Building a Financially Sustainable Social Enterprise in Emerging Markets

We still remember the moment vividly—the one that would define the direction of our start-up and change our lives forever. It was October 2012, and we sat in a dimly lit Java House café in Nairobi, Kenya. We had left behind promising careers in Washington, DC, and moved to Kenya—on the back of a memorandum of understanding (MoU) with a major university—to start a new organization aimed at developing a new generation of professionals to create social impact.

Our university partner had just dealt us a crushing blow: It canceled the agreement, citing internal politics. Our board of directors was discouraging us from launching without a university partner and was pressing us to find a different university when a fellow “edupreneur” told us: “Given how slowly universities move, staking everything on academic partners is not safe—in fact, it’s the riskiest strategy of all!”

This resonated. So, on that fateful day, in that dingy cafe, we decided to launch an independent, fee-based program on our own.

Everyone thought we were crazy.

The context was not ideal: It was an election year in Kenya, and the previous national election had led to protracted ethnic violence. Into this messy scenario, our start-up team nevertheless launched a global recruitment campaign for our first class of Social Innovation Management Fellows. It took a few months, but, slowly, applications began to trickle in. Eventually 14 brave, pioneering changemakers gathered in Nairobi to make up our first class.

Now, four years later, our program runs in both Kenya and Brazil, and 225 changemakers from more than 45 countries have been through our program. Seeing that we were effectively providing 21st century skills needed by people already working in the social sector, several foundations, NGOs, universities, and social enterprises began to approach us to design in-house training programs for them. This progress has enabled us to expand our core team and—for the first time—plan beyond the next fiscal year.

Yet when we decided to embark on this adventure, we had only a shared passion for educating changemakers and limited life savings to fund our early operating costs. Our initial “founder’s equity” of about $20,000 in 2012 has since passed the $1 million mark for the first time, with more than 80 percent of income coming from earnings this year. (In 2015 and 2016, earned income actually made up more than 95 percent of our budget).

As the recent article “Time to Reboot Grantmaking” argues, “Nonprofits’ organizational resilience is based on financial health.” With the hope of helping other social enterprises navigate decreasing nonprofit funding and strong pressure from donors to prioritize the number of people served over the depth of impact on those people, here are six lessons we learned about starting and building a financially sustainable organization in emerging markets.

1. Keep your day job as long as possible. Entrepreneurship has never been a more glamorous profession (just ask Tinder!), but few entrepreneurs would say the actual work is sexy. It is back breaking and heart wrenching to start a new organization, especially without significant outside funding. The odds are on failure. So even though we left America and moved to Kenya, we kept our jobs and used our salaries to fund start-up expenses. This meant we had two full-time jobs! Such a punishing schedule may not be possible for everyone, but it gave us the emotional and financial safety net of having jobs to return to if our start-up failed. We kept these jobs all the way through our first prototypes and even after earning our initial revenue.

2. Prototype your business model as much as your product. The importance of prototyping is enshrined in innovation thinking. But it usually just means testing your product or service. For us, the lack of outside funding meant we had no choice but to charge fees for our prototype courses. Doing so gave us invaluable customer data—not just on our program, but also on our business model. We discovered a new market for our program: people who had been working for a decade or more, and wanted to transition to impact-related careers—not just the recent college graduates. This process also showed that people were, in fact, willing to pay for what we were offering—market feedback that well-funded enterprises often don’t receive.

Our decision to charge fees even at the prototyping phase also helped us learn how to deal with income. For instance, one of our favorite start-up stories is that we designed our first company receipt only after one of our customers asked for one. We have also used personal bank accounts to receive payments, begged friends to lend their organizations as fiscal sponsors, and more. This type of hustling is even more important in emerging markets, where the bureaucracy of financial institutions can often cause major delays.

It’s important to note that all this market-based thinking doesn’t override the need to increase access to our work for those who can’t afford it, which we always strive to do.

3. Your work begins at “no.” This aphorism from one of our mentors covers pretty much everything about starting a social enterprise. In the beginning, we applied to all the major fellowships and start-up funders in social entrepreneurship. Everyone said no. In one particularly depressing case, we reached the finals of a prestigious fellowship, only to be turned down at the last stage and, in the following years, have seen several winning organizations shut down even as we kept growing. These rejections made us more determined to never depend on outside funding for our work. Eventually—and only after we had proven our ability to generate income—two family foundations agreed to provide limited funding for two years.

4. Scrimp and save until you build a reserve. Our culture is consciously lean; our team is always looking for creative ways to leverage resources without spending too much. However, working in volatile environments like Kenya and Brazil means imagining a day when the macro environment turns for the worse. As the grantmaking article mentioned above mentions, “Without sufficient unrestricted balances (both working capital for predictable timing issues and operating reserves to cushion unpredictable shortfalls), [nonprofits] can’t devote adequate attention to the most critical, strategic questions facing their organizations.” Knowing this, our board set a goal of attaining a financial buffer of 18 months salary for all staff. We saved zealously until we got there. So now, when we have a bad day, or even several bad months, we can sleep at night knowing everybody’s jobs are safe in the short term.

5. Earn some “fuck-you money.” At one point, a particular donor was giving us the runaround before committing their donation. We complained about this to a mutual friend (of ours and the donor’s)—who is also one of the most spiritually centered, respected people in our industry—and will never forget how she looked us in the eye and said, dryly, “Get yourself a pool of ‘fuck-you money.’” She went on to explain that such situations were bound to happen and that we would have to suffer them unless we saved enough to be able to walk away from a bad deal.

6. Financial sustainability is a team sport. Our journey hasn’t been easy; there have been many moments when we wondered if we would meet our budget. In these crisis periods, we have been transparent with our team about how many enrollments (or “sales”) we needed to not fail. Our team always rallied in response, every staff member supporting our marketing efforts. Although stressful, these red-zone moments brought us together and showed that it is not just the responsibility of the leadership team to make it work.

The vast majority of start-ups don’t last five years. The odds we faced at the beginning indicated we wouldn’t either. Funding your startup is, of course, only one part of making it work, but even though most entrepreneurs do not do it for the money, the money preoccupies them every single day. Money is a source of not just organizational viability and growth, but also mental and emotional well-being. It provides staff livelihoods, societal acceptance, and the occasional good night’s sleep. We hope these lessons on building financial resilience provides ideas for fellow entrepreneurs in their own journeys. 

Read more stories by Ilaina Rabbat & Roshan Paul.