Investment opportunity

NEW YORK-Chief Yusuf Ole Petenya says out in the sweeping plains of Kenya, cows are like ATMs: Put food in, get daily sustenance back. So when drought choked Kenya and killed 90 percent of the livestock in 2009, it devastated the chief (also known as Shani) and his people, the Maasai. Speaking to a group in New York City, Shani showed the audience pictures of a farmer using branches to prop up his last cow and a zebra lying dead because the Maasai are eating trees instead of cows. The Maasai usually cross the border to their kin in Tanzania if they need help. "When they have a drought they come to us. When we have a drought we go to them," said Shani. "But last year, we didn't have a place to run to."

Everyone was suffering. It was time to find another cash machine.

After an elder told him the droughts were more aggressive and frequent now than they were years ago, Shani decided he and his people had to find a new way of living to survive. He pointed out the intricately beaded necklaces looped around his neck over his purple robe, the loops of beaded earrings in his ears, and the beaded staff in his hand. He said his goal was to help the 10,000 Maasai women begin a sustainable business creating beaded clothing and accessories and selling them to tourists.

Shani's visit to New York coincided with the UN's Commission on Sustainable Development, where leaders came together to figure out how to help developing countries. In one side panel, investment managers and officials from USAID spoke of investing in private enterprises like Shani's-combining Wall Street investment techniques and government dollars with entrepreneurial drive to create a "double bottom line"-a venture that creates both a social good and a financial return. "Philanthrophy's a wonderful thing but at the end of the day there's just not enough capital on the ground," said one investment manager. You have to bring investment techniques to business to create capital.

Shani completely agrees. He said, "No donor is going to give you money forever. At some point they will get tired and say, 'Hey, go somewhere else. I'm sorry. My coffers are running out of money.'" His people have to have businesses that sustain themselves instead of waiting for others to give them aid.

But there are obstacles to good entrepreneurial ventures. Bad business plans can accompany the best of intentions, just as well-meaning nonprofits can keep people in a state of dependence. If the developed world is going to recover some of the billions it has spent on foreign aid, investment managers will have to ask probing questions. Both Yale graduates and creative Pakistani farmers have to learn from each other to surmount the barriers to a successful enterprise.

When I told Burt van der Vaart about Shani's bead-selling enterprise, van der Vaart said he would ask a few probing questions. Van der Vaart is co-founder and CEO of the Small Enterprise Assistance Fund (SEAF). Unlike more famous enterprise investment funds that are newer to the game, SEAF has been quietly investing in entrepreneurs worldwide since 1992 and has done about 335 investment deals.

Van der Vaart said he would first ask if the labor force is already skilled or if it needs training. The women are doing a handicraft that has spanned generations but as one audience member pointed out when Shani spoke, the women may have to adjust their designs to make something wearable in a Western world-instead of a souvenir that a tourist won't wear outside of Africa.

Van der Vaart asked if the tourists will pay in cash and if so, how will Shani prevent stealing? What is the competition? African vendors sometimes import cheap tribal trinkets that are actually made in China, which has a huge labor pool and an extensive labor infrastructure. Will the Maasai's high-quality handiwork be able to compete? Shani is counting on a global market, but van der Vaart said it's easier if the market is regional or local so Shani won't have to worry about transporting his products across bad roads and through tolls to the ocean. Western countries tax imports steeply, which adds to the cost.

And will the tourists come? Shani looks at Kenya's stark safari plains and exotic animals, and sees tourism as its main hope of income. But he also knows the global financial crisis is decimating the tourist industry. The talent is there. The desire is there. The Maasai want to make money for themselves, he says. They don't want to beg.

In Karachi, Pakistan, another enterprising man bounds into the room with his shirt off and pumps the hand of a befuddled salesman. Then he asks, "Were you able to pay attention to what I was saying?" He stands at the front of the room and delivers today's lesson: first impressions count. The scene comes from The New Recruits, a documentary that shows three business leaders (fellows with the Acumen Fund, an investment fund much like SEAF) fanning out across the world with their stellar resumés and good intentions. Their task is to help launch social enterprises, enterprises with that "double bottom line" mentioned earlier: They provide the poor with a needed service and also sustain themselves by making a profit. Joel Montgomery, the shirtless fellow teaching about first impressions, went to help Pakistani salesmen sell Micro Drip irrigation systems to poor farmers.

Montgomery-a Christian from Tuscaloosa, Ala., and a graduate of Yale and Thunderbird School of Management-went into the project with missionary zeal. One scene shows his skeptical Alabama family gathered around the dinner table, trying to dissuade him before he leaves. Montgomery's mom chides them, "Joel feels like he's on a mission, that the Lord's sendin' him to Pakistan." His dad replies gruffly, "The Lord sent Jesus on a mission and He ended up dyin'."

Montgomery's mission wasn't easy either. The documentary shows farmers dozing during one of Micro Drip's presentations and shows Montgomery out in the fields, struggling to guide his salesmen as they explain to the farmers how Micro Drip can save them money. Montgomery tells his dad on a video chat that he used to believe the market could solve all problems, but now he sees its limitations: "You can't come into a developing country with a perfect plan and expect it to work perfectly." Montgomery told me his sales people had master's degrees but couldn't take a calculator and find 90 percent of 100. And while locals formed the sales team, Montgomery couldn't expect them to completely understand the Pakistani consumer like he thought they could. It would be like grabbing someone off the street and saying, "Tell me about American consumers!" Montgomery said.

Montgomery told me for the first half of his nine months in Pakistan, he wondered, "Why in the world am I here? It doesn't feel like we're really making a dent in what we're trying to do here." But Montgomery says he took comfort from the book of Job, when God steps in and chides Job for his arrogance. When Montgomery read that, it lifted him out of discouragement.

Micro Drip came in where corruption and exclusively profit-based capitalism left gaping holes. Montgomery said the Pakistani government earmarked $2 billion to develop drip irrigation in the country. But thanks to corruption and a faulty program structure, poor farmers had no access to the subsidies. Nineteen of the 20 companies marketing drip irrigation decided to follow the major profits and focus on the richer farmers with large plots. Micro Drip was the only one that focused on the poor farmers-the ones who needed it most.

Montgomery and Micro Drip began with a focus on one-acre irrigation systems-at $300, which is one-fifth the cost of a normal drip irrigation system and still far too expensive for poor Pakistani farmers. Since the farmers were skeptical about irrigations' ability to improve their crop yield, Micro Drip had to adjust its approach to convince the farmers the technology would work. Montgomery's team focused on selling family nutritional kits-a mini drip irrigation system that could water a small garden. The farmers could pay for this $11 system in just six months with their increased crop yield. During Montgomery's time at Micro Drip, the company finally started to see progress in selling the mini-systems.

Acumen Fund chose to invest in Micro Drip since the technology saw success in India and a community of Pakistani business leaders committed to make it happen. Rajan Kundra, director of the Acumen Fund's portfolio, said its investors don't mind if the salesmen sell large or small irrigation systems. The key is building a company that can sustain itself-a process that can take two to five years. Is Micro Drip there yet? "They're getting there. They're getting there," he said. Sometimes Acumen Fund will decide to give a company more capital to bring it to the point of sustainability. He added, "We've also decided that certain ideas aren't going to work." In early stage investing, you're successful if half your investments pay off, he said.

Montgomery found that developing an enterprise in a foreign culture takes, above all, humility. He said too often both entrepreneurs and missionaries come into a country with the attitude, "We have the top technology. We have the top thoughts. We're going to help." But a successful entrepreneur has to be teachable. The developing world has resources the rest of the world could use, he noted. For instance, a poor farmer in Kenya can go to a small market and pay for tomatoes using his cell phone-an innovation that Americans would probably appreciate also. And in Pakistan, farmers recognize that the price of onions can fluctuate wildly. So every year the farmers plant one acre of onions, and every couple of years the prices soar and farmers make a killing off of one acre. "They're not stupid," Montgomery said.

The key is spreading the wealth-both for the Maasai whose cows are dying and for the investment manager looking at his portfolio. During his time in New York, Shani spoke to a philanthropist and said, "We need that connection between us and you. Because you guys have the money and have no idea what to do with the money. But we . . . know where we want to go, from Point A to B, but lack the means." He told the philanthropists they could pool their financial and entrepreneurial capital: "Package complete." The philanthropist said, "I like that." To hear Alisa Harris discuss this topic on the "Knowing the Truth" radio program, click here.