I find it strange that when I describe Alter as either development consulting or a prospective venture fund in frontier markets, I usually don’t receive any further questions. In other words, if I describe the means (or inputs), I don’t get asked, “And to what end?” But at Alter, we start with outcomes and work backwards from there. That is, we start with the ends and use them to figure out the best means. We know this is the right way to go about our work, but it makes it a bit harder to define ourselves concisely.
So what does Alter do?
We find and help scale the best businesses in least developed countries, because we believe that these ventures can create disproportionate value for their communities and economies. We tailor inputs to each company we work with. We run a management training program, help companies find full-time and part-time talent from the diaspora, provide connections with mentors and subject matter experts, advise on business strategy and broker connections with financiers, buyers and suppliers in different markets.
It’s a struggle to fit these inputs into a neat, descriptive box.
Strangely, corporations and institutions in development are more easily identified by processes or inputs, which are simpler to measure, than by outcomes. Such vocabulary is so deeply entrenched in international development that “consulting” and “funds” are two straightforward ways to describe interventions that aim to scale businesses in the private sector. We want to change that paradigm by always leading with outcomes — a topic worthy of a separate essay, soon to come. To see why outcomes are so important to us, I would like to focus a bit more on our experiences working across four countries over the past year.
Is Alter an accelerator?
At first glance, the term “accelerator” comes closest to describing what Alter does: a suite of interventions or services designed to scale high-potential businesses in challenging environments.
But that’s where the comparison stops. As we’ve scaled across Haiti, Myanmar, Afghanistan, and now Cuba, the absence of high-growth companies has been obvious. In academia, this has been dubbed the “missing middle” — a gap in the distribution of companies, with lots of small sole proprietorships, some large conglomerates, and very few medium-sized companies. Unsurprisingly, we’ve had a small pool to choose from.
If we had a strong pipeline of high-quality companies at roughly the same stage of growth, a standard, off-the-shelf suite of services that could scale effectively, as Alter grows across countries, would make sense. But given that we have small pool of fairly diverse businesses to choose from, we can maximize our chances of success if we provide highly personalized services that address the exact constraints for each business.
What are these constraints? Once we found a few entrepreneurs, teams and companies that we believed in, we used an innovative approach to find out: We asked them.
What Alter’s ventures need: People, knowledge and credibility
Based on our experience so far, we believe there exists a hierarchy of needs by size of company. The smallest companies need a way to signal credibility. Mid-sized ventures require knowhow and specialized knowledge. And our largest companies need to find the human capital to execute on that knowledge. As we gather more data, we will refine this framework, but here’s a brief explanation:
Many ventures identify access to high-quality talent as a challenge. This challenge is especially acute for our largest companies, which struggle to find, recruit and convince talent to move to one of these countries. That’s why we are developing relationships with the diaspora and exploring tools to recruit full-time talent for these companies. These companies also indicated that high-quality management talent is scarce. In response, we launched a management coaching program that matches our ventures’ managers with trained volunteers in the US.
Slightly younger companies, or younger entrepreneurs, tend to look more actively for advice or mentorship. Their key constraint is access to knowledge: they need to know what to do and how to execute before they go about collecting the human resources to execute that. Alter provides access to a variety of experts through our networks in Silicon Valley to fill that gap.
The smallest companies need credibility. The cost of due diligence on small businesses in an environment with weak governance and enforcement is high compared to the size of the business. Therefore, most entrepreneurs will typically search for a means to signal quality and honesty. This could mean a grant from a reputed agency or a link to brands from the entrepreneur’s own background. Alter uses its own credibility to broker connections between these companies and suppliers, buyers and financiers.
By tailoring our services to the unique growth stages and needs of our ventures, we’ve found that we are able to add value for our entrepreneurs where and when they need it most.
But what about financial capital?
After all, that seems — from the outside at least — to be what entrepreneurs really need most. There’s a chunk of literature that argues for financial capital being the primary constraint in the growth of small and medium enterprises. In fact, we initially started out in Haiti with the belief that we would move into direct investments. But here again our experience on the ground has been enlightening.
Most of our companies, in fact, do not state access to capital as a constraint to growth. With the caveat that I’ll soon be posting a more detailed article on financial capital in these markets, here are a few highlights:
- Companies with the most urgent need for capital are either growing quickly or are almost bankrupt. So, the request for capital does not, in isolation, reveal any information on the quality of the company.
- Trust precedes investments. Understanding entrepreneurs’ and companies’ constraints is easy if they simply tell you. But most companies would only share that information if they didn’t have the prospect of a valuation down the line. As a mission-driven organization, we are able to build a trusted relationship with entrepreneurs, who know that their success is our ultimate objective.
- There’s actually a lot of money chasing any deals available. Why do more companies not ask us for connections to financiers? An obvious explanation is that the best entrepreneurs mobilize resources very effectively. But in these markets, financiers also rely on each other as a signaling mechanism, and one company can mobilize funds rapidly once that company secures funding from a large, reputable investor.
Given the general scarcity of deal volume, we’ve found that there is an abundance of money chasing the same small set of deals. Credibility and evidence of scale seem much more crucial at this point in frontier markets. For now, we’ve decided to stick with the theme of meeting local needs and working on these fundamental challenges. If we nail these issues for our ventures, the money will come naturally
The point here is that Alter’s work is complicated to explain, but only if you focus solely on the inputs. Are we a venture fund? No. Are we a consultancy? Not quite. An accelerator? Close, but we’re much more tailored than that. Wouldn’t it be easier to just call ourselves something and get on with our business?
But for us, outcomes truly are king. We define ourselves not by what others do, but by what must be done. We scale ventures in frontier markets, in order to create impact where it’s needed most. We venture boldly. Won’t you join us?
