Lesson two: Execution comes first for India’s social enterprises

In my continuing blog series on the foundation’s 10 lessons learned in impact investing, based on our experience in India over the last decade, let us look at the role that execution plays in successful social enterprises.

Michael Dell once said, “Ideas are a commodity. Execution of them is not”. This is especially relevant for social enterprises that sell affordable products and services at small margins to low-income users. Scale, sustainability and replicability become crucial for the long-term success of such companies.

While some ventures fail due to execution challenges, others make strong process orientation a differentiator for their success. One such organization is Janalakshmi Financial Services (JFS). Started in 2006, Janalakshmi invested significantly on strong processes and backend solutions almost from the beginning. Today, the organization is amongst the leading microfinance institutions in the country within just 10 years of its inception. Clearly, while business ideas matter, execution capability is more important for long-term success.

Our experience has validated that several factors help social enterprises scale up rapidly:

  • Going beyond process efficiency to process effectiveness. At low product margins, social enterprises need process maps that optimize the use of resources, and ensure recovery of their costs and investments. As an organization develops heat/route maps for its sales teams, or a client enrolment process, it needs to make sure that there is no duplication or inefficiencies in the process. Ultimately, the larger goal is to improve performance by ensuring process effectiveness.
  • Standardization makes execution easier. There will always be the temptation to customize services. But organizations need to recognize that it is better to replicate a successful process, versus customizing it for each client or branch. More often than not, standardization is the key to workflow management, and not without a reason! Standardization allows for clarity in roles and expectations, making it easier to define targets for staff members, as metrics can be compared. In addition, social enterprises are not caught unprepared to deal with by ambiguity in the field by their frontline teams.
  • Compliance maintains the quality of execution. If one has to achieve volumes at a large scale, things can’t be left to chance. Once processes are introduced, enterprises must ensure compliance. In most microfinance institutions, internal audit teams visit branches and check for compliance with route maps, attendance requirements, and the duration of meetings. This helps ensure efficiency and standardization in execution.
  • In the digital age, technology is a great enabler to achieve scale, improve quality and reduce costs. Janalakshmi realized this early on, and within two years of its inception invested in MIS platforms, smart cards, and front-end technology, amongst other things. While stakeholders were skeptical about this spend on technology in the early days, later, these systems were crucial in scaling up the business. Since then, Janalakshmi has achieved a compounded annual growth rate of over 100% in the last six years. Today, it has a portfolio of over INR 10,000 crores (~ $1503 million USD) and reaches five million clients.

With the right processes and systems in place, we believe that social enterprises have the ability to change the landscape of urban poverty, and hence are important recipients of funding from mission-oriented organizations such as ours.

This focus on execution is critical for education companies offering affordable services in our portfolio. In many ways, the “ask” from them is higher than from organizations delivering premium educational product and services. Our investees have dealt with this by productizing their services and improving their execution capabilities. Several stakeholders argue that standardization kills creativity, especially in education. However, our investees have shown improvements in students’ learning levels by developing the right products with proven impact, and replicating it on a large scale.

Promoters’ focus on execution is a key aspect that we consider when evaluating investment opportunities. With the right processes and systems in place, we believe that social enterprises have the ability to change the landscape of urban poverty , and hence are important recipients of funding from mission-oriented organizations such as ours. Watch this space for my next post in this blog series on the role of talent in creating successful social enterprises.

Other blogs in this series:

Pioneering a new path forward: 10 lessons learned in impact investing

Lesson one: Sector knowledge is crucial in impact investing