Life as an impact entrepreneur is not always as rosy as the images and numbers shown in impact reports. Media like to picture young entrepreneurs, often armed with strong credentials like Ivy League MBAs or banking/consulting experiences, successfully started ventures operating in rural areas. Rarely does the media able to convey the hardships that entrepreneurs endured to achieve the success. Even more rare is the reporting of ventures that do not survive. As a society, we like to glorify the success of entrepreneurs, while being distorted by survivorship bias that make us oblivious to the failure cases.
There are so many things that can go wrong when operating in rural areas, especially when the venture is still trying to gain foothold in the market. I have heard and experienced a diversity of cases, ranging from relatively minor infractions like dairy farmers diluting their supply to factories, farmers adding rocks to increase product weight, and vegetable farmers not honoring their supply contracts when market prices are high; to more confrontational behaviors like middlemen spreading rumors about the Company and thugs blocking access to factory gates. An entrepreneur, that I personally know, received death threats from community members when he wanted to expand his Company’s operations to a new area. These issues are only the ones I heard of, I am sure there are more and crazier things being faced by impact enterprises around the world.
Some of these issues, while being disruptive in nature, will go away with time. It is part of the learning process. Some entrepreneurs even wear them like badge of honors. However, some entrepreneurs had worse experience with more than a few of them are never able to recover. One of the most famous cases is of course the microfinance crisis in India in 2010, that brought down the whole industry to its knees when state government officials allow debtors not to repay the loans, causing some lending institutions to become insolvent.
While some problems with community is unavoidable and are part of the learning curve, impact entrepreneurs should avoid getting the lessons in a hard way by implementing the right measures from the beginning. At the very least, the entrepreneurs should be aware about these potential risk factors causing the issues:
1) General trust level could be very low
There probably are buyers already operating in the area, who might or might not be very trustworthy in their dealings. I have seen (non-impact) Companies who always pay the communities with arbitrary discounts since they assume farmers always cheat. The communities that are accustomed with such unethical practices will assume that a new player will operate in the same way.
2) Government or non-for-profits might have distorted the market
Government, non-profits, or even impact enterprises operating with grant money have different objectives and approaches than regular impact enterprises. They tend to focus more on improving skills and livelihood than on surviving and being sustainable. Communities can only experience mindset change when they are dealing with market realities rather than markets distorted by the non-for-profits or subsidized players.
3) Influential community leaders not been approached in the right way
Community leaders in rural areas can come in different forms than the regular government officers, as they can be the local nobility, retired officials, or religious teachers. They have more influences than their roles would suggest, as presence of government institutions are often not very strong in rural areas. Having employees, or management team members if possible, from local area is instrumental in understanding local power dynamics. The nuances of the historical context, cultural context, and local customs/etiquette are almost impossible to be easily understood by outsiders.
4) Existing players being cut-off without alternatives
While existing players may represent the “old market orders”, they should be given the opportunity to participate in the new and improved supply chain. One of the most common mistakes that impact entrepreneurs make is attempting to “bypass” the inefficient supply chain without considering the local power dynamics and potential reactions from the existing middlemen.
5) Proper complaint mechanism has not been set-up
In developed markets, institutions like the arbitration and the court of law exist to resolve issues. In markets in rural areas, such institutions either don’t exist or are limited in their authority or integrity. In this case, the impact enterprise should have a mechanism to collect transaction data and process complaints from communities in an efficient, fair, and transparent way. The absence of such mechanism can increase the chance of the communities being increasingly antagonistic towards the company.
6) Not enough time allocated to “test the water”
Another factor that is also critically important is time. Having a good reputation in other geographical areas would help, but still, there is no easy shortcut to earn trust and, at the same time, to understand who are the good players and the bad players in the market. The Company can start small not to attract backlash and gradually increase its exposure to the market.
No Company Is Immune
In my observation, the risk of backlash increases when the Company starts to become visible (e.g., when a factory or a processing plant is being built) or to have a sizeable market share. This is the critical period when the community feels that the Company is going to play a significant part in the economy of the area, but the intention of the management is not yet clear. The Company might also still be fine-tuning the business model, sending mixed signals to the market.
The risks are also larger if the business model revolves around buying products from the community. For impact enterprises who is selling affordable products or services to the poor, the risks are smaller because rather than getting adverse reactions, the Company might simply just unable to improve sales.
It is not that rural and poor communities are inherently aggressive in their approach. It is just that they have fewer avenues to express their unhappiness, compared to the middle-class urban communities who can complain in social media, write open letters to the press, or sue the companies they think are committing the wrongdoing. Poor people’s lives are more vulnerable, and they don’t have such luxuries to communicate their anger. Entrepreneurs should look at the backlash as a sign of the importance of the Company to the local economy. If the Company is not important, there would not be any complaints or uneasiness in the community.
I have never seen any impact enterprises being immune to these risks. The backlash will happen no matter how good the intention of the Company is and how well-trained the field agents are. The most important step is to recognize potential issues and mitigate them so that when they do appear, the impact would not so much that it can crush the Company. It is easier said than done, and it is probably more of an art rather than science, but it must get done before it is too late.