You likely spend a lot more time on a webcam and a lot less time "grabbing coffee" or hopping on a plane to meet partners. The phrase "scenario planning" pops up in conversation at an uncanny rate. And your social media feeds are undoubtedly dominated by analysis of the COVID-19 pandemic's impact, efforts to overcome associated challenges, and thankfully, some success stories of those who are setting amazing examples of converting crisis into opportunity.
Here in Southeast Asia, it has been no different. Although the virus has been less prevalent in some countries, others like the Philippines and Indonesia have unfortunately seen an uptick in both cases and mortality rates. Regardless of whether a country has been directly impacted, the economic reverberations have been felt widely. Shutdowns and movement restrictions have slowed trade and major parts of the economy. Governments have launched economic recovery programs to varying degrees of success. Several economic forecasts indicate negative or near-negative growth rates for the region in 2020. Although a recovery is predicted for 2021, there is still much uncertainty.
Through our work under USAID RISE (Regional Investment Support for Entrepreneurs), we sit in the middle of the entrepreneurial ecosystem here in Southeast Asia. Established in 2017, RISE partners with impact-oriented investors and various ecosystem support organizations (ESOs) like business networks, accelerator programs, and development initiatives across 6 countries. Through a pool of vetted local and regional consultants, RISE delivers business advisory services and other technical assistance (TA) to small and growing businesses (SGBs) with high potential for social and environmental impact.
We want to share some insights we have learned from working with our partners and clients during these tough times, as well as three concrete recommendations for those organizations seeking to support small and growing businesses (SGBs) in the region.
Troubled beginnings, promising futures
Both our impact investor partners and our SGB clients reported that the effects of COVID-19 were immediate, starting in March. It was then that our investor partners started to pivot away from new deal sourcing to instead shoring up their current portfolio companies.
From the investor standpoint, a major concern was the SGBs had the needed talent in-house - from staff all the way to the C-suite - to navigate the challenges brought by the pandemic. With economic disruption all around, the investors worked hand in hand with the entrepreneurs to sustain the businesses' cash flows as much as possible. Investors also struggled with anxieties about the constrained supply chains, demotivated and disconnected (sometimes physically, due to quarantining) customers, and the overall economic downturn that would likely follow the initial crisis.
RISE's SGB clients had similar anxieties. Across the board, they were hit hard. Those who had talked of expansion just weeks before now focused on survival - how to stay afloat over the next few months or even longer. Those who were fundraising had to recheck their growth assumptions. In some cases, founders scrapped their pitch decks and contemplated drastic pivots for their business model.
What RISE had heard first-hand from its clients anecdotally was later validated by others who surveyed the market more broadly. When the Aspen Network of Development Entrepreneurs (ANDE) and Dalberg first released an analysis in May - "The Small and Growing Business Sector and the COVID-19 Crisis: Emerging Evidence on Key Risks and Needs" - they reported that 42% of businesses were at risk of failing within the next six months, an estimate that has jumped to nearly 50% in its recent addendum to this study (which sadly shares that 12% have already failed since the May release).
There were, of course, exceptions. Early on we heard an inspiring story from one of RISE's clients in Indonesia, a women-led company called Ecodoe. Ecodoe is an e-commerce platform that sources handmade souvenirs from rural and indigenous creators and sells to large corporate buyers. Shortly after COVID-19 hit, the company made a quick pivot and hired unemployed shoemakers and garment workers to produce handmade personal protection equipment (PPE) for the growing market - meeting the market need for PPE while providing quality jobs for poor and disadvantaged workers.
To fund their pivot to producing more PPE, Ecodoe secured a short-term working capital loan through the lending platform BIDUK, administered by Athena Global. Ecodoe then took stock of their experiences to date and launched Ecodoe Group which will offer - in addition to its original products and services - a variety of services to micro, small, and medium enterprises (MSMEs), including micro-lending, a virtual sales platform, and acceleration support. Although PPE production met an immediate need, the company believes the services provided by Ecodoe Group will take the company beyond the COVID crisis.
We heard other stories from RISE clients whose technology-based business models became even more relevant in a COVID-impacted world and consequently saw rapid growth and expansion. Edusuite is a company in the Philippines whose AI-driven technology analyzes data and resources of schools to help administrators, faculty, and students optimize their resources and make smarter decisions. In a recent article, a school administrator explained how Edusuite's edtech solution became more relevant during the pandemic: "The pandemic made us realize our schools need to go digital."
We also heard stories from non-tech RISE clients that quickly turned to technology to boost revenue amidst COVID-19. Krakakoa is a bean-to-bar chocolate manufacturing company in Indonesia with a business model that provides farmers a sustainable price for their cocoa. It also supports farmers with training and equipment to improve their productivity and harvest quality. As COVID-19 dampened in-person chocolate sales, it was important to launch an e-commerce solution with improved digital marketing to boost sales.
For others, ICT solutions drove simple but impactful efficiencies. The CEO of one RISE client remarked that his team no longer lost time fighting standstill Manila traffic to meet partners and service providers as reliable videoconferencing services rendered those virtual meetings traffic-less.
Although RISE investor partners all seemed to solely focus on their existing portfolios initially, the move from crisis management to the "new normal" in recent weeks seems to have opened more opportunities. Increasingly, RISE investor partners are turning to pipeline development, new investments, and at least one exit. Still, there are new challenges; several partners described the challenges of due diligence in a world without realistic travel options into emerging markets. In such a context, referrals from local, trusted partners are more important than ever.
The pandemic has also created new evaluation criteria for investors. One investor partner explained that the resilience companies demonstrate during the pandemic goes a long way to validate investment readiness. Another investor recently described the pandemic as a crucible that has accelerated the evolution of business models for the future, including edtech, healthtech, and other digital service platforms.
Despite such daunting adversity in the face of COVID-19, we have been relieved to find so much optimism and opportunity in the social entrepreneurship ecosystem in Southeast Asia. We've identified three potential ways donors and other ecosystem supporters can bolster SGBs during and after the COVID crisis:
Bridging capital. One of the first RISE investor partners who spoke with us mentioned the need for "bridging capital." This referred to short- and medium-term working capital grants and soft loans to buoy portfolio companies during the crisis and in the ensuing economic downturn. This idea was echoed in subsequent conversations with investors and SGBs alike. Cash would be hard to come by for many companies and the ideal lender would provide patient, low-interest terms that would allow the company to repay once economic conditions had improved.
Financial institutions and donors are uniquely positioned to offer the variety of bridging capital most suited to SGBs at this time, either directly or through blended finance schemes that produce concessional terms for SGB borrowers.
Low-cost, scalable technical assistance. In the GALI survey, which underpinned the ANDE and Dalberg analysis referenced above, over half of the SGB respondents reported that TA on accessing relief mechanisms and pivoting business models was extremely or very important. We heard this same message clearly from the RISE partners and clients.
One source of low-cost, scalable TA is the myriad pro bono service programs active globally. RISE, for example, partners with organizations like Credit Suisse, Crossfields, EY Ripples, Rippleworks, and Senior Expert Contact. Through these partnerships, we can matchmake SGBs with potential providers of pro and low bono support, ranging from financial analysis and management to strategy to operations.
For some SGBs, this high-quality support at no cost to the business is incredibly helpful. As one RISE client noted, having an expert volunteer from a renowned financial institution like Credit Suisse support the business's financial projections made a big difference in planning for the future and securing a working capital loan, even amidst the pandemic. But amazingly, despite a ubiquitous internet and the power of Google searches, SGBs often struggle to find these pro bono offerings on their own. Donors can support those ESOs who play matchmaking roles to help scale pro bono service provision to SGBs in need.
High-cost, tailored technical assistance. As the crisis has worn on, we have seen that "light touch" pro bono services are not necessarily the right fit for every SGB. Whereas some SGBs may need light touch support from expert volunteers, others require more time-intensive coaching or bespoke, hands-on advisory support. In conjunction with one-size-fits-all solutions that can be delivered efficiently at scale, it is important to build and support mechanisms that can deliver the bespoke support required to bolster SGBs through such challenging times.
USAID RISE has been uniquely positioned to support SGBs through a variety of services. One of our innovations is a discounted repayable grant, where a small down payment unlocks services and repayments are triggered by milestones that make the TA more affordable for growing companies. Interestingly, in recent weeks an increasing number of companies have reached out to RISE to explore the repayable grant TA model. These businesses had survived the initial shock and were now looking for support to take the business forward. The businesses were still cash-constrained, but they now had the bandwidth to work with consultants at reasonable prices.
Here too is a place where donor financial support is crucial to meet this increase in demand. ESOs can leverage current networks and infrastructure to deploy support to SGBs more rapidly and efficiently, making them an effective channel for donors to extend support to entrepreneurs during the crisis.
Looking forward, we're hopeful that as a result of the economic impact of the pandemic, there will be greater support and funding for innovation among technical assistance models that are effective, accessible, and impact oriented. We can take inspiration from the infinitely creative and determined entrepreneurs in Southeast Asia and do our best to convert crisis into opportunity.
USAID RISE is funded by USAID and managed by Swisscontact Cambodia. Kevin Robbins is the Swisscontact Team Leader for RISE. Mike Monteleone is the economic growth division chief for Asia at USAID and the RISE Activity Manager.