Randall Kempner of ANDE Joins Denver Frederick

The following is a conversation between Randall Kempner, Executive Director of Aspen Network of Development Entrepreneurs or ANDE, and Denver Frederick, Host of The Business of Giving on AM 970 The Answer in New York City.

randalDenver: In the United States, when politicians and economic thought leaders discuss getting the economy going again and creating jobs, what do they talk about? That’s right; small business. That is where all the job creation is coming from, they tell us. So, it only stands to reason that the best way to create jobs and build economies across the globe –especially in less developed countries– is through small and growing businesses. And one organization that is dedicated to making that happen is the Aspen Network of Development Entrepreneurs or ANDE for short. And joining me now is their Executive Director, Randall Kempner. Good evening, Randall, and welcome to The Business of Giving.

Randall: Denver, it’s great to be here.

Denver: Tell us about ANDE, how and why you were founded, and what you do.

Randall: Thanks. So ANDE basically was created because its founders wanted to find a way to help millions of people in developing countries lift themselves out of poverty. Essentially, what we want to do is to create a movement like “microfinance,”  but aimed at the next level up. So we’re trying to help small businesses–those that are led by growth-oriented managers– to get access to the money, to the technical assistance, to the training, to the talented people that they need in order to thrive in the developing countries around the world…  ultimately creating jobs… and addressing social environmental issues that the poor face in hundreds of countries around the world.

Denver: How would you define a “small and growing business?”

Randall: So first of all, let me apologize to those of you who don’t want to hear another DC- created acronym, but the “SGB” we thought was important to create as a term and to adopt. Because it is the segment of small and medium enterprise…which is the term of art… that represents businesses that are seeking growth capital between $20,000 and $2 million, and are explicitly led by growth-oriented managers. These are the small sub-segment of “SMEs” that actually have the potential to grow and create those jobs and those social impacts that we’re looking for.

Denver: And ANDE would be what they call an “intermediary organization.” What is that,  and how do you operate?

Randall: Yeah.  We’re basically an industry association, to put it in simple terms. We have 262 members as of today.  And like any industry association, we do two big things: we try to help our members be more effective at what they do;  we try to grow the industry.

Denver: What kind of members, and who are some of your members?

Randall: The idea is that our members would reflect the full ecosystem of players that are relevant to helping entrepreneurs in developing countries. So what does that mean? It means we’ve got development agencies like USAID and the World Bank. It means we’ve got big corporations like Citi and Shell. It means we’ve got dozens of impact investing funds. We’ve got multiple multiple dozens– over a hundred– of capacity development organizations. These are like business accelerators and other technical assistance groups that are helping these businesses directly in emerging markets. We also have foundations; we have universities; we have research institutions. So collectively, we’ve got information; we’ve got training; we’ve got financing; we’ve got technical assistance. If you’d offer one of those things to entrepreneurs in emerging markets, you might be an ANDE member.

Denver: That’s quite a breadth!  The Aspen Network of Development Entrepreneurs is part of the Aspen Institute. Just give us a word about the Aspen Institute and how your work connects with them.

Randall: The Aspen Institute is a 60+ year-old institution based in Washington whose basic mission is to promote a better society. It’s really that broad, and in that context, the Aspen Institute does a whole series of things– from leadership development programs to our big highlight festival: The Aspen Ideas Festival, which is out in Aspen, Colorado. And then 30+ policy programs that literally run the gamut– from promoting investment in the Middle East, to trying to address poverty in rural areas in the United States, to promoting youth engagement.  One of those 30 policy programs is ANDE, the Aspen Network and Development Entrepreneurs. So, we are part of the Aspen Institute in that way.  But like all of the policy programs at the Institute, we are quite independent and autonomous and responsible for raising our own money. It’s actually a great place to be based– a lot of independence, but access to an array of brilliant people and ideas.

I personally think that there’s still a role for government support, and we need strong government entities in emerging markets…

Denver: That’s great. I think that the interest in supporting these social businesses and finding market-based solutions to solve problems has been driven, in part, by those who are frustrated with this international development enterprise. What have those frustrations been?

Randall: Yeah. As ANDE was being formed, there were a couple of popular books: one was called The Aid Trap;  the other was called Dead Aid.  So, you get the sense of what was going on.  I think there was legitimate… and is… legitimate frustration that the traditional development community had not embraced private sector development– had not embraced market-based approaches to development sufficiently.  Part of that was because you looked at the history, and you saw lots of cases where money was being given directly to, loaned to, or sometimes invested in government entities without thinking enough about how that actually gets translated into impact on the ground– to the individuals in the families that we’re trying to help. And so ANDE was created in that  era and ethos saying: “You know what?  There are some other approaches that we need to try.” And I personally think that there’s still a role for government support, and we need strong government entities in emerging markets…

Denver: Right.

Randall: …That’s key!  But I also feel… critically… that entrepreneurship, in particular, is a development strategy which has definitely not been fully leveraged.  And ANDE exists to try to push more organizations to get involved in that.

You, as the investor, need to intentionally be saying: “Ah! I am making an investment in company X because I hope that I will get a 5% return, and I will see the reduction of carbon by X millions of tons.

Denver: This entrepreneurship and these social businesses– what they’re going to need at the end of the day, is investment, and that specifically would be impact investing.   I was over at the Clinton Global Initiative recently, and I was speaking to someone about impact investing, and that it hasn’t perhaps lived up to its hype.  They felt that one of the reasons for that is that it kind of got muddled somehow. So, let me ask you to give us a clean and clear definition of what impact investing is.

Randall: Sure. So for me, impact investing is investing with the intention of having both a social and environmental and financial impact…So investing with the intention to have both a social and a financial positive return. Let me unpack that a little bit. First of all, critical to know, it is investing; it is not grant making. So you’re not giving your money away!  And one of the things which I do think muddles this is when foundations and others–that are giving money away, say, “Here’s my investment… No, there’s your grant!” Grants are amazing and important and a really important element of the space that I operate in, but it’s not investing. So, that means you do have the financial return expectation.  The financial return expectation may be lower than market rate, risk-adjusted returns. But you still want your money back… or some portion of your money back. And in some cases, you want all your money back, or, sorry, plus a big profit. But you have to have an intention to also have the social and environmental impact. What makes that different– and where it also gets muddled– people say: “Gosh, every business creates jobs. Doesn’t that make it an “impact investment” if I invest in that business?”  And the answer is: No, because it can’t be incidental. You, as the investor, need to intentionally be saying: “Ah! I am making an investment in company X because I hope that I will get a 5% return, and I will see the reduction of carbon by X millions of tons.” And you’ve got to measure it.  That’s how you know there’s intention.

Denver: And in this ecosystem that you just described, you have “impact first” investors and “finance first” investors. What’s the difference between those two, and how do they work together?

Randall: Right. It’s really helpful to think about the way that people get into impact investing to unpack this. If you are a philanthropist, what you’re used to is giving your money away, and you have negative infinity financial return. You’re not ever going to see the money again, but you’re putting this money out there because you seek a social impact.

The allure of impact investing to you is that: now you have the potential– because you’re doing a loan, or because you’re doing a returnable grant–You might at least get your money back, or you might get a small profit which you can then reinvest in philanthropic causes. So, it is a way of making your money continue on. Typically, those who are coming from the philanthropic sector are “impact first”  investors. They say: “I want to make sure I get this impact: helping people out of poverty within a poor neighborhood in an urban area…. or creating toilets in places where there were none before. And then, I’ll take whatever financial return I can get. Impact first!”

Now on the other side, let’s say you’re a traditional investor. You’re here on Wall Street, and you are all about maximizing financial return. Meanwhile, a growing number of individuals and organizations are saying: “Well, you know, maybe there is something more to this. Maybe I can have my cake and eat it too… and have financial return, as well as some social impact. And they inch into this space by saying: “Well, all right. I have a financial return bar. I want to make 10% IRR… whatever.  And then I’m going to look for the most social impact beyond that.” So they say: “Great, let’s find a super investment in low-income housing where there’s an incredible demand for this market.” In India there is, for example. And say: “Great! I’m going to do this because I see the financial opportunity, but then I’m going to maximize my social return outside of that.” That makes him a “finance first”  investor. And what is fascinating about this space– and it’s very nascent– but you’re seeing all these growing, blended finance deals… where you have a mix of “impact first” and “finance first” investors, along with those people who may just be giving pure philanthropy.  And you see these fascinating layer cakes of financial deals. I will say, tongue-in-cheek, that this is a place where financial innovation is still very much needed, and it’s still actually got a positive connotation.

Denver: Yeah, very interesting space. And they can also be somewhat countercyclical, I would imagine, because if the world economy goes a little south, some of these businesses are going to be needed in those places– like housing in India– that you just described.

Randall: Yeah. I mean, It’s actually a pretty good countercyclical investment because the kinds of things that ANDE members, in particular, are focusing on: access to water and sanitation, access to basic education, access to energy– those are resistant to global economic downturns. That demand is not going away.  Certainly in the 2008 to 2009 time period, impact investment looked like an amazing opportunity relative to what you were seeing in public markets.  But it is a countercyclical investment at all times.

Denver: Let’s move on now to the challenges that these entrepreneurs, particularly in the developing world, might face. I would imagine good talent would be one of them, correct?

Randall: Yes! I actually think it’s number one. Most of the time when people ask this question, they assume the answer is going to be that the most important thing is capital. If you ask even most of the ANDE members today, a majority would probably say: “Yeah, that’s the number one issue.”  I believe– and I think a growing number of ANDE members believe– that a bigger challenge is access to talent. And, indeed,  fundamentally it  makes sense because most investors would tell you that they invest in the team, not the idea. Well, it is particularly hard in emerging markets to identify, attract, and retain mid- and senior-level talent to social entrepreneurial organizations. You can find entrepreneurs anywhere, but finding that number two, number three, number four manager… finding that finance manager, sales manager that you need when you’re trying to scale the company is really hard to do in places where you don’t have as rich a management training apparatus as we do in the United States, or in Europe.

Denver: Microfinance and microcredit has been a remarkable story, although some of the recent studies on it have been a little less enthusiastic about its impact. Has that provided any kind of a pipeline for people who’ve been successful at that– the sole proprietors and moving into the small and growing businesses?  Or do those people pretty much stay one and two-person operations?

Randall: Yeah. I will share, Denver, that when I started this job, I expected it that would be the perfect scenario, right? It’s like: “Oh yeah! There’s gonna be an easy pipeline; it’s gonna be 5% of micro enterprises grow into being small and growing businesses, and it would be easy to try to support that 5%. Turns out it’s not 5%, it’s like 0.5%.

It is a very small number of these enterprises because they’re not in sectors, and they are mom and pop shops, right?  Or you have individuals that are selling cell phone time– literally selling phone call, by phone call– or selling the milk from one cow.  And sometimes these grow to having two cows or three cows. But microfinance, I think, has been really helpful in helping millions of families grow out of poverty, typically from abject poverty to just above abject poverty.  But what you can’t do is build an economy based on micro-enterprise. You need to get to the small and growing business space… where you’ve got five employees and where you are not just employing your family members. And so there are some stories where micro-enterprises grow into SGBs, but typically what we’re finding is that you need to have business people– business women and men who have this vision to begin with that they’re not gonna be a micro– that they are starting with the intention of being a small and growing business.

Denver: Of the enterprises that your members invest in, how many of them are female-owned?

Randall:I don’t know the exact number, but what I can tell you is that way more than half of our members explicitly focus on women’s entrepreneurship as one of their areas of interest. What I can tell you is that unfortunately, it is much more difficult for women in most countries to get access to capital and to talent…

Denver: In this country, as well!

Randall: And so, it’s just so obvious, right? You’ve heard this “half the sky”… half lots of things that we’re just leaving on the table. Women are entrepreneurial everywhere, and there’s just this incredible opportunity that the world has to empower women in many ways, but particularly by giving them economic empowerment. What tends to be the case, as I’m sure you know, is that they are much better stewards of capital than men are in most cases. And so the benefits of supporting women entrepreneurs have been shown to be stronger than men entrepreneurs.  There are just fewer of them out there.

Denver: Absolutely. When people talk about startup ventures and new enterprises, Randall, it always gets around to “accelerators”  and “incubators.”  Boy, there are hundreds of them around the world, and they seem to be popping up all the time. Do they help?

Randall: Well, that’s a great question, and you’re right.  As you know, I’m from the great state of Texas, and I recently suggested that incubators were popping up like Texas wild flowers in Spring. The difference is that the Texas wild flowers have been demonstrated by academic studies to actually have a significant economic impact in tourism, whereas we don’t know about accelerators– particularly in the emerging market context. So, my honest answer is : Of course, some are probably doing a great job, and some are not.  But ANDE has launched something called the Global Accelerator Learning Initiative– or GALI for short–and is working closely with Emory University in Atlanta as our academic partner, and a number of funding partners to try to answer that question.

Do accelerators work? In which countries? Under what circumstances? And critically, because we know that some of them will work: Are they working in a way which is economically sustainable? And if we’re going to subsidize them: What should we expect to get for our subsidy?  An  initial report shows that: Yes, those businesses that get accelerated look like they do better than those which are not accelerated. But what we haven’t been able to unpack yet is:  whether that’s just because accelerators are doing a good job of picking winners, or because it’s actually the experience of the accelerator that has led to them being more successful… but we’re getting there.

Denver: Got it. We were talking about these social businesses that are looking to have both a financial return and a social return. So, let’s focus on the latter for a moment. In the nonprofit sector–the NGO sector–we have a devil of a time trying to measure the kind of return that we have.  And that’s probably more central to a nonprofit than it would even be to a business. What kind of headway are we making in getting metrics that will let us know what kind of social good these companies are creating?

Randall: Yeah. So it is clearly a nontrivial problem to figure out the social impact of the social entrepreneurial organizations, particularly in places where it’s very difficult to get access to the ultimate information we want–  What is the impact on the households?  What’s the impact on the people? And as an aside, I’m not doing this because I care about how many businesses I support.  I’m doing it because I care about people living better lives.   That’s what we care about. So, what kind of progress are we making? Well, one major piece of good news is that we’re making some progress on IRIS, which is the Impact Reporting Investments Standards. This is basically a dictionary of metrics which has been developed by the Global Impact Investing Network– with lots of partners, including ANDE. It  doesn’t tell you what to measure, but it says if you’re going to measure how many jobs you’ve created, here is a common definition of what a full-time job is. It’s a taxonomy or a dictionary. Gotta have that before you can have any sort of comparability.

Denver: Apples to apples.

Randall: So, we’re making progress on the apple tree. That’s hard. Even harder though is: How do you get these social entrepreneurial organizations that don’t have a lot of money or time to spend some of it capturing that information?  And so where we’re seeing some really, really impressive progress is in leveraging mobile telephony— very simple text surveys that one can use to get data inexpensively, and without being too much of a burden on those poor families…so that we actually can say what kind of lives they’re living as a result of the interventions that are taking place from these social entrepreneurial firms. And we’ve got a long way to go, but both the taxonomy and the tools are being developed to make those of us who care a lot about metrics more comfortable with what we’re reading and, hopefully someday, can really believe in the impact that we’re creating.

Denver: Let me pick up on that a little bit as well.  As you know, last year the United Nations agreed to 17 sustainable development goals addressing issues like poverty, reducing inequality, and the environment. How important, Randall, do you see the role of these small and growing businesses playing in helping the world achieve these goals?

Randall: I think they’re going to be critical. Across all of the 17 goals, there is a role for entrepreneurial firms.  There are goals about water and sanitation; there are goals about education; there are goals about empowerment of women. The entrepreneurs and entrepreneurial solutions will be part of the answer across all of those 17 goals, and I think they’re not the only answer.  But I come back to my earlier point:  We as a world– and certainly as a development community– have not leveraged the power of entrepreneurship sufficiently.  ANDE is here to push that… provide tools for that… to advocate for that as much and as loudly as we possibly can. And I think the SDGs and the global consensus around them gives us an opportunity to help promote that solution.

Denver: Also, I would imagine these small businesses are probably going to be particularly good at reaching that last mile, unlike the giant conglomerates.  They’re there, and that’s always a big piece to being able to attain these goals.    

Randall: Yeah. At the end of the day, people talk about the last mile as being the biggest challenge.  Having been on some of those last miles to rural areas in Africa and Latin America… I would say two things strike me: One is the amazing reach of Coca-Cola, which I think is well known but they are often leveraging small businesses to get to that last mile. And the second is:  just how different the world is when you don’t have access to roads, the internet, to clean water.  Because they’re having to go and walk for another mile to find it even at the end of the road. So, I am  both optimistic and chastened by how challenging that will be.  But I do think that in this case, the arc of history tends toward reach. We’re gonna get to last miles if we want to. And the technology tools that we’ve been able to develop… and I mean we–globally, not we–ANDE… I think are going to help us get there sooner than we would have expected before.

Denver: Great. Well, Randall Kempner, the Executive Director of the Aspen Network of Development Entrepreneurs. I want to thank you for being here this evening. Where can people go to learn more about ANDE?

Randall: Thanks for asking. We’re at andeglobal.org on the internet, or just come see us in Dupont Circle in Washington DC.

Denver: Wonderful! Well, it’s great to have you on the program, Randall.

Randall: Thank you!


The Business of Giving can be heard every Sunday evening between 6 and 7 PM Eastern on AM 970 The Answer in New York and on I Heart Radio. You can follow us at bizofgive on twitter and at facebook.com/businessofgiving.

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