Failing Down and Fighting Back: A Tale of Early Social Enterprise

The Forbes magazine states that nine of ten social enterprises fail in its first year. Without knowing this truth SAI-Sustainable Agro (http://sustainableagroinc.com) religiously followed it and joined the crowd in first year of its incorporation. It fought its way out later and managed to pull itself from the failure. Recently, it was declared as Top 10 Social Enterprises in India in two national competitions.

The note below tells the story of failure and fighting back of SAI-Sustainable Agro. In this first part I will mention about the beginning of journey and stumbling blocks which finally led to our failure. The second part will focus on how SAI fought back and achieved its target.

As you might know SAI-Sustainable Agro is driving a new movement which aims to redefine people living at the Base of Pyramid (BoP) as valuable partners for businesses –achieving their livelihoods as well as catering to raw material needs of the companies.

Though most part of year 2013 was spent in initial set-up - getting incorporated, developing polices, identifying operational areas, putting management, advisory and field teams etc. the real journey started from the beginning of 2014.

As a promoter of SAI I visited Hyderabad, India from 3 January, 2014 to get personal guidance and mentoring from two of SAI’s advisers, who are well established in their fields and have gone through the difficult path which SAI has to go through. One of the advisers taught me the ABCD of the social ventures and suggested me to visit some of the similar social enterprises. He also suggested me to explore agencies which provide incubation support to new social enterprises. The other adviser oriented me on the technicalities of SAI crop-plantation model for transforming wasteland to provide livelihoods to small and marginal farmers and raw materials to industries.

After meeting them I came down to Bhubaneswar, Odisha to plan SAI’s field operations. There, I and one of the SAI’s Directors from Odisha developed action plan to initiate field operation. He had worked in NGO sector for more than 35 years and liked the idea of working in same sector through promoting business model.

We initially planned for promoting SAI’s crop-plantation model in 100 acres. We also identified other sources of revenue generations. One source of revenue generation was cutting and selling of matured Eucalyptus tree to a paper mill. These trees were planted under social forestry programme about a decade ago, however the farmers did not get any market to sell.

Other source of revenue identified was promoting cashew processing and marketing. During my earlier tenure in Odisha, I had promoted afforestation programme through cashew plantation. I learned that the two community based cashew processing units had closed down once the project was over. The local communities were willing to re-start the operation if finance and market support were provided.

We also hired one person as Field Coordinator. We had pin-pointed one village in Rayagada block of Gajapati for piloting the SAI model. I made regular visits to the village in January-February to discuss with village community. They finally agreed for piloting crop-plantation model in 100 acres of which 40-50 acres were private/individual land and 50-60 acres were community land.

However, during one such visit I started experiencing the rough weather. SAI Field Director started making excuses for not accompanying in the field or attending important meetings. He also expressed his inability to pay his initial contributions towards the SAI seed capital though he agreed before. Meanwhile, the Field Coordinator quit the job within a month for not getting desired support and supervision.

Sensing the trouble I took the charge as Chief Executive Officer (CEO) of SAI through Directors’ resolution on 17 February, 2014. I had been avoiding taking the charge earlier, and preferred working only as Promoter. Due to my earlier engagement with a well reputed agency I was not supposed to get into business/collaboration with its clients/partners for two years after leaving the job. It was only one year since I had tendered my resignation. At that time there was high probability that SAI business may overlap with its clients (so far we have avoided).

During one of my field visits to Odisha one person came to meet me and offered his services. He worked under me 10 years back when I was in-charge of another programme in Odisha. He informed that his contract with a government agency was ending soon and he is ready to work full time with us. Since he was an experienced person and worked with me before I offered him State Manager position with a salary which he told he was getting, though it was high for SAI.

I came back to Gajapati, Odisha within a week after taking charge as CEO to implement first business to generate some revenues. However I learned that traders from neighboring state came and took away all the matured wood trees we had surveyed. I extended my stay to investigate what had happened, and concluded that it was an insider’s job –somebody who knew about SAI’s business passed the information to traders. Though we lost our first business and revenue stream but it was the farmers who were at receiving end as the traders took away their materials at less than half of the price SAI had agreed.

During my extended visit I learned that a Senior Scientist from herbal product manufacturing company was visiting Gajapati. I immediately got in touch and scheduled a meeting with him. During the meeting the Field Director started promoting his NGO, and I had to remind that he is attending the meeting in the capacity of Director of SAI. The personnel from herbal product manufacturing company showed keen interest.

During early April, 2014 I got a call from this company to visit and discuss my proposal at its head office in New Delhi. He and his team were very supportive to SAI’s idea and we talked on joint collaboration. The herbal product manufacturing company had tie up with Odisha Forest Department for collection of minor forest produce as raw materials for its herbal production unit, but was facing difficulty in collecting; aggregating and transporting them to its manufacturing unit.

During this period, I also made contacts with an agency providing incubation support for early social enterprises. Such incubation support would have helped SAI to build its capacities as Pvt Ltd company and prepare for scaling and getting further investment. The head of the agency suggested us to put a proposal, which we prepared and submitted.

SAI’s operations seemed to be coming back on the track after the first setback. However, the bigger setback was yet to come.

In April, 2014 I took three weeks off and went to Iran for my other assignment with UNDP/GEF and Govt of Iran’s MENARID project. As a promoter I needed to earn money to sustain both – my company and family.

When I was abroad I got a mail from the State Manager that the cashew traders have increased raw cashew price by 150%. I could not understand the reason as there was no price rise for the processed cashew and we had a direct dealing with the local community. The cashew processing would have become unattractive venture with this price rise of the raw materials. I wrote to Field Director to inquire, but did not get any response.

The State Manager’s behavior was getting strange as most of the time he was not responsive. Meanwhile, the good news came from herbal product manufacturing company that our proposal has been selected, and its unit head is visiting Bhubaneswar during first week of May, 2014 to meet government officials where SAI representative should be present.

As I was still outside India I wrote to Field Director and State Manager in Odisha to attend the meeting. The Field Director did not respond, but the State Manager confirmed that he will attend. The representative from herbal product manufacturing company gave him the venue and time for the meeting.

Till one day before the State Manager was accessible on his mobile phone, however, very strangely he switched off mobile on the meeting day and remained traceless. He did not attend the meeting, and we lost the contract.

After two days when he switched on his mobile phone I squeezed him. He informed that he was doing two full time jobs - with SAI as well as with government project where his contract was extended. He thought that being based 1500 kms away at Mumbai I won’t be able to find out. Since the government officials were supposed to attend meeting at Bhubaneswar he got afraid that he would be caught and switched off his mobile. I asked him to immediately resign. As SAI advisers were not aware of this rapid development, they expressed their dis-pleasure over my move, and I had to later explain to them the reasons behind his termination.

I also realized that Odisha Director had his own personal interest and priorities. Therefore, as a promoter of SAI I asked him to step down and submit his resignation.

As these two people hailed from Gajapati, SAI’s work in Gajapati could invite more trouble. Therefore, we wrapped up SAI’s operation in Gajapati, Odisha. By that time SAI had spent significant time and amount of money.

One more bad news had to come. Towards end of May, 2014 I got a mail from agency for incubation support that our application has been rejected.

SAI’s first leg of journey ended in May, 2014 with a big failure. We were back to square one, from where we had started.

Why we failed after having a good start and after recovering from first set-back? What were the reasons of our failure? I reflected back to draw the learning, which are detailed below:

1. Inexperienced Leadership: Though I had visited a couple of other similar ventures before I did not have any prior experience in managing a Private Limited Company. During my involvement I learned that it is a different ball-game altogether, and though I have to be passionate about my idea, I also need to be practical. I need to look into different aspects (system, legal, team, communication, cash flow management) of the company affairs while putting my foot firmly on the ground.
2. Inefficient Management: Our dependence on Field Director for managing field activities boomeranged. This resulted in bad management of company affairs in the field, as he started trying to turn company’s ideas into his NGO's ideas. Probably I was too naive to gauge his real interest. I should not have believed anybody blindly. I had done that mistake, as I thought our 10 years old association was a good experience of working together. I had forgotten that we worked together in different capacities: where I was representing a donor and he was a recipient from NGO. There is a saying that ‘we should not teach new skills to old people’. I tried doing that and in the process burned my hand.
3. Vested Interests: Mr. Robert Kyosaki mentioned in his book ‘Guide to Investing’ (pp334) that ‘more businesses fail from the inside than from the outside’. SAI is a living example of this statement. Our two insiders - Field Director and State Manager turned every stones to make SAI a failure for their vested interests. No matter how hard we tried all efforts were going waste.
4. Losing Focus: One of the big mistakes we did was focusing more on revenue generation than solidly putting our core model on the ground. It was not that we had forgotten to put SAI crop-plantation model to test in the field, but somehow it was getting a lower priority. We started looking into other avenues of revenue generation, and therefore, had spread our energy too thin. We learned from the failure is to ‘focus than diversify’. We should have first put the simplified model in the field, and then gradually start complementing it with other similar activities.

I would end part one of my learning with a dialogue from popular Hindi movie ‘Om Shanti Om’. In the movie, Indian actor Shahrukh Khan tells “……just like in the film, in our life too finally in the end everything is okay …happy ending. ………and if it is not happy, then it is not the end. The film is not over yet. Picture Abhi Baaki hai – the movie is on”.

My next part will focus on how we turned adversity into opportunities and how SAI achieved its magic figure of 100 – Power of 1, a trade and success formula of SAI, and in the way declared as Top 10 Social Enterprises in India.

As I mentioned in blog earlier (http://www.lflindia.blogspot.in/2014_07_01_archive.html), ‘…..success is one step away when defeat has come. Those who persist are successful; those who accept (defeat) perish’. That is law of nature; it has its own filtering process.

Jitendra Sinha

CEO, SAI-Sustainable Agro