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Willem Nolens

A practitioner view: Six better recommendations for off-grid companies

Social enterprise consultancy Hystra recently published “Six important recommendations for off-grid companies”. Reading these well-intended recommendations, I felt a need to share a practitioner’s view, as some of these recommendations are irrelevant and potentially counterproductive. As it is easy to criticise, I also take the risk of sharing some lessons I would like to have received (and listened to...) during the last 10 years - not important, but at least better ;-)

Let’s look at Hystra’s "important recommendations":

  1. Use Innovative Financing such as crowd funding to lower costs of end-user financing. 
    First, in our experience crowd funding is not cheaper than impact investor loans. Second, crowd funding is normally for 1 or 2 years only. Unless the solar company is sure it can repay the loan from its operating cash flow, it seems there is a significant and currently largely ignored refinancing risk. As long as your company is cash flow negative, you’d better consider long term financing in the form of equity or long-term loans;
     
  2. Think twice about where to locate headquarters and who you need at head office. True, most of us are spending more on overhead than than we would like, but that has reasons. It is not that we are just fools who like to spend. Our businesses still are horribly complex - in fact most of us manage three or more businesses in one (producer/wholesaler + retailer + asset finance). Each business is relatively simple on its own, but combining them under one roof adds tremendous complexity, as the different business lines have conflicting interests and require totally different competencies. And it is impossible to find all these competencies in one CEO, in one leadership team, in one governing body. Or to combine all business flows in one ERP, finance team, etc. Overhead costs can only be reduced if the underlying business model is thoroughly simplified;
     
  3. Set-up innovative collaborations for sales and marketing: although the examples are poorly chosen (MTN is hardly selling solar products), whether this is smart or not will really depend on what the solar company will see as its core business. If that core business is retail, it may not be smart to invest time in collaborations. If, on the other hand, the choice is to be a wholesaler or an asset finance house, collaborations with retail networks are a must;
     
  4. Invest in product design innovation to reduce the quantity and price of components. Certainly, there is some ground to win, but most companies are already pretty maxed out if it comes to design and cost pricing. There are more important problems to solve, although the answer will again depend on what you choose to be your core business;
     
  5. Consider sharing after-sales service with other players to reduce after-sales costs. Let us please control and solve our own after sales issues for now. This may be a nice efficiency gain in 2025, but now we still have to learn from every issue our clients face and understand clients much better, also to manage the credit risk and optimise life time customer revenue;
     
  6. Collaborate with public actors to allocate investments strategically. Politically correct to say, but let’s wake up and see what all the time spent on government collaboration has really brought us this far. On paper we are all very aligned, in practice things are quite different.

 

Criticism is easy. But what then, should Hystra have written? What “6 important recommendations” would this grumpy old man want to have been given some years ago? Here we go:

  1. Decide what you are
    Managing three or more unproven businesses simultaneously in an unpredictable environment with scarce resources, but massive growth expectations, that is not easy. In fact, most leaders have failed to build sustainable companies yet, including myself. Most supervising boards have stranded in complexity as well, and failed to identify and fix the root problems. And yet we have a sector where, after all these years, these big  integrated companies are still losing money. And what is easier than blaming management? 

    Instead, we need to simplify our business drastically, starting with choosing our core business and getting rid of the rest. That is a tough choice, because a lot of money and tears went into those non-core parts. But only companies who truly specialise, will become sustainable, also when they scale.  But what do you do if you cannot find good business partners to take over the non-core parts? You will then need to split your organisation into two or more independent organisations, each with their own management and specialised board, back office system, etc. And yes, no forced shopping, these new companies should be free to chose their partners. 

     
  2. Make things really simple
    You only need three things to make your business successful, in particular in Africa: systems, systems and systems. This means that all your operating processes must be standardised with functioning plan-do-check-act cycles. By doing so, you make your business less dependent on good people. In fact, a very mediocre CEO and team should be able to make your company a success. Else it’s simply not going to be scalable. 

     
  3. Grow slowly
    High valuations were nice, but they damaged many good companies in the sector, as no high valuation can exist without unrealistic growth expectations. These growth ambitions make an already complex organization even more complex. Besides, as no company ever meets the business plan, it frustrates management motivation and good governance; be real and accept that building a new business takes time.

     
  4. Manage behaviour, not KPIs
    While growing, many organisations tend to move from behavioural management to KPI management. After all, how do you manage 500+ staff by behaviour? By doing so, the morale, the company values and the culture are being lost and businesses get real sick. Take time to understand mishappenings. If they are the result of inability of staff, forgive them, train them. But if they are the result of unwillingness, bad behaviour, act immediately and thoroughly without exceptions.

     
  5. Only raise long-term funding
    Hardly any company in the sector is cash flow positive. Still, you see companies taking a lot of short term loans. How can these companies repay those loans? Only by rolling them over or refinancing them with other loans or equity. So what happens if you have a bad year, or if there is turmoil in the sector? Lenders do not want to roll-over or disburse new loans  And what happens then? You go bust. So, it seems wise to finance your business with long term loans, preferably equity, at least as long as you are cash flow negative.

     
  6. YOU are the best
    It may seem attractive to hire external parties to help solve your issues. You have enough on your plate. My experience is that despite all the good brains and intentions, consultants from Europe, US and even Africa don’t know much about running a solar company and tend to identify the symptoms that they can treat, but often don’t go much deeper to find the real root causes. This blindfolds you and your board for some time, aggravating the situation. Instead, take time yourself and keep asking the WHY question till you find the deepest roots. Be confident, believe in yourself. Or - call a fellow practitioner!

 

Wishing you all the wisdom, strength and beauty in the world in building great, financially sustainable companies. Willem (wnolens@remove-this.gmail.com).