"" Tim Coates

Tuesday, February 7, 2012

Yale SOM Philanthropy Conference Summary

The theme running through the Yale SOMPhilanthropy conference last week was how nonprofits are diversifying their impact.

The keynote speaker, Jed Emerson, author of a new book on Impact Investing, spoke powerfully about how our traditional bifurcation between for-profit and nonprofit no longer serves us. “If the only tool you use is grants,” he said, “then the world looks like a charity case.”

His work has focused on finding ways to leverage private capital to solve public problems. While much of his talk was aimed at foundations and philanthropists, he beseeched nonprofits to better understand how capital can be used to accomplish their mission.

If we left the keynote convinced of impact investing, a vigorous counter was lodged during the first breakout session. Three of the four members of the panel I attended, Money to Matter: Creating Synergies across For-profit and Nonprofit Sectors, didn’t think the hybridization and convergence underway in the sector was a good thing. “The work of nonprofits and for-profits is so different,” one panelist said, “they don’t go well together.”

Interestingly, a panelist who used to work at Root Capital, one of  impact investing's success stories Emerson mentioned, said it only succeeded because of their ability to provide grants, not loans. This reminded me of how it took Muhammad Yunus and GrameenBank 18 years to decrease their reliance on grants and government largess.

The panel’s focus on cross sector partnerships was fascinating. Namrita Kapur, Director of Strategy for the Environmental Defense Fund, lamented that one challenge of working with private sector organizations is that “making the business case is not enough anymore.” She discussed a whole range of activities that bring positive returns to the corporation but don't automatically prompt action. Often it was only after a radical advocacy group would raise the costs of inaction that corporations would agree work with them.

The example shows what can happen when diverse nonprofit and for-profit players work together, intentionally or not. But not all organizations find a niche to help achieve their mission. Sharon Oster, Yale Professor and moderator of the panel, A Personal Look into Philanthropic Giving, worried about the implications of the “excessive differentiation” currently happening in the sector. 

Many small nonprofits have only a slight difference in how they approach a problem relative to other organizations. Rather than bring their idea to existing organization, the founders launch a new organization. What this means for the future of public problem solving and the nonprofit sector is an open question. I hope we hear more on this at next year’s conference. 

Friday, January 27, 2012

Hit It Hard

There is so much in this short 4:18 video. For those trying to grow companies or social ventures, this video is golden.

I was shown this video at an event yesterday at HBS, organized for New Brunswick stakeholders involved in fostering entrepreneurship. The particular session that showed this video was led by HBS faculty member Ramana Nanda, whose focus is on entrepreneurship financing. He wanted us to see how the interests of VC firms for backing home runs, not safe bets, leads to certain behavior ($50 million is interesting, $15 million is not). 

Another faculty member, Noam Wasserman, spoke about the learning entrepreneurs go through. His research shows that for many serial entrepreneurs, the second startup is more poorly managed than the first. It's not until the 3rd and 4th that venture they apply the right lessons learned. In the video James talks about some of the mistakes that Noam's research has found first and second time entrepreneurs making.

Now go hit it hard.

Wednesday, January 25, 2012

What’s Your Soil Strategy?

At a meeting yesterday in New Haven, with folks building exciting entrepreneurial energy in that city, we talked about focusing beyond the entrepreneur.

Successful companies have great leadership teams. One angel investor said that he almost never sees a business plan without gaping holes in the leadership team. Another participant then spoke of the analogy of our work with permaculture, an approach to agriculture that looks to natural ecosystems rather than business frameworks.

Permaculture’s focus on the soil and approaching agriculture from an ecosystem perspective ensures abundant harvests and healthy profits. Profits that are reinvested to ensure abundant future harvests.

This is a useful analogy for small market cities like New Haven. The challenge with small cities is that they’re small. People, ideas and resources don’t come together with the same frequency or velocity as they do in big cities, making it harder to generate the critical mass of economic activity that becomes self-sustaining.

I forget where I read it, but the example of the Vietnamese Chef in New York City vs the Vietnamese Chef in, say, Bangor, is instructive. In New York City the Chef must compete for customers with many other Vietnamese Chefs. He specializes and becomes very good.  He meets a Spanish Chef at a Food Network forum for the city's best chefs, who through the same forces has also becomes very good. They team up and open a popular fusion restaurant. The Food Network profiles the restaurant and their popularity grows further.

The Vietnamese Chef in Bangor has a very different existence. His is the only Vietnamese restaurant in town. Unfortunately he needs a population of 100,000 just to have enough potential customers to stay alive. Bangor only has a population of 30,000. After a good first couple weeks his door stops flying open and the restaurant must close.

The soil in New York has nurtured innovation with market size, diversity and specialization. Entrepreneurs can more easily develop products and find people to complete their leadership teams. These forces do not exist by themselves in Bangor. The Bangor’s of the world need to find ways to fertilize their soil and imitate these forces while building on the advantages of small cities. It seems that the folks in New Haven are on their way to figuring it out.