Connecting Business Innovation with Access to Financinghttp://kinesisconnect.com/media/2016/12/innovation-business-digital-transformation-1024x576.jpg 1024 576 Admin Kinesis Admin Kinesis http://0.gravatar.com/avatar/3b6bebc8d0241fd88c87d8b8df7dc33b?s=96&d=wp_user_avatar&r=g
In Latin America and the Caribbean, thinking about innovation strategies at the company level is an important contribution to solving the problem of lack of access to financing. Enterprises and growing small and medium-sized enterprises seeking resources, specifically access to bank loans and investment capital, are regularly blocked. And innovation at the enterprise level for companies in the region is at a standstill, with companies perceiving that innovation strategies are only for “big” companies.
Enterprise innovation strategies are those that allow an entrepreneur or a company to test their hypotheses around new products, services, business models, or even low-risk, low-risk internal operations, leading to advances in market. Most LAC companies do not consider business innovation as a way to grow their business or to overcome current challenges. In Colombia, a country that has made science, technology and innovation central to government, private firms that innovate represent a very small percentage of the total: only one in five companies innovate in a broad sense, and only one Of every thousand do it in a strict sense. According to Money magazine, 97% of the 6,788 non-innovating companies said they do not intend to innovate and did not think much about innovation as a way to overcome the obstacles they face.
The limited participation of banks in local markets is mainly due to the absence of credit bureaus and insufficient ability to properly assess and manage a company’s non-payment risk. Commercial banks, in many cases, also have no methodologies to effectively evaluate the risk and potential profitability of innovative firms – small or medium – as they experiment with new business models for growth.
While criticism of banks is legitimate, many companies simply are not productive enough, nor do they show growth rates and income streams that allow debt repayment. Entrepreneurs who test new ideas also raise the risk perception of banks.
So how can we encourage and support a private sector that nurtures and grows more successful businesses, and attracts enough money? By creating incentives for entrepreneurs and CEOs to integrate business innovation strategies into both existing companies and business start-ups in all economies; And helping banks to understand the risk.
The introduction of innovation strategies into the consciousness of the private sector in Latin America is not difficult. The most competitive high-growth companies are already using these techniques. The problem is that “innovation” is considered something that only large companies do. In fact, the methodology is simple, it must be accepted by everyone: from the market woman on the corner to the dairy cooperative through a region to the computer entrepreneurship in a local incubator. While coherent science, technology and innovation policies at the country level are important for long-term country growth, enterprise-level innovation methodologies are available to enterprises, even in countries that do not have a coherent strategy Of innovation, although they require an entrepreneur with the mentality to experiment and take risks.
Business innovation is one of the ways companies will find true sources of sustainable growth and increased revenues, which are the inputs relevant to relationships with banks and investors. It is very difficult to achieve significant growth outside established business lines, and it is even more difficult to establish competitive lines of business without tirelessly testing your market. US entrepreneur and investor Marc Andreessen wrote in his blog, “The life of any [company] can be divided into two parts – before the product / market adjustment and after product / market adjustment.” Regular use of business innovation strategies, such as the road to product / market adjustment, could have a transformative effect on the number of SMEs in LAC that become real players in local and international markets.
Bob Dorf, the godfather of one of the most accessible methodologies, the Lean Startup movement, says, “The best way to start a business or a new line of business within an established company is to not lock yourself in a room for two months and Write a brilliant business plan, because that’s 98% fiction and fairy tales.Each of your ideas is verifiable.And how do you test it? You have to leave the conference room and meet face to face with the only people Whose opinion matters: the people who are going to give you money for whatever it is you want to do Your customers Talk to your customers encourages and inspires creativity, tolerance for risk, and also reminds existing companies and new companies that End of the day, success is really client-based! So starting off on a search for the next innovation, for the next product line, for the next business or division should occur in the only place that matters: with our customers. ” This is the product / market adjustment path. By experimenting, testing, talking to customers – all important innovation tactics – companies learn to know what is going and what is not going to sell, what needs is the market, and avoid wasting money by launching a product in a market That he did not want it.
So how do these two worlds intersect – access to finance, and business innovation? By creating programs that leave business owners and business owners ready for investment! In this model, the participating companies receive technical assistance and support in the application of business innovation methodologies in their companies. They become part of a community of entrepreneurs with the mentality to “get out of the building and listen to customers”, and create companies that have a risk profile that is more attractive to banks for loans, and for other types of investment. At the same time, banks are given tools and technical assistance on how to lend to these growing small businesses and are more motivated to develop a loan portfolio that supports small business. There are several ways to design a program of this type, and each of them must be tested.
1). The banks themselves can set up programs in which current and future clients are identified to participate in a training and mentoring program. Companies that complete the program and demonstrate results (which can be measured by purchase orders, number of customers, income streams, etc.) will be eligible for loans to SMEs made available by the bank. The TA is paid through a loan interest rate point, which the bank offers with some resources to offer the program and provides the business with an incentive to take full advantage of the opportunity.
2). Chambers of Commerce and Industry, regional multinational companies, or other associations identify companies in their belongings or supply chains to participate in business innovation programs, and partner with local banks. Associations handle training and refer “graduates” to banks, which provide a “find commission” to the association for each completed transaction, which pays for the training. The bank’s commission corresponds to the fees charged to companies for technical assistance.
3). A consortium of stakeholders “blends” their resources to support both sides of the equation. For example, local banks in Ecuador, the Inter-American Development Bank, and the Government of Canada create a first loss guarantee fund. Banks, working with technical assistance partners, develop programs for current and future clients. Institutional partners agree to absorb the first losses in failing companies, before banks are affected, providing an incentive for banks to take more risks. The program also accompanies the bank’s credit officers, which helps increase their own capacity in decision making and risk management.
Problems of low productivity, lack of risk appetite for venture finance, and limited financial support for firms reinforce each other in a negative cycle. Companies must discover ways to increase productivity and competitiveness, entrepreneurs need an environment where problem solving is valued, and banks need to increase their risk measurement capabilities. Business innovation is a key entry to the success of companies in the region, and banks, and local partners, can create portals to access this knowledge. What is most interesting about the problems facing both parties is that these challenges can potentially be overcome together.
At a time like the current financial crisis facing the region, the prospect of a healthy, robust and innovative private sector to lead the region to more fertile ground is critical. It requires a collaborative effort among institutions, but there is no evidence that this approach can work. “According to a WEF survey of 74 mixed finance vehicles, every dollar of public money invested normally draws another $ 1-20 of private investment.” The time to try these different approaches to help companies both innovate and access finance for growth is now. If the approach shows real results, the models are easily replicable and can be scaled by country and region, bringing together the best entrepreneurs a country has to offer, the most important financiers, and global partners to create solutions that meet the needs of the Market, will make financing available to eligible companies, while also driving innovation in banks.