There is a specific breed of entrepreneur that we look for when we think about where to invest our time and money. We look for a set of values and qualities that a startup should have in their DNA, values that will ensure that the company will expand in such a way that will benefit society and make a difference in the world.
At New Ventures, we catalyze Latin America’s next generation of innovative enterprises that, in addition of being profitable and sustainable, solve the most pressing social and environmental issues. We are a platform that provides support to these companies through three main areas of service: acceleration, financing, and promotion. Throughout the year, we operate numerous incubation and accelerator programs, which have different start dates, focuses, and scopes, along with a variety of special events that strengthen the impact investment ecosystem, including the Latin American Impact Investing Forum (FLII). In addition to our events and programs, we provide funding opportunities for social enterprises across Mexico through our impact fund, Adobe Capital. We have also designed tools that promote sustainable consumption like Las Páginas Verdes, an online and hardcopy directory of green businesses in Mexico, which helps entrepreneurs connect with potential clients and customers.
As a way of assisting entrepreneurs who are seeking support, we have encapsulated the five key qualities that we look for in startups that make a company an impactful, innovative, scalable and profitable business model.
1. Solve a pressing and measurable social or environmental issue.
We advocate all efforts made to resolve today’s social and environmental issues, but we focus on companies that help advance a nation or a region toward significant, long-term progress to resolve the most pressing social and environmental issues. That is to say, companies whose core business is the impact itself, rather than companies whose positive impact is only a collateral effect (i.e. their business KPIs are impact KPIs).
Understanding, measuring, and managing impact metrics in a strategic, well-planned fashion is absolutely vital for scaling a business and making a long-term impact. Tweet This Quote
In the pursuit of achieving meaningful impact, it is crucial that the entrepreneur not only solves a relevant issue, but that he or she also takes their commitment even further to go beyond good intention and creates measurable impact.
Understanding, measuring, and managing impact metrics in a strategic, well-planned fashion is absolutely vital for scaling a business and making a long-term impact. “If you can’t measure it, you can’t manage it,” said Peter Drucker, who is often described as the founder of modern management. A company must have pertinent and applicable metrics to measure impact and progress. How many people do you employ? How many people will benefit? What are the direct outputs that will help you to make a long-term impact and to achieve your ultimate goals?
A company must have pertinent and applicable metrics to measure impact and progress. Tweet This Quote
There are a lot of tools, organizations and certifiers that provide the adequate measurements for each type of social and environmental business model, some of which include GIIN, IRIS, and B Corp. The companies that excel in measuring and managing impact will surely receive financial, economic, and strategic support wherever they go.
2. Have a profitable business model.
Over the years, we have found that it is essential to work with for-profit business models rather than nonprofit businesses and foundations. The difference lies in the modus operandi and the organizational culture, where self-sustainability is part of the company’s foundation. Entrepreneurs who design a business model with a sound financial strategy on how to achieve concrete revenues while reducing costs are the ones who will survive and thrive over time. The days of thinking that positive impact and profit are incompatible are over. And self-sustainability is a decisive factor that enables businesses to make a significant impact.
Self-sustainability is a decisive factor that enables businesses to make a significant impact. Tweet This Quote
When it comes to examining an entrepreneur’s model and deciding on whether the company should be selected to participate in our acceleration program or receive financing, we want to know three main things:
- How big is the market? Sharpen the granularity and make sure you know the specifics of the market.
- Who really is your client? Identify specific client segments and types: economic buyer, influencer, decision makers, saboteurs, etc.
- How will you earn money? How you will deliver value and attract new customers? How will you convince them to buy your product or service over those of other key players?
Pegging these questions with numbers that are grounded on proven arguments provide a compelling platform for your business model.
Another financial recommendation to take into account when looking for financial or strategic resources is to have your key financial metrics in order. Establish your break-even point, burning rate, ROI, cash flow, profitability, and so on. Once you know where your blind spots are, try working on them before entering the acceleration or investment process. These are vital pieces of information that impact funds will look at, in addition to the impact metrics.
3. Incorporate scalability at the core of your business.
Having the ambition to scale and the goal to solve a social or environmental issue are not exclusionary when the problem you are solving benefits thousands of people and allows you to expand with healthy financial numbers.
Social and environmental enterprises often start with a narrow and focused geographic target in mind, because generally entrepreneurs start off by tackling problems that are close to them—either geographically, professionally or even emotionally. The entrepreneurs who realize that their business can solve the same issue in another region with common needs, build stronger, more profitable, and impactful business models. And, although we encourage entrepreneurs to think big and always strive for scalability, we strongly believe that the entrepreneur has to have a keen sense of reality and an acute awareness of the full context in order to be able to create a path for growth.
Here are two questions that will spur a sound strategy for growth are:
- How will your market evolve in the next 5 years and how are you going to adapt?
- How big is your market and what will be your market penetration be?
Investors would rather invest in a company that strives to acquire one percent of a market valued at $100 million rather than 100 percent of a $1 million market. The possibility of growing in a larger market will always be more attractive for the long term.
Moreover, social and environmental companies have the potential to expand to reach the stock market. Mexico has a few great examples of companies that have done so: Proteak, which made an IPO; and FINAE, a company we accelerated and invested in, which securitized their loan portfolio on the Mexican Stock Market. Other more known examples of social companies that have reached this level are Whole Foods, and most recently, Etsy, a B Corp.
Along the path toward scalability, the company will inevitably undergo setbacks and failures. Tweet This Quote
Go beyond the level you originally thought you wanted to reach. Fine tune your business plan to reach a larger scale, but at the same time, take into account the potential evolution of the market, the resources you will need, and the obstacles you will have to overcome to reach these goals. Along the path toward scalability, the company will inevitably undergo setbacks and failures. This is part of the path of the entrepreneur: to embrace failure.
4. Innovating continually.
Innovation and entrepreneurial activities are inseparable concepts; innovation, when it is fully integrated into an entrepreneur’s business model, is a powerful differentiator. Even though social and environmental companies have noble causes at their core, they still have to compete in the market, deliver value, and attain the financial metrics that will ensure stability and growth.
When we analyze business models, we want to know the following:
- How are you going to differentiate yourself from the competition?
- How do you plan to become a key player in the industry?
- How does your value proposition fully address the needs of your clients and/or suppliers?
- Can you become an ally or partner to key the industry player?
- Are you able to respond quickly to the competitor’s reactions?
Make sure you know who your competitors are and how you will be able to outshine them. Know the complexity of the market and the competitive landscape.
Even though social and environmental companies have noble causes at their core, they still have to compete in the market, deliver value, and attain the financial metrics that will ensure stability and growth. Tweet This Quote
Entrepreneurs need to have a deep understanding of their customers—the jobs they need to get done along with their pains and expected gains. The entrepreneur needs to be able to deliver value through various channels and develop a strong a relationship with the client. (An interesting article that may be of help: Clayton Christensen’s article in HBR, “Marketing Malpractice: The Cause and the Cure,” and Alexander Osterwalder’s Value Proposition Canvas.)
Mexican company Natgas provides an excellent example of innovation that is built into the business model. Based in Querétaro, Natgas promotes and sells natural gas as an alternative, ecological fuel, through the conversion of vehicle engines into natural gas engines. The company converts heavy-duty transport vehicles, including buses and taxis, into natural gas vehicles. And in addition to converting engines and providing natural gas through their own stations, the company’s innovative component is its financing services: they offer loans to taxi drivers, who tend to be from low-income households, rendering this service financially viable for these clients. With a natural gas engine compared to gasoline, the driver saves up to 50 percent on fuel, which means more money in their pocket. The immediate positive effect in the quality of life of taxi drivers is that they will have more financial flexibility to quickly pay off the loan used to convert their engines and later down the road, they can also use the company’s loan program to purchase a new vehicle.
The benefits of this innovative strategy, which is completely integrated into the company’s business model, are twofold: it provides future financial resources to improve the quality of life of this segment and it contributes to the improvement of the quality of air within the region.
5. Build a solid and passionate team.
In our opinion, the best entrepreneurs have both the personal and professional qualities to become a leader. And their teams are resilient, driven, and passionate, and are in perfect alignment with the company’s long-term vision. They are deeply engaged in the issues they are striving to solve.
When starting a company, it is important to ask yourself the toughest questions. Think of the most insane, random or adverse scenarios when entering into each one of your key relationships. Tweet This Quote
When we decide to invest in a company, it is because we truly believe in the entrepreneur—the person behind the business model. And given that we will be “married” to the entire team for at least a couple years, we need to be sure that, together, we can confront the inevitable ups and downs that go along with building a company.
When starting a company, it is important to ask yourself the toughest questions. Think of the most insane, random or adverse scenarios when entering into each one of your key relationships: with your team, partners, key providers, distributors, and even your investors. (Yes, you can be selective when it comes to choosing with whom you are going to marry your company!)
Within New Ventures’ platform, every year we launch a number of acceleration programs and through our impact fund, Adobe Capital, we look for the best opportunities in which to invest. But before we invest, we spend a lot of time assessing every nook and cranny of the company. We make a few personal visits to the company’s headquarters and work sites, and what we want to see is a clear and consistent modus operandi. We look for congruency within the physical environment, including the company’s recycling processes, quality controls, and so forth. And given that resilience, tenacity, and perseverance are vital for the success and growth of any company, during these visits, we also evaluate the company’s intrinsic values.
We want to see entrepreneurs and their team walk the talk. Tweet This Quote
One great example of how a company can implement these values in order to overcome tough times is the personal story of Josué Hernández, the entrepreneur who created Natgas. Josué identified the business opportunity for Natgas while still working in the energy sector, and when he started to design his business model, he organized several focus groups and was forced to make several adjustments to his business model. When he started pitching his idea and rallying support, he was faced with the challenge of re-educating potential beneficiaries from scratch, who confused LP Gas with natural gas and who even had negative misperceptions of engine conversion. He organized around 80 meetings to listen to his client segment and held several other meetings with the local government to familiarize them with Natgas’s potential benefits. These meetings along with his efforts to research the market continued for a couple of years prior to launching his company and prior to the official opening of his first natural gas station; however, during this time, Josué managed to gain deep insight into how Natgas could deliver long-term value and how he could design truly innovative strategies.
Invest time in building a strong culture. Tweet This Quote
We want to see entrepreneurs and their teams walk the talk. Commitment and consistency are important variables in the equation, which help us to decide whether or not to invest in an enterprise. If you want to make sure your company is generating a significant impact, make sure you lead with a company of leaders, not followers. Invest time in building a strong culture. The single most important component you are going to work with is your team. Create a workforce that is passionate, strong, and competitive in strategic, technical, and creative skills. That way, you will ensure that you and your team are the most suitable to manage the company.
New Ventures is deeply committed to catalyzing companies and entrepreneurs who have a strong business model or idea to solve the most pressing issues in their region, through a wide variety of services and programs. And to a greater extent, we know that the only way to achieve sustainable growth for everyone is by working collaboratively with all of those who yearn for a more prosperous future.
For now, we are seeking entrepreneurs in Latin America who have high-impact projects and are interested in diving into our 2015 programs!