Introduction:

Entrepreneurs are really the engine of the whole proposition; they may need fuel (ie services and capital), but in the final analysis, it is their hard work and dedication which leads to success. The word "entrepreneur," in this case, can actually refer to a broader class of actors, individuals or groups in the private sector, civil society, or government. The institutional home or title assigned to these men and women does not matter a great deal. It is their commitment that does. Not everyone is cut out to be an entrepreneur or champion, self-motivated and willing to assume large amounts of responsibility and risk, but in any community, there are bound to be some...

Case studies
Lessons learned
Tools


Case Studies:


In some cases, the successful entrepreneur can't be given enough credit for his/her skill and determination in coping with adverse conditions. An example of this kind of entrepreneur is found in Harish Hande who started his Solar Electric Lighting Company (SELCO) in Karnataka, India in the mid 90s. An excellently written case study SELCO can be found in this report by Navigant Consulting, Inc. and Soluz, Inc. ("Innovation in Rural Energy Delivery"), but even that doesn't fully capture all the qualities of Dr. Hande and his team which led to SELCO being the success that it is today.

This graph, taken from the NCI/Soluz report is very illustrative; look at how many years went by and how much growth in sales occurred while SELCO was operating on mostly negative, at best razor-thin, margins. It was only very recently that SELCO has accessed any grants, awards or other "soft money." This is important, because although early investments in the company may have been considered concessional on the books, Dr. Hande and the authors of report agree that so much additional work and bureaucracy was required to access this "soft" funding, that, in the end, it turned out not to be such a cheap source of finance after all, perhaps more expensive than even commercial capital.

SELCO_-_Revenues_and_Profits.JPG
From: "Innovation in Rural Energy Delivery," NCI/Soluz, Inc. (2006)

In other cases, "entrepreneur error" has been almost singularly responsible for the failure of a business. One example of this is K.Charcoal where, in spite of the provision of enterprise development services and the conducting of due diligence, the entrepreneur performed significantly below expectations, essentially scuttling the business.

However, there are not only two types of entrepreneurs: good and not-so-good. There is extreme variety across entrepreneurs and, luckily, there are numerous roles and positions that these people can take up. The key issue is finding a "good fit." The tools in the next section will help elucidate some of these issues.



Some Lessons Learned:

Reproduced from the UNFCCC Guidebook on Preparing and Presenting Proposals (2007), pg 46
  1. A Champion is willing to invest his or her money, time and reputation to turn a viable core idea into a successful enterprise and a full-time opportunity. Early in the relationship, an enabling organization needs to have a tangible sense as to the money, asset and time commitment of the entrepreneur.
  2. Champions need easy-to-use guidance that responds to the needs of enabling organizations. Further, Champions need information to access, particularly with respect to sources of funding and other support. These exist, need to be scrutinized and evaluated and classified for ready reference by Champions once their plans and needs are clear.
  3. Providing active assistance and support entails a three–five-year “marriage” with a Champion that has much against it. Enablers need to choose the right Champion and vice versa. At the same time, do not let personal preferences cloud judgments. The “right partner” is a good business partner, though he or she might not be someone with whom you want to share a social meal.
  4. Champions who come to business sectors via politically connected entry points and without experience should be challenged as to their ability to implement.



Tools:


The following are some tools, exercises and checklists that can be used either by entrepreneurs, financial institutions, or program associates to assess the relative strengths, weaknesses and motivations of potential entrepreneurs.

More detailed checklists for Champion and team assessment can be found on pages 118-123 of the UNFCCC Guidebook for Preparing and Presenting Proposals.

The following is reproduced from the REED Energy Entrepreneur's Toolkit, UNEP, 2005 (original document can be found here)

Summary of contents
Accompanying exercises
1) Personal objectives
1) Determining your objectives
2) Strengths and weaknesses
2) Assessing your strengths and weaknesses
3) Skills required
3) Does your business have all the necessary skills?


Personal Objectives
Why are you starting this business? Is it to produce a regular income, to create a valuable infrastructure project you can sell, to build a company that will grow and take on many projects, or to gain experience? It is important to know why you want to start a business, since different objectives imply different business strategies or altogether different types of businesses. For example, building a rural energy services company supplying a product or service to many households is a way to create regular income. That type of business can be grown over time. Alternatively, if your business objective is to develop an energy project and then sell it for a one-time payment, a hydroelectric project supplying power to the national grid would be a better idea.

Think about your goals, and then review the following list of typical business objectives. As you develop the business
idea, consider the basic guidelines provided next to each objective and how you can integrate those strategies into
your plan.

Exercise 1 - Determining your personal objectives
Create a valuable business over time by
growing it slowly
Use all available income to reduce debt and maintain the
project’s operating condition. Look for loans not investment part-
ners. Be careful about the financial health of the company. Place
emphasis on a smaller, easier to complete first project. Reduce
pay out to owners and use cash flow to attract and reward key
members of the team and for working capital to grow business.
Produce a regular income
Include a salary line in operating expenses. Keep debt to a
minimum and thereby increase cash flow available for regular
dividends to owners. Requires more equity and less debt.
Earn a one-time fee or lump-sum payment
Increase the value of the project with minimum cash outlays.
Line up buyers early. Evaluate options for the best time to sell.
Improve the well-being of a particular
community
Incorporate local training and capacity building into project cost.
Include ‘buy-in’ options to transfer responsibilities to local resi-
dents. Incorporate social benefits into businesses (e.g. com-
munity water pump or solar refrigerator for community clinic).
Gain experience
Partner with an experienced firm, sacrificing a larger ownership
stake for the chance to gain experience quickly and move on
independently.
Be involved day-to-day
Include a position within the team, provided your qualifications
match needs. If appropriate and needed, include a salary line
in operating expenses.
Be involved only part-time
Include each position and salary required within the team.
Recruit a qualified general manager. Organize reporting relation-
ships but place emphasis on plan and policy approval combined
with reporting systems, all of which must be funded. Consider
owner-engineer or project manager to protect owner’s interests.

Evaluating strengths and weaknesses

Business development and implementation are tasks for entrepreneurial personalities. There are many variables in business development and implementation—an ill-suited personality can spell doom for a solid idea and lead to great frustration. Entrepreneurs need to take stock of their personality and their skill sets.

What are the characteristics that define an entrepreneur? This is a highly speculative and subjective topic—and
certainly not a test—but some patterns seem to emerge:
  • Entrepreneurs are usually given high marks for high energy level and determination; independence and resourcefulness; originality; curiosity; and flexibility.
  • Self-confidence and courage are attributes which are given lower but still important marks. Entrepreneurs tend to be self-demanding, self-starting and thorough.

Of course a person who does not possess all of these entrepreneurial characteristics can be successful in developing an energy business. The crucial step for the entrepreneur is to understand his or her weaknesses and to use the choice of project and team to balance the equation. For instance, a central supply business selling to the grid through a power purchase arrangement is a more straightforward type of business than installing household solar systems in hundreds of locations. Also, some entrepreneurial shortcomings (e.g. a dislike of negotiation, a lack of long-term experience with the technology) can be overcome by choosing a certain type of business partner or hiring the right kind of advisor.

Now it is time to evaluate your personal strengths and weaknesses. This will help you to define the gaps that must be filled by your business team.

Exercise 2 - Answer the following questions (be honest!):
  • What are my strengths and skills? (Examples include hard worker, good people skills, and technical capacity)
  • What financial resources can I bring to a new business?
  • Why do I think this will work for me?
  • What is going to be the hardest part for me? (For example, writing a Business Plan, finding a location, accessing finance, or finding an honest partner)
  • Why would these activities be hard for me?
  • Can I overcome these obstacles? How?

What skills will your business require?

Before you can start a business, certain skill sets must be acquired. All successful businesses have included people with the necessary skills. Even if the skill sets do not exist at this stage, it is important to know what skills the team will need to establish your business successfully.
  • Marketing and Sales: Identify customers for the product or services of the business and develop a pricing, advertising and promotion strategy to attract them. A person needs to determine and make use of the business's competitive advantage.

  • Operation: Operate and maintain the business in a cost-effective manner.

  • Distribution: Select the most efficient and effective method of delivering your product or service to customers.

  • Financial Planning: Estimate the financial requirements of a business and prepare a mix of financing alternatives, including financial analyses such as Cash Flows, Income Statements and Balance Sheets (explained in later chapters).

  • Management: Oversee and coordinate all of the participants in the business, with respect to the company’s mission, performance, schedule and budget.

  • Permitting, Legal and Regulatory Matters: Understand and comply with the relevant rules and regulations governing your business.

  • Negotiations: Reach agreements with all of the parties with whom the business interacts—contractors, customers, government authorities, employees.

  • Bank and Investor Relationships: Raise debt and equity and build business relationships that result in cost effective capital sources for the project.

  • Management Reporting (Monitoring and Evaluation): Maintain a system of performance measurement and evaluate performance against original plans and benchmarks. Confer with lenders, investors and stakeholders regarding performance against this plan.

  • Pre-operational (these requirements are for grid-connected projects only):
    • Design: Spell out the requirements of a physical project or product and correlate available resources to achieve desired performance.
    • Engineering: Prepare the detailed civil, mechanical, structural and electrical specifications of a product or project and supervise its physical implementation in a way that achieves desired performance at reasonable cost.
    • Procurement: Buy equipment, products and services needed to implement a project in a cost-effective manner.
    • Construction: Prepare the site, install equipment and prepare for operations in accordance with project specifications, budget and schedule.

Whether proposing to produce electricity for sale to a national grid, or to start a small business providing energy services to individual households and businesses, the quality of the business team will most likely be THE critical element of the business on which partners, lenders and investors will base their decisions. For some investors, it will be absolutely essential that the team include someone with very direct experience—successful experience—in a closely related activity. For others, it will be important that the team has substantial money at risk in the business from the very beginning.

These requirements may not be as crucial for some parties, but these will tend to be early stage lenders and investors who will provide small amounts of money on the basis of ‘one step at a time’. The message here is clear— you must assemble the best possible team to plan and implement the best possible business. As lenders and investors are reviewing your Business Plan they will be evaluating the business team by looking for answers to the types of questions given in Exercise 2-3. Go through the questions now, and answer them for your business idea.

Exercise 3 - Does your team have all the skills?

  • Technical: Are there specific engineering or mechanical challenges that require specific technical skills on the team on a permanent basis? What are those challenges and skills? Can these needs be met through a contract relationship or must one of the core team be an expert?

  • Operations: How complicated is the day-to-day management? Are there many employees and partners to oversee?

  • Financial: What are the financial aspects of the business? How will the ongoing financial requirements be met over the life of the business? Can a chief financial officer be hired later or should the team include a financial expert from the outset? What are the accounting practices?

  • Negotiations and Sales: Will there be a need to regularly update the terms and conditions of ongoing business relationships with suppliers and customers? Will the business always be seeking new customers and relationships or will this be a one-time event?

  • Legal: Will the regulations and contractual relationships governing the business be fixed or will they change over time, requiring regular attention?

  • Political: Will regulations and policies affecting performance be evolving and require attention and lobbying?

  • Funding: What is the minimum amount of funding needed to complete work underway and make the business attractive to lenders and investors? How much has the team spent already (time and money) and on what? What, realistically, will be needed to complete all of the tasks identified? Then, how much cash equity is needed to assure that the team retains a substantial portion of ownership and control? How much cash equity does the team have? Is that enough to be credible when negotiating with lenders and investors? Is there an early stage financial source available to supply these funds? What will the team be giving up and gaining by taking a financial partner?

  • Entrepreneur Skill, Experience and Resources: Of the qualifications needed for the team, what skills does the team possess? Are there partners who round out this skill set? Are there advisors who can be hired to assure that all the skills needed are represented? Does the team have an experience base that will ‘impress’ lenders and investors? If not, is there an addition to the team that could solve this problem? Is it possible to contract with an experienced party as part of the team? If not, how does the entrepreneur propose to convince lenders and investors that all the skills and experience needed are at hand? Does the team have the time and money needed to complete the work identified?