Market/Non-Market Partnership (formerly known as Public-Private Partnerships)

Economies develop through the creativity and hard work of entrepreneurs who have leveraged Market and Non-Market principles and partnerships. Consider the U.S. economy at its early stages of development. It wasn’t built simply upon government largess nor did it develop only because of the creativity inspired by market dynamics. Rockefeller’s monopolistic Standard Oil, by definition, grew out of what economists consider a “market failure,” but it did presage the development of huge swaths of the U.S. economy. The men who supposedly “risked everything” to build the transcontinental railroad system were able to mitigate their risk due to factors put in place by the federal government.

Let’s define the players in a Market/Non-Market Partnership. Historically, the Market category consists of private companies and public companies that have a purpose to generate financial returns for equity share owners. The Non-Market category consists of government institutions, churches, foundations and any others who do not return any of their profits to equity share owners. In fact, the differentiating factor between the two is that these Non-Market (commonly referred to as Non-Profit) entities do not have equity share owners.

Market/Non-Market Partnerships take some commonly recognized forms but they are a pervasive part of almost any economy. Consider some examples relevant to economic development in East Africa. Churches partner with banking institutions to develop systems whereby poor community members are able to save and invest. A national government builds a hotel with government funds and then sells the hotel to a hotel developer and operator. A railroad builder raises money for his venture through the sale of government-secured debt. Market/Non-Market Partnerships are integral to enterprises from education to transportation to health care; from airplane building to designer clothing merchandising. Increasingly, it’s a fallacy to think we can draw a clear line between Market and Non-Market enterprises.

These partnerships work best when the Market by itself is not able to efficiently provide the products or services, or when there are broader societal benefits that will accrue from said partnerships. The practical micro-economic implication in these scenarios is that a Market-oriented entrepreneur needs Non-Market based incentives to help improve his risk-return ratio to a level sufficient to move forward with certain ventures.

To be blunt, as it relates to East Africa, the strictly Market-driven risk-return ratios don’t justify development of a transcontinental railroad. They don’t justify investing in Small and Medium-sized Enterprises (SME's) in many developing countries. The only way to realign these risk-return ratios is for there to be Market/Non-Market partnerships. It is institutions who agree that “Aid is Dead,” but who are also willing to accept less-than-market returns on their investments who seem to be driving a great deal of economic growth in East Africa. These influential institutions can be led by domestic or foreign governments who have the ability to manipulate markets and therefore endure extended below-market returns. They can be led by “donors” who are willing to relinquish control through true Market/Non-Market Partnerships. Or the institution can be literally a single local entrepreneur who may well have a plan that includes a Market/Non-Market Partnership that will both align the entrepreneur’s risk-return ratio and directly or indirectly benefit the greater public good.

This type of Market/Non-Market Partnership with individual entrepreneurs seems to me the purest and most hopeful way forward for developing country economies.

Dano Jukanovich

Weighing Risk vs. Reward

I’ve been thinking about this communication for some time now, and while some of you are already aware of our decision, it is good to finally “go public” with the news. From the moment our friends, the Crocketts and Jukanoviches, announced their intention to launch Karisimbi Partners and move to Rwanda, it became difficult NOT to think of what such a move could mean for our family.

From my first trip to Africa several years ago, my heart was captured by the need and difference between our lives and those of that part of the world. And, like many others, I found that once I was aware, it was no longer an option to ‘do nothing’. Furthermore, the restlessness and discomfort with the safe and comfortable life we’ve had in a Seattle suburb has continued to weigh on our hearts. After much thought and prayer, Kristen and I made the exciting (and also scary) decision to join these two families.

Joining Karisimbi Partners was a major decision for my family and I. It involves leaving an established career at a Fortune 100 company with a clear path to ongoing “conventional” success. I have worked for over 14 years with Microsoft, including leadership roles working across the U.S., Europe and Africa. Yet while this is a major decision, it was not actually a difficult one…not when you have that pulling from deep within to do something bold…something focused outside yourself…something that requires faith just to attempt. I love Africa. I love the idea of doing all I can everyday to work towards a mission I fully believe in. I love the idea that we can make a difference – however large or small. I love the people I will be in partnership with and the chance to live in community together. And I love this scenario where a control freak like me steps out into the unknown.

The dictionary describes “Risk Taking” as the willingness to incur injury, damage or loss. Risk is dangerous chance. Hazard. Jeopardy. It is to go out of one’s depth. Reading that definition sounds a bit daunting, but all great accomplishment is also invariably associated with taking risk. To quote Helen Keller, “Life is either a daring adventure or it is nothing at all…life shrinks or expands according to one's courage.” For me, I take comfort in responding to this meaningful opportunity to move out of the comfort zone I’ve lived in for many years now. If anything, I believe there is greater danger in risking nothing, than in attempting to live a life less ordinary. As my new partner, Carter, has blogged in earlier posts, what Karisimbi Partners is working to accomplish is pioneering. The outcome is anything but certain. We are striving to push the boundaries and forge into the unknown. For me, I feel our venture in Rwanda is an opportunity to fulfill our purpose…. to step out, to take a calculated risk using our skills, experience, and passion so that we can serve and develop promising Rwandan businesses. With a reward like that, who wouldn’t accept some risk?

“Two roads diverged in a wood….”

Greg Urquhart

Unlike Microfinance: Depth vs. Breadth

It is never easy to describe a new business model…. particularly to folks that have little reference for the context in which it is being launched. When we begin explaining what Karisimbi Partners is doing, somebody will inevitably respond…. “Oh, you’re doing microfinance?”

Indeed, we founded Karisimbi Partners to help alleviate poverty and expand sustainable market opportunities. Like many microfinance pioneers, we are motivated by the social impact of our venture (not merely financial returns). We share a belief that the dreams and relationships of poor individuals are the source of tremendous wealth and dignity (which banks have traditionally ignored). But our similarities may end there….

Our focus is on depth, not breadth. Microfinance institutions often make small loans to hundreds or thousands of new ventures. Karisimbi Partners primarily invests relationally (not financially) with just a few high-growth ventures at a time, each of which may someday employ hundreds or even thousands. Microfinance often deals with small business operators that may never grow or create stable jobs for others. Karisimbi Partners identifies and supports true entrepreneurs with proven ideas and great ambitions. Many microfinance institutions begin by lending capital, and then provide related social services. Karisimbi Partners begins by building social capital and management capacity to ensure each venture is ready for financing and future growth. By focusing on a few promising ventures, Karisimbi Partners’ can offer the hands-on assistance to help client companies employ many, export often, contribute taxes, build industry sectors and establish role models which the new generation of business leaders can follow.

Indeed, microfinance is an impressive and crucial model for creating broad market opportunities in developing countries… and will remain a critical factor in the war against poverty. I am proud to be an advisory board member of the best microfinance organization I know, HOPE International, and very much agree with their leader’s recent assertion (on this blog) that Rwanda is ripe for an integrated approach to economic development. Yet our model is certainly different… Karisimbi Partners attempts to pick up where microfinance leaves off, walking alongside select entrepreneurs to significantly impact a few ventures that can make a great difference.

In Rwanda today, it seems calls to build the "missing middle" in this emerging economy also call for a model that has not yet been established…so we’ll have to keep explaining why we are not a microfinance organization.

Onward & Upward,

-Carter

Back-of-the-Motobike Calculations

Some Westerners have a policy when visiting Rwanda: Never get on the back of a motobike taxi. True, motobikes zip around faster and are more susceptible to falling over than taxi cars. Some people would never choose to drive a motorcycle in Kigali city traffic, and the thought of perching on the back of one someone else is driving is hardly more appealing. Still, if you don’t have a vehicle of your own, motobikes tend to get you from point A to point B in the capital city of Kigali faster and cheaper (about $1.50) than any other available option. If you can make your way to any significant road in the city and raise your arm, you’ll likely summon the nearest motobike to swoop in front of you. Using a combination of place names, maps and gestures, your destination can usually be conveyed to the driver. The driver quotes a price easily twice what the locals pay if you’re a “Muzungu” (white foreigner), but will back off 30% with a little negotiation. At that point, you’re handed a battered motorcycle helmet with a cracked visor, throw your leg over the back of the bike, and get a good grip onto something. My first motobike driver, the one I learned such protocol with in Rwanda, is pictured below.
Over the course of two weeks in Kigali, I caught over 35 motobike rides. Typically, I was wearing business attire and had a laptop bag swung over my shoulder and back. Three times my driver gave up en route…admitting he didn’t know the place I had asked him to take me. Twice, my driver deviated from the paved roads to take a “shortcut” over ruts most 4X4 trucks would avoid. Once (when I suggested we go faster because I was late for a meeting), my driver let me handle the throttle so I could determine the speed... and together we yelled the destination into the night air to the amusement of curious onlookers. On all these rides, we never crashed, and I grew to enjoy the cool wind blowing past us and the fluid, unpredictable dances we did with oncoming and parallel traffic… and that is when I remembered a story…

Randy Komisar (a Silicon Valley start-up guru) wrote a simple yet profound book for entrepreneurs called “The Monk & the Riddle”. In it, he talks about finding passion in business venturing, and he describes a vacation where he drove a hitchhiking monk in Burma for hours on the back of a motorcycle. When they arrived at a monastery, the monk got off and Komisar was given a riddle: ''Imagine I have an egg and I want to drop this egg three feet without breaking it. How do I do that?'' As Komisar got back on his bike and continued his journey into a beautiful sunset in a foreign land, his answer came to him: don’t focus so much on the objective that you fail to live fully today. In other words, learn to enjoy the journey as much as reaching your destination… if you can, you may even find yourself reaching a better destination.

Perhaps such wisdom is easier to grasp when closing your eyes and flying between traffic on the back of a Kigali motobike. Regardless, this is a perspective I highly recommend.

Onward & Upward,
-Carter