ($50,000) ($100,000) Round 1 Adjusted Score (2.0) (1.0) 0.0 1.0 2.0 3.0
Isolating participants and non-participants, first round score is a weak predictor of success

Final Selection Round

$80,000 Average Two Year Sales Growth (US$) $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0
<( 1. 0) (1 .0 )-( 0. 5) (0 .5 )-0 .0 0. 00. 5 0. 51. 0 >1 .0

78,154

38,306 24,651 16,101 8,081

(1,346)

Score (Std. Dev.'s Away From Cutoff)

Distribution of Impact was Found to be Extreme

In both new businesses and existing businesses, the distribution of sales growth is very uneven As in venture capital, our impact relies on a few very successful businesses Sales Growth Breakout - Existing Sales Growth Breakout - New Business Businesses
# of businesses 8 7 6 5 4 3 2 1 0 < $0 $0-$30,000 $30,000- $100,000- $200,000$99,999 $199,999 $760,000 Range of 2-Year Sales Growth 5 4 3 15 10 5 0 $0 $1-$10,000 $10,000$30,000$29,999 $92,000 Range of 2-Year Sales Growth 10 8 5 7 6 # of businesses 100 25 87 80 20

Se

The BPCs also had a Strong Impact on Success and Survival Rate
Self-Described Success Rate (1) 2 Year Survival Rate (2)

Impact of other factors Impact of BPC

Impact of BPC

Impact of other factors

(1) Answer to the question were you successful in founding or expanding your business? (2) Only includes new businesses.

Agenda
The problem at hand and Evaluation of Methodology
Strategic planning Access to capital Other problems Overview of BPC impact study and results

Who we are

Background
The role of entrepreneurship in poverty reduction

Next Steps
Results Lessons learned Beyond BPCs

Q and A

24

Following the evaluation insights, we modified our approach

Impact observed

Take away from C.A. Study Primary selection nonpredictive

Improvement from 2008 and on Incorporated psychometric testing in collaboration with Harvard University Introduced psychological interviews and panel presentations Introduced 1 year aftercare

Comment Increased commitment from participants

Winner selection too simple

Allowed assertive segmentation of the groups Provided means to continuously follow-up Created practical approach and short term results

Training follow-up lacking

Additional marketing and financing training required

Developed pilot to focus on training for extra 6-12 months in market linkages and access to capital

To improve the primary selection we collaborated with Harvard Universitys CID in 2008
2008-2009 Winners of Colombia, Peru, Chile, and Tanzania competitions were given 90 minute test to assess personality and intelligence First selection participants in Ecuador competition pilot tested to provide data for first selection 2008 Psychometric test given on-line to +20 participants per country Results used to fine tune test Test reduced to 1 hour given on paper 2009-2011

Winner selection made more robust through increased focus on entrepreneur

Interview HHRR focus

Presentation 7 min summary of BP in front of panel

Concept pioneered in Ecuador in 2010 and followed in Bolivia

Comprehensive judge analysis 6 point analysis of BP quality and potential

Aftercare became a core activity after 2008

Aftercare Objective : Provide specific support to finalists to promote continued use of business plans as practical tools to guide them through implementation and growth
Aftercare Criteria Prioritize activities of the Business Plan Provide support in key areas aiming at medium term development Serve as monitoring tool in the use of resources as well as performance Business Plan Assessment

Review the BP and make it achievable Quantify real economic needs Undertake in depth financial training Communication and network access practice Create environment for entrepreneurs to develop strategic partnerships with suppliers, clients, and capital providers Build a commercial, milestone based plan in order to encourage sales generation Build a realistic approach for the use of resources Identify real capital needs

Specialty Training

Alliance Development

Marketing Plan

Investment Plan

PILOT PROGR

Complemented by market and capital access support after 2010

Market linkages and capital follow up Evolution of participants during first year

Build market relations ending in real contracts Begin efforts for export Obtain capital and recurrent relationships

Increased sales Started generating sales

18% 3%

36%

Current sales but no increase

29% 79% 35%

Regular Participants

Businesses with additional support (Pilot in Peru)

COLOMB

Gender equity and outcomes are tracked closely

Employment Generation Sales generating businesses

Business Leaders

Female led businesses

72%

57%

69%

Male led businesses

28%

43%

31%

Source: TNS Data

The next step in entrepreneurship is to go beyond SME Promotion

Traditional BPC (Central America) Learn to create business plans and obtain seed capital SME Promotion (South America) Learn to create business plans and obtain seed capital Improved selection Aftercare Training and toolkits on accessing markets and capital Beyond SME Promotion Learn to create business plans and obtain seed capital Improved selection Training and toolkits on accessing markets and capital Push the businesses with the greatest potential to generate growth and job creation Targeted consulting interventions to achieve sustained growth

The new model will provide access to capital and markets to promote rapid growth: Business Accelerator

Financial planning accounting Rationalization of capital needs Intro to capital sources Help with negotiation

Access to Capital

Growth

Access to Markets

Market linkages Market info Marketing training Market niches Specific issues (packaging)

Strategic planning Human resources

Agenda
The problem at hand and Evaluation of Methodology
Strategic planning Access to capital Other problems Overview of BPC impact study and results

Who we are

Background
The role of entrepreneurship in poverty reduction

Next Steps
Results Lessons learned Beyond BPCs

Q and A

33

Appendix

Key Performance Indicators

Initial Success the percent of businesses that responded yes to the question did you succeed in founding or expanding your business? Formalization the percent of businesses that were formally constituted before government authorities or that paid taxes Survival Rate the percent of businesses that survived one or two years Sales Growth the dollar value of the growth in annual sales from before the competition to either one or two years afterwards Capital Raised total capital raised from founders, partners, banks, microfinance organizations, and other sources Employee Growth the change in the number of either full-time or total employees in the one or two years following the competition Throughout the presentation, we will focus most heavily on two-year dollar sales growth, as a holistic measure of business growth and TechnoServe impact

35

Impact: New and Existing Businesses

New Business: Training Impact (a)
2-Year Sales Growth ($) $7,000 Impact of Other Factors Impact of Training

Existing Business: Training Impact (a)

2-Year Sales Growth ($) $100,000
g: 2 68%

g: 1 40%

$6,000

$80,000

$5,000

$60,000

$3,000

Imp ac

$40,000

$20,000

$2,000

$1,000

Training has a substantial impact on both new and existing businesses

Non-Participants Participants

$0 NonParticipants ($20,000) Participants Impact of Other Factors

$0 ($40,000)

(a) Based on multiple regression analysis, controlling for age, gender, year, country and selection bias.

Imp ac

$4,000

t of

Series3 Series2 Series1Impact of Training

Tra

t of

T ra inin

inin

Impact by Age of Existing Businesses

Comparison of Impact Amongst Existing Businesses of Different Ages (a)
One-year sales growth (US$)

$80,000 $60,000 $40,000 $20,000 $0 Non Participants $25,036

$57,333

Training appears to have had the greatest impact amongst young businesses

$15,397

$23,669

Participants

Non Participants

Participants

Less than 2 years old

Greater than 4 years old

Analytical Notes

Key Takeaways

The difference in sales growth is statistically significant The pattern holds across other KPIs, although not always statistically significant

It appears that among existing businesses, the youngest ones have the greatest potential for impact

(a) The younger participants are heavily influenced by one entrepreneur with two-year sales growth of $760,000. The difference holds, but is smaller, when he is excluded.

Overview on Various KPIs

Participation and Phase II completion have an enormous impact on sales, capital mobilized, and initial success The impact of Phase I is ambiguous across variables. The program impact on employment growth is ambiguous as well. Various KPIs: Participant and Non-Participant Averages and Predicted Impact (a)
Predicted Impact of (b) Participant Average 1-Year Sales Growth 2-Year Sales Growth 1-Year Full Time Employee Growth 2-Year Full Time Employee Growth Total Capital Mobilized Initial Success Rate (Self-Described)
(c)

Non-Participant Average $3,738 $5,925 0.48 0.77 $8,173 30.4% 50.0% 76.2%

Participation 110% *** 146% *** 39% 18% 172% *** 42% *** 73% ** 22%

Phase I 38% 55% 26% (12%) 91% * 4% 73% 27%

Phase II 333% *** 253% *** 2% 58% * 224% *** 81% *** 22% (11%)

$12,476 $17,053 1.33 1.23 $16,803 46.6% 72.5%

(d)

2-Year Survival Rate (Only New Bus.) Rate of Formalization (Only New Bus.)

84.5%

(a) (b) (c) (d)

Based on multiple regression analysis that controls for age, gender, country, year, and selection bias. *** 99% confidence; **95% confidence; *90% confidence. Phase II includes impact of prize. Refers to the question: Did you succeed in establishing or expanding a new business? Percent of new businesses founded that were formally constituted before the authorities.

South America SME Promotion Main Figures

SMEs trained

SMEs that operate with BPC SMEs that obtain financing through BPC Increase in revenue from SMEs

MM.

Jobs created

Until Dec 2010

TechnoServes main lines to promote entrepreneurship

Supply Chain Development Programs Focused on training and developing suppliers to strategically support a specific value chain Usually large number of commodity type producers involved

EXAMPL

Local Economic Development

3
Entrepreneurship Convene efforts to attract entrepreneurs with ideas or existing businesses Through competitions, large number of entrepreneurs convened, trained and reduced in order to provide support

Aimed at promoting productive business ventures to improve livelihoods in a specific area A small number of existing agro-producers or suppliers promoted to become rainmakers

TechnoServe model is based on three critical aspects

TNSs Economic Inclusion Model
Generate businesses that can increase residual income Establish access Influence the to new products or community services

Economic

Wellbeing

Create business Improve quality of Convey knowledge training and know- life through self to the community how assurance

Capability
Obtain respect from others Develop close ties Promote with business community environment integration and growth (gender)

Relational

Business Opportunities

Products or Services Focus

Local Community

Thank you

for your attention