Ethiopia Series 3: Understanding the Verdant Model
What Makes the Verdant Model Different?
The Verdant leadership team has spent a great deal of time putting together their framework for how they cultivate new opportunities. Starting with small explorations, they then perform a standard set of rigorous tests before committing in a significant way.
Having spent a week with the team on the ground as an outside observer, we noted there are three key drivers of success: (1) Strong personal connections throughout the country and government, (2) Tenacity—they will sit in the government official’s office for days until they get the right paperwork, (3) Calling—each of their senior leaders does this work from a true sense of purpose and draws strength from their relationship with Jesus.
With these three traits as the foundation, the Verdant team ensures each company they launch follows the same framework.
Verdant’s primary key to success is that all companies it creates are built to generate profit. This ensures that the companies and the positive impact they are creating will stand the test of time.
2. Impact First
Each and every business, per unit cycle, must have a positive impact on the local population where Verdant works. Rather than expecting their impact to come through donations (see previous comments about problems in too much aid), each Verdant business creates a positive impact through the core activity. For instance, in each purchase of a young bull from the local market for Verde Beef, a local family is able to live for three months on the proceeds. Families are given the opportunity to work and generate the income needed to thrive.
Beyond job creation, Verdant has developed robust social impact plans for each of its companies. Working closely with local partners, they assist with community development initiatives – from operating an ambulance service for the local hospital to special training programs for locals looking for jobs.
For Verdant to consider an investment, the business must show a clear path to $100 million in annual revenue. They do this so the scale of the solution can come close to the scale of the problem. In addition, Verdant is able to avoid the quagmire of local governments and participate in international markets. With so many jobs being created and foreign capital brought into the country, political leaders have become rather protective of Verdant’s work.
This is not to say that an investor should look to invest only in very large operations. A thriving economy needs large corporations and smaller mom-and-pop shops - grocery stores, barber shops, and the like. These large businesses can serve as anchors in the country, much like an anchor tenant in a shopping mall, while smaller companies benefit from their influence and job creation. Our hypothesis is that a diversified impact portfolio includes large investments in large-scale companies and smaller investments in microfinance and small-and-medium enterprises (SME). For example, in addition to the Verdant investment, we’ve also funded a credit facility, a franchise restarurant, a large scale apple orchard in Ethiopia.
4. Right Market
Verdant seeks to enter markets that are not currently thriving but have the potential to do so with the right inputs. This means they would not enter a coffee business as that is already a thriving export. Verdant instead chooses to invest in beef, corn, macadamia nuts, and other products that show potential for large-scale growth without sabotaging existing businesses and entrepreneurs in country.
Verdant approaches projects systematically. They have created a proven methodology for launching and scaling companies that includes everything, even down to HR manuals and best practices for dealing with all possible scenarios.
6. Foreign Currency
A major key for Verdant in building a thriving business that is a net positive on a local economy is for the company to generate foreign currency through exports. This brings in new capital into the market, and also generates the FOREX needed for loan payments and profit distributions to investors.
Verdant’s Model is Working
So far, Verdant Frontiers is generating more than 12,000 ongoing, long-term jobs in the local community. Their investor IRR average is 54% across the seven companies they have founded, meaning that both high impact and high returns are proven to be possible. Furthermore, Verdant measures its high-level impact in terms of increase in the country’s GDP. Having a positive impact with this kind of scale takes dedication, business excellence, and God’s merciful provision.
While the full impact of Verdant’s efforts will not be seen for decades, we envision an Ethiopia where hundreds of large-scale businesses have created jobs that enable individuals and families to thrive. Business done right pumps money into local economies, enabling individuals to earn personal wealth. These individuals then invest in education, healthcare, and standard of living improvements for families. Together, the business and individuals create a virtuous cycle of economic development.