Social Entrepreneurship Lecture: Lee Davis, NESsT (11/23/2004)

Lee Davis, of NESsT gave a surprising stat about the funding of non-profits:

• 10-12% from philanthropic source, including foundations
  
• 30% from government sources
  
• 58-60% from fees for services
  

Given the large portion of money coming from “business activities” how can non-profits increase their potential for earned income, using the best practices of the for-profit world? This approach offers a number of benefits:

1. Diversifies the income sources of the non-profit
   
2. Allows the non-profit to “take control” of their resources
   
3. The work itself can further the social impact
   
4. Strengthens long-term financial sustainability
   
5. Improves the capacity, efficiency, and professionalization of the organization
   

Lee offered a couple of examples of programs that NESsT funds:

• Open Garden Foundation: A program in Hungary that offers delivery of organic foods ordered by the customers
  
• P-Centrum: In the Czech Republic, wood-working shop for at-risk youth
  
• Vydia: A Slovakian tourist destination, built up from a mountain train into a cluster with a restaurant, cultural shows, museum, shops, etc.
  
• Flores del Sur: Flower cultivation in Chile.
  

In each case, the NESsT has made a multi-year commitment, of not only money but staff expertise support. Lee Davis co-founded NESsT in 1997 with Nicole Etchart, and they have grown to 3 offices world-wide (Budapest, Santiago, and San Francisco) with a $500K annual budget and 8 full time staff members, 2 part time, and 1 to 3 “entrepreneurs in residence”. In addition to directly supporting organizations, they have a number of related activities:

1. Venture Fund: Starting a global emerging markets social enterprise fund
   
2. NESsT University: A forum for teaching NESsT business fundamentals
   
3. NESsT Consulting: Performed on behalf of other foundations (like Soros’ Open Society) for organizations in their portfolio
   
4. NESsT Marketplace: An online forum for selling goods from non-profit entities
   

Lee described their purpose as weeding out the bad ideas, then giving $1,500 – 2,500 for venture planning (writing a business plan) plus technical assistance with writing the plan. The money is an incentive to complete the plan, plus compensation for the management time. They invest for a period of 3 to 5 years, providing capital for organizational development with “boring” things like staffing growth and accounting packages that would otherwise be hard to fund. In addition, joining the network of investments means access to volunteers in the legal, marketing, and venture capital communities. NESsT will eventually exit when the organization meets its financial goals. Although most NESsT employees have significant previous business experience, they find that it sometimes still challenging for their staff to make the leap to the smaller organizations.


Lee mentioned some related organizations like:

• The Roberts Enterprise Development Fund (Redf.org)
  
• European Venture Philanthropy Alliance
  
• Impetus trust (in London, France, Germany, and Italy).
  

There’s also a free book Risky Business available from the site that describes some of the issues of culture and mission drift. NESsT is also starting a Social Enterprise Loan Fund. When asked about the criteria that they used to select investments, Lee included:

• Social change
  
• High impact
  
• Quality of leadership
  
• Realistic, but ambitious plan
  
• support for emerging democracies
  
• Providing portfolio diversity for the NESsT family
  
• Smaller than $250K annual revenues
  
• Those which have local role models
  
• Those that present a replicable model
  
• Socially responsible investments
  
• Where NESsT has an opportunity to add value
  

Philanthropy Class: Kavita Ramdas, Global Fund for Women (11/23/2004)

Kavita Ramdas the CEO of the Global Fund for Women came to speak. Laura led off with a pitch for global social investing funding intermediaries, saying that donors had the advantages of pooling their money with other donors, plus the expertise of the intermediary that has a knowledge base and understanding of the local NGO’s. The GFW has a unique peer evaluation among its grantees, as well as a network of volunteer country advisers. They target controversial issues and groups, and hold open board meetings. They give grants for operations, which can make assessment difficult.

Kavita started by contemplating the world condition to see what the particular role of philanthropy and women’s leadership is. Although she stopped short of direct condemnation, she was clearly alarmed by some of the national and global changes, as well as watchful of other transitions (such as China’s growth and the election of a socialist government in Brazil). She encouraged us to take a more global view of the news, and read sources to supplement US-based ones. The US ones tend to ignore conditions in Africa, for example, where she rattled off the list of troubled countries: Ertirea, Somalia, Democratic Republic of Congo, Liberia. Finally, she turned to the role of women. Her basic argument is that everyone needs to participate fully, and that women’s empowerment is not intended to take anything away from men; indeed, success will be liberating for men.

The six areas of focus for the GFW are:

1. Health and women’s rights
   
2. Peace
   
3. Environmental and economic justice
   
4. Civic participation
   
5. Education for women
   
6. Fostering local philanthropy
   

She mentioned that GFW has an initiative to increase grant making in the Middle East and Northern Africa. She claimed that corruption is no worse in the developing world than in the developed world, and that 98% of their grant recipients file the requested reports. Women’s leadership style offers different opportunities, though many have come to power using “traditional male” leadership models. Everyone, she says, has the opportunity to benefit, and people are seeking changes.

She talked a bit about their grant making operations and recent board meeting. GFW accepts grants in any language, a powerful statement of acceptance to all, she said. Plus, “English has become the language of empire” and while there are many potential benefits, there is also much baggage. GFW hosts “activists in residence” and started their recent board meeting with an interesting “Power shuffle” exercise: with everyone starting from the midpoint of the room, people were asked to take steps forward or backward for traits that affected their representative power (e.g., “Holds US passport: +5”, “Live in a conflict zone: -2”, “parents had a high school education: +2”) the resulting sort showed the inequality of people’s relative starting positions.

RDVP Class: Gary Lauder (11/22/2004)

Gary Lauder, of Lauder Partners, came to present the venture capitalist’s view of business plans, attracting investors, and selecting ideas. His expertise is in the area of Cable Television and related technologies. He’d invested in two cable modem companies and a Video-on-Demand company. Although he occasionally strays from the area (he mentioned investments in Goto.com, About.com, N2Ki (as a search company, not its eventual music incarnation)) he feels that the specific industry experience is an asset that shows how foolhardy it is to invest outside your area of knowledge.

In evaluating a business plan, Gary looks for whether the entrepreneurs have thought through all of the angles of the business, and whether they can communicate effectively. He screens 95% of the plans out because they don’t fall in his area of expertise or because they’re not great ideas. He said that unlike many VC’s, he does take plans over the transom. If the business plan captures his attention, he’ll want a PowerPoint presentation (and suggests that entrepreneurs have two versions, one that they use when they’re speaking to the audience, and a second (with more bulleted text) for when the prospect is just flipping through the presentation on his or her own.) The five key elements that he mentioned for the plan included:

1. The problem you’re trying to solve
   
2. The absence of a good solution (or why you solve it better than the alternatives)
   
3. How the innovation is defensible (your sustainable competitive advantage)
   
4. A “large” market size
   
5. A strong management team, that’s well rounded and has ideally worked together before

Asked about the utility of a “1 page business plan”, he asserted that the 1 page plan was more important than the 50 page version.
In selecting a VC, he suggested that personal connections are useful, but failing that, you should do your homework and find people who have made relevant investments before—who have that expertise. If you are negotiating with multiple VC’s, it’s best to keep them separate and not share their identities, not because they will necessarily collude, but more because if one becomes disenchanted with the deal, he may relate his concerns (even if they’re not valid) to a second VC who may then be more likely to pull out as well. The perception of being a “hot”, sought after deal pays dividends to the company, so it should be cultivated. If you are choosing among multiple term sheets, check their references by contacting CEO’s of companies on which they serve the board. Also look at the number of boards that the investor serves on. If it’s too many, they can’t give you the attention you deserve.

From the insider’s point of view, the success metric for an investment is judged on the internal rate of return, and Gary suggested that a 50% IRR would be deemed successful, and anything in the 35%-50% would be interesting enough for further investigation. Although “being able to help” (play an active role in day-to-day operations) offered emotional gratification in the early days, Gary said that it was often inversely proportional to the financial gratification he eventually received. (Those deals that “needed” him were weaker teams that ultimately ended up suffering in the marketplace.)

Gary said that complexity was a negative on a business proposal: it makes it that much harder to execute, but even just selling the idea to all the partners in the VC firm is hard. As a guideline, he suggested that “If you can explain it to your parents in a way that they can explain it to you your wife, you’ve succeeded.”

With the combination of Gary’s presentation, Amy’s presentation on project budgets, and time planned to give each other small group feedback on the business plans, we didn’t have time to discuss the readings (Deming on Entrepreneurship). That was too bad, because I felt like this chapter was probably the most accurate description of what I experienced going on inside Vividence. The key points were:

1. The need of a talented management team (ahead of when you can afford them)
   
2. The need to track some simple metrics of what matters most to your business
   
3. The need to be able to change capital structures as you outgrow each funding source
   
4. The need for the founder/entrepreneur to truly match their skills, plus the skills of the assembled team, against the needs of the company to find the role they should be playing, taking preference into account only as a final factor.
   

Berkeley MF conference: Yunus keynote (11/19/2004)

Muhammad Yunus is the Excutive Director of the Grameen Bank in Bangladesh. He started the practice of microcredit approximately 30 years ago, and has been a tireless advocate and visionary, pushing people to think about what could be done to reach more. Since 2005 has been designated by the UN as the "Year of Microcredit" (see the press release) this was an opportunity for Prof. Yunus to reflect on where we had been as well as what the upcoming goals were.

In 1997, there were about 7.5M borrowers. Yunus was meeting with the President of the World Bank, James Wolfensohn. They were discussing the appropriate goal to set for 2006. Yunus thought it should be 100M. Wolfensohn thought that was outrageously aggressive, but conceeded that 50M seemed about right. Yunus told him, "All right, for you the goal is 50M; for me it's 100M." As of 2003, about 55M borrowers had been served, and 70 - 7M seemed attainable in 2004.

The Grameen Bank itself has about 4M borrowers, making $500M in loans each year. The money does not come from donors, but all from bank deposits. For the typical loan, about 70% of the money comes from the borrower herself, in other long term savings deposits that she has in the bank. This may sound odd at first, but is not terribly different from borrowing from your retirement account. Indeed, Grameen Bank has some retirement account structures, where if a borrower makes regular deposits for 10 years, they are matched by the bank, yielding an effective interest rate of 12%.

Branches are run on a stand alone basis. New branches need to be self-reliant from Day 1, and most are profitable within 6 months. If they aren't within a year, it suggests a management problem, and the management team is replaced.

The market rate of interest in Bangladesh is about 15%. Grameen Bank offers four main loan types:

• Income Generating Loans at 20% interest rate
  
• Housing Loans at 8% for a 10 year period
  
• Student Loans at 5% (no interest while the student is in school)
  
• Beggar Loans (interest free)
  

The blended interest rate on these loans works out to be the market rate. For deposits, the minimum interest paid is 8.5%. The blended rate paid on all accounts is 10%, compared to the 15% they're earning from loans. This spread meant that they were able to earn a profit of $20M in 2004, even paying "government level" salaries and benefits to a staff of 12,000 people. Yunus was clear to point out that microcredit interest rates should be compared to the market, not to moneylenders. 96% of the borrowers are women.

In addition to student loans (which may be up to 100% of tuition), Grameen has 7,000 scholarships, half of which are open to only girls, the other half are open to both boys and girls.

Beggar loans are proof that even the poorest can use money. Grameen had targeted giving 5,000 of these small ($9 on average) loans to beggars, along with training. Since most beggars go door-to-door to beg for handfuls of rice, the Grameen staff members encouraged them to sell things door-to-door, giving people the option of either buying something or making an outright donation. In some cases, the people asked for different goods, in which case the beggar brought them the following day, becoming, in effect, a shopping service for the homeowner.

Grameen has branched out from just being a bank. There are now about two dozen independent Grameen companies, with Grameen phone being perhaps the most successful. It won the mobile license from the governement, and now has 80,000 "phone ladies" (village women who have been given a loan to buy the phone and re-sell time in phone calls.)

Yunus talked about the alternatives to capitalism, saying that in its current instantiation, the interpretation of a business was making as much money as possible. An alternative would be to have a business that maximizes the good it does for people, subject to the constraint that it not lose money.

Given that the UN Millenial Development Goal is to halve poverty by 2015, there's no reason that we can't achieve an equal reduction from 2015 to 2030, entirely eliminating poverty, except in a few museums, so our descendants can see the inhuman conditions that some people used to be subjected to.

"Income is the best medicine for the poor," said Yunus. He pointed to some of the other changes that wealth and self-confidence had made: 24% of the locally elected officials in Bangladesh are Grameen women. He made it sound like the if two "centers" (each about 15 groups of 5?) agreed on the local candidate, they had enough votes to elect the person.

When asked about the constraint of growth for microfinance worldwide, Yunus pointed to the ability to take deposits. Grameen Bank can, and therefore has enough money to make its loans. Otherwise NGO's can't, and therefore don't have the money to make loans. He considered it shameful that multi-laterals (like the World Bank) had put less than 1% of their portfolios into microfinance. He felt that if they increased the number to 2.5%, much of the capital squeeze would be gone.

[It so happened that I was sitting next to Tom Clausen, the former president of the World Bank (1981-1986). He pointed out to those in earshot that the World Bank is expressly prohibited from loaning to anyone other than governments by its charter. It sounds as though he and Yunus did not always see eye-to-eye, though there was a grudging respect.]

RDVP Seminar: Jim Horan (11/17/2004)

Jim Horan of the One Page Business Plan Company gave the seminar this week. I went in a skeptic, and came away mildly intrigued. I've been doing business plans for 7 years. I've co-authored two that have raised a combined $125M in venture capital. The book (which we were given in advance) has lots of pictures and sample plans about companies that produce knit goods or hand made furniture or the like--in other words, not the sort of company that I envisioned myself starting.

After a bit of a slow start, Jim finally said something that made me realize he was aiming for a different goal: not a plan that was fundable by investors, but something to "help keep other people on track as they contribute to the solution." The One Page Business Plan is not really a strategic document, but more a communication and marketing document: a way to achieve high-order bit alignment among different constituents. Undirected employees are a drain on resources: even volunteers who aren't paid a salary still require management time and attention. If they aren't doing the right thing, they're draining resources. The OPBP is a "way to get them to show up and serve the cause in a cost-effective way."

It forces the plan author (and there should be many plan authors per organization, perhaps each employee should have his or her own plan; Jim made the radical suggestion that they should all be shared widely within the organization) to answer the question: "From where you sit, what does the future look like?"

Objectives

Jim offered the nice insight that an objective needs to be graphable. A very intuitive way to get people to think quantitatively.

Mission

Getting people to use simple, emotional words was probably the biggest breakthrough of the session. Rather than the Dilbert business-speak, shoot for a sound-bite that tugs at the heart strings and gets people to ask the next question (typically "How do you achieve that mission?")

Other interesting quotes / thoughts

• Margarita: This is a printed call to action. It needs to engage other people, get volunteers to commit; it's a marketing document.
  
• Mans: "You start off thinking 'It would be great if someone could make that happen,' and then you realize that maybe that someone is you. And you can't do it alone."
  
• Carlos: (In response to Greg's proposed mission statement of "So that artists don't have to starve.") "If the art sucks, the artist should starve."
  
• Carlos: If you send your business plan to a stakeholder and ask for feedback, and don't get any, IT'S TOO LONG.
  
• Jim Horan: "Hold on to the leadership of your project. Your vision for a solution to a problem [is a valuable strength/asset.] Don't give it up."
  

Conclusion

So the OPBP doesn't replace the strategic plan that you present to potential funders. It might, however, be a valuable additional exercise to use for communication within your organization. It's perhaps not that far off of the
"MBO" (Management by Objective) goal-setting plans that are good in concept, but
tough to execute well.

RDVP Class (11/15/2004)

With our project business plans due at the end of the week, our class focused on discussing the form of what was in the business plan for a social venture. Greg, voice still shot, started us off with Hank Chesberow (?)’s pieces of a plan:

• Value Proposition: Why do customers want your product/service?
  
• Value Chain: How do they get it?
  
• Value Network: How do they use it in their context? What are the related products?
  
• Profit / cost: How do you make money / cover costs off of it?
  
• Partners: Who collaborates with you to serve the customer?
  
• Competitors: Who else is trying to serve your customers?
  

Dipak simplified it further to answers to 4 questions:

1. What are you doing?
   
2. Why?
   
3. How will you measure its success?
   
4. How will you accomplish it?
   

Mans talked about Reuters’ decision in 1988 to pursue a policy of open systems. He felt that they had clearly given up some revenue that a proprietary system would have generated and the open system had exposed some of their intellectual property to competitors, but, on the whole, had been a net gain because of additional customers that they had gotten for supporting the open system (those that wanted to leverage some of Reuters’ work.)
Dipak asked about how to account for the profit model in a social venture, and Greg responded that in a “double-bottom line” venture, you needed to run the profit model for both dollars (very quantitative, to show at least sustainability) and your social return (perhaps less quantitative). The best examples of those social returns were in Corporate Social Responsibility studies.
Carlos objected to the “rush for a solution”, questioning whether we could come up with an appropriate solution before truly understanding the context. We need to do subject observations and interviews, let people speak for themselves and document what they say. Greg argued that this is what IDEO prepped us to do, focusing on user-centric design, and reaching an understanding of the value proposition.
Mans won the runner-up quote of the day award for: [Without proper user research] “You risk inventing the problem, because you invented a solution.”
Margarita pointed out that since we were starting from many different points (before the fellowship), we’ll likely end up at different points (having made differing amounts of progress).
Durga chimed in, agreeing that observation really helps, and that the design process for the project should be iterative. Greg pointed out that the biggest challenge of the project was not really any of the particular pieces of the project, but rather gaining and maintaining the momentum of a project, so that even if you got one particular piece wrong, and you “failed”, the project had momentum to live beyond that first failure, so you could try a second or third or even fourth approach, citing Palm PDA’s as an example. Carlos claimed that the rash and range of questions that we were experiencing was evidence that we didn’t understand our problems and user populations well enough and even a small amount of observation would prevent a lot of these questions.
Durga won quote of the day for: “You can’t understand everything about all of the problems, if you tried to you wouldn’t be an entrepreneur, you’d be a PhD student.” (Speaking as a former PhD student, touché, Durga).
In response to Carlos’ suggestion that a map of the actors in the system was the appropriate way to proceed, Greg said that the components of the business plan are essentially that map: customers, value chain and value network.

---

At this point, we turned to Mans’ project. He’s looking to remove the asymmetry of information for those in the marketplace that often results in exploitation of the less informed party. He used Mali as the recurring example, with Moulaye having been his local expert about the conditions there. USAID had established a market information service (broadcast over FM radio). Prior to the service, there could be price differences as much as 50% over distances of just 50 km. Since the service, the markets had leveled out, and producers reported a 30% increase in income. The USAID grant is due to expire next year, and there has been no provision to translate it into a self-sustaining service, even though it would seem to be a market for it. Dipak asked why not, and Mans’ response was largely that they’d been focused on other things, this was a change, and charging for something intangible and formerly free was hard. (Even in the US people are unwilling to pay for content.) Durga wondered whether there were a way to segment the market, and encourage the trader / middlemen (who presumably had the most to gain) to pay for the service rather than try to get the government to kill it. Margarita asked if there were opportunities for quick wins, to which Mans offered that Reuters has a ton of information (at the world level). The Chicago Board of Trade publishes its futures prices for free, and that is valuable information to the though tough for most producers to interpret. Mans viewed the challenges as:

1. Figuring out what to write (format for price information report) and how to distribute it
   
2. Creating new content, that will drive people to collect, generate and deliver the information
   
3. Dealing with a huge amount of information: In Mali there are prices on about 50 crops in each of 20 different markets. How do you reach that level of granularity while still having something that's easy to digest?
   

Mans commented that distributing financial information has the nice property that it can be sliced and diced down to almost any level of low expense. (e.g., the difference between expensive real-time stock quotes and free 20-minute delayed quotes). He was looking for solutions where the producers could be compensated for their participation in the proces of giving market information.

He described the hardware device that he was thinking of: a FM radio TiVo, where market information would be tagged and broadcast, and your device would record only those commodities and regions that you were interested in, for subsequent replay. He mentioned the idea of providing "branded" scales in the market place for data collection. And also was thinking about some more theoretical aspects of the transaction: if you want to separate the agreement of the sale price from the payment and separate that from the delivery, how can you do that? His assertion was that it required the participants to have bank accounts (which is not a given in Mali).

Others made suggestions about the information distribution (what about via paper? Hard to do, because people live far from the market place, but need to decide what goods to bring to the marketplace before they could read a price sheet distributed at the market. What about paper delivered in the village or person-to-person distributed by a network of entrepreneurs? What other types of information could these rural producers provide that would be of value to the global community? (e.g., health conditions, weather/environment conditions, crop outlook) Would there be enough value in that information as an "early warning system" that it would provide an edge for commodity traders who had it?

Margarita also wondered about creating cooperatives among the suppliers. What was the minimal scale needed to achieve bargaining power?

Philanthropy Class: Rob McKay (11/11/2004)

Rob McKay, Executive Director of the McKay Foundation was an unabashed supporter of liberal/progressive causes, and explicitly interested in supporting the means for these causes to build and exercise their power in the political arena. Laura set up the discussion by showing some of the ways that foundations have influenced the political agenda. Although there are restrictions about what foundations can do in terms of lobbying, there is still a lot that a foundation can do to advance a political agenda. She pointed out a number of things that conservative foundations (such as the Bradley Foundation ($580M), Scaife Foundation ($323M), Olin Foundation ($71M) and Koch Foundation ($68M)) do to fund conservative think tanks, leading to the training of a new generation of conservative leaders, as well as production of academic papers and communication pieces presenting conservative stands on issues. Conservatives have been outspending liberals by a factor of 10:1 in media and journals, according to Arrillaga. Some of the activities of the groups come close to the verboten lobbying, such as policy dinners where legislators and government officials are invited to dinners where key contributors and hand-picked experts can address them collectively or one-on-one.

Rob McKay picked up right where she left off, claiming that philanthropists for liberal causes have been much more diffuse, changing interest areas (environment, women's issues, labor, etc) every few years, while in contrast, conservative philanthropists have been pushing the same agenda since 1964. And the conservatives comfort with interlocking boards, and gatekeepers has enabled a consistency of message not matched by the Left who seek consensus after representing everyone at the table. Especially when policy change requires 10, 20, or 30 years of serious work, McKay argued, the conservatives have been recently reaping the rewards of their efforts started years ago, while the liberals have just (within the last couple years) recognized the importance of doing this.

After this intro, Rob answered a number of questions about the Living Wage campaign, the case that we read that "featured" him and his foundation in the successful (though significantly more painful than expected) campaign to pass a Living Wage law in San Francisco. The initiative had come out of the efforts of low-level labor leaders, therefore didn't have the academic air cover nor the media pundits discussions that would have been part of a conservative "launch" for an issue. Fortunately, the issue had wide spread public support so not as much education was required.

McKay Foundation recently did a strategy review, and decided that they would require grantees to explicitly discuss the electoral component to each of the projects, and expect their grantee organizations to either become or already have 501c4 status. The media/communication plan is also a separate part of the grant application now.

Rob spoke about the creation of America Coming Together in July 2003, from liberal groups of various causes, supported by donor activists (many with foundations, though the money came from the individuals rather than the foundations). They intended to (and succeeded, I think) in raising $200M, a war chest for 10-12 battleground states that would determine the election. Although the group did not (could not) coordinate directly with the democratic party, the transparent needs and strategy meant that it was pretty clear how the money should be spent to advance the causes.

Following the Democrats defeat in 2004, Rob urged people to be realistic: they had claimed this was the most important election of their life time, and the democrats had lost. Part of the reason was that the candidate and party had not come through with the strength of message needed to win people over. But he also attributed the Republicans' success to their increased success in adding 950K republican votes in Florida and 450K in Ohio (compared to the 2000 totals) so that even though Democrats met their targets for votes earned in those states, they still were defeated by the unexpectedly high Republican totals. Rob did think that this marks the beginning of long-term funding and development of the ground troops, voter files, and sense of collaboration among different liberal groups that will be necessary to compete with the Republican machine going forward.

One student asked what individuals without financial means (such as an inheritance of millions of dollars from Taco Bell stock) could do to build the progressive infrastructure. Rob suggested helping with content (journals, think tanks, etc) running for office (even at the local level) and considering a career as a community organizer.

Acknowledging that it was not a happy note to end on, Rob said that he felt:

The country has not been more split since the Civil War.

Reception for Reuters CEO, Tom Glocer (11/10/2004)

Tom Glocer, the CEO of Reuters, gave a brief address discussing both Reuters' use of technology (dating back to the company's founding in 1861). Technology was somewhat loosely defined including carrier pigeons to bridge a gap in the telegraph wire (with the added innovation of redundant carrier pigeons) and rowboats (who intercepted mail ships bound to London coming from America off the coast of Ireland, then made use of the undersea cable between Ireland and London to "scoop" the companies that waited for the ships to arrive.) More recently, they pursued policies of open access, choosing to discontinue their proprietary hardware and focus on content instead. He also spoke about the Reuters' principles that have built and protected the Reuters' brand over the 150 year history. A strong editorial separation has given Reuters much greater credibility. (Anecdote: BBC typically insists on two independent sources before they'll run a story, but makes an exception for Reuters' stories.)

He answered questions from the audience, and stayed to mingle for a bit, praising the work of the RDVP fellows. A number of interesting people came to hear him speak, so it was a great opportunity to communicate our projects to a broader audience.

RDVP Seminar: Eugene Eric Kim (11/10/2004)

Eugene Eric Kim of Blue Oxen Associates spoke about collaboration. Blue Oxen is a think tank devoted to the study of collaboration and the distribution of best practices by sharing them through writing and meetings. He provided a formal definition of collaboration: "Two or more people share knowledge in pursuit of a shared, bounded goal," and also some instances of collaboration that resulted in differing degrees of success. He argued that collaboration requires a shared language and understanding (not 100% agreement on all definitions and terms, but at least an understanding of what the other parties mean when they use them). Then he reached the meat of the talk: the identification of collaboration patterns (like software design patterns or architect Christopher Alexander's patterns of successful buildings). Since people do a lot of collaboration, most are familiar with at least some of the patterns, but calling them out, making them explicit means that people are more likely to incorporate them into other collaborative settings increasing their effectiveness overall. Some sample patterns:

1. Shared display: Generally interactive with joint ownership
   
2. Neutral space: A place where all can put ideas and build on them without worrying about ownership. Open source is a good example.
   
3. Scratch your own itch: People will generally do things that help out their particular problem, and share the solution. Enables emergent grassroots cooperation.
   
4. Sacrificial Lamb: Designating one person from a team to handle all of the interruptions caused from the outside world kills that person's productivity, but makes the team as a whole more productive. This position generally rotates.
   
5. Spotlight on others: Share credit--go out of the way to acknowledge others
   
6. Mentorship: A way of integrating newbies into a community.
   
7. Developers talking to users: In organizations that build unusable products (or software) it's usually because the developers are insulated from the demands of the end user. In order to build successful products, they need to be integrated with users.

He also offered a couple of misconceptions about collaboration:

1. You can't force self-organization: Presented with examples of highly functioning self-organization (e.g., Dean's Meetup; Wikipedia) organizations or companies say "I want that," but they can't dictate it. They can create a space, perhaps even catalyze a move toward self-organization, but not force it.
   
2. Self-organization does not mean "No organization": Self-organized groups are not always flat, equitable organizations: they can have roles, structure, authority, etc.
   

He closed by looking at some tools, praising those that enabled the community to be engaged, self-policing, and yet have automated extraction of structure (often link structure) of the implicit knowledge added by people. He showed the example of http://www.technorati.com.

Philanthropy Class SV2 Case Study (11/16/2004)

It was interesting to have a case study about SV2 given by SV2 founder Laura Arrillaga. She gave an intro about venture philanthropy, very similar to the one that she gave at the venture philanthropy summit. We talked a bit about the benefits that accrue to both the donor/partners and the non-profits who receive funds. For the partners the key benefits are:

• Expertise of CFSV staff
  
• Leveraging contribution (by aggregating with donations of other partners)
  
• Ability to contribute intellectual/human capital at a high level (strategic consulting, not painting houses)
  
• Network of like-minded givers
  
• Due diligence of SV2
  

The non-profits get:

• Money! (And typically a 3-year grant, longer than most donors)
  
• Access to SV2 partners as potential individual donors
  
• Expert advice from successful SV professionals
  
• Assistance in changing to an outcome-oriented mindset
  

We learned more about the SV2 grant-making process, as well as events for partners. Finally, we discussed the case study, which described how things had gone awry in SV2's initial grant (mostly due to an inadequate/uncommunicative executive director) and debated what SV2 should have done. I agreed with their decision to suspend the grant, though might have even gone farther and not given them the (unspent) initial $75K for year 1. I think that the non-profit did not truthfully disclose their intentions, and that was more than sufficient grounds for terminating the relationship.

RDVP Class (11/8/2004) Volunteer Coordination

Stuart started off the class discussion by quoting Peter Drucker that people succeed with simplicity. An idea that is too complex either won't work, or won't be understood by people. Margarita pointed out that this is the benefit of an elevator pitch: condense your idea to 30 seconds so that just the most important aspects are retained. Ideally, those key points form a narrative, complete with characters, conflict and resolution. It is, as Yann points out, the Hollywood archetypes: well known plots that get re-combined and tweaked. Pushing the "movie crew" metaphor a bit, Margarita talked about how teams, especially sports teams, can collaborate effectively because everyone plays his position (and "his" is used intentionally--Margarita said that girls don't have as much of the sports exposure that makes this work). The positions are essentially well-defined interfaces that dictate how the teams are supposed to interact. They set boundaries and expectations.

This moved us into the arena of organizing teams of volunteers for our projects. Jose wondered if there were best practices, optimal sizes and how to avoid role conflicts. Margarita responded that the best practice really was "organized chaos" and while it can be frustrating, especially when an entrepreneur has all of the "meta-level work" (like strategic planning) to be done, he or she keeps getting interrupted to fulfill a manager's job: guiding people to understand what needs to be done. A job description can go a long way in specifying the expectations and responsibilities as well as the authority of each position. Recognize that volunteers don't need to be engaged forever: in some cases they can and should be treated like consultants, with specific skills that fit today's needs. If assignments are vague or too long they lead to volunteer burnout.

Stuart pointed out that starting something up involves creating/prototyping an organization as well as the idea. In the early days, when everyone is fulfilling multiple roles and there's a lot of shared communication, the organizational structure can be fluid. Margarita saw the common pattern of a non-profit organization starting with a working board of 8-10 people that might continue that way for as much as 5 to 7 years before it finally "broke out" hiring staff to do the daily work while the erstwhile working board transitions to more of a governing board. Carlos said that the volunteers are getting helped too, so it's better if you can clarify up front what the benefits are to them, and link those benefits to their own mission (or that of their parent organization) and its strategic plan. Jose added that organizations need to adapt and re-align even re-earn partners' buy-in as the overall project changes. Margarita described the role of the social entrepreneur as chief salesman, evangelist and communicator. Carlos, drawing on his experience in marine life rescue, stated the importance of an unequivocal goal. In his case, the vision of "Manatees + 1" (do only those activities that will increase the population of manatees) helped rein in well-intentioned but scattered plans or discussions that led nowhere. This organization also caused Carlos some frustration and an understanding that you need to "test" volunteers to make sure that they're really committed. Carlos described calling his volunteers and getting 70 that said no before one was able to help on a particularly demanding animal rescue mission.

Stuart gave the example of the Food Bank, an organization which was able to take in a variable number of volunteers and deploy them effectively. Though he admitted that this was probably a special "easy" case, since the work was simple, highly parallelizable, and didn't require much direction. But in trying to determine appropriate matches between volunteers and takss, Moulaye insisted on the importance of gathering feedback from the volunteers, while Helen suggested selectivity and only matching people with tasks that they can do--this was a little controversial, since others felt that many volunteers were giving time so that they could learn new skills, that is, go outside of what the natural matches were. Margarita specifically suggested encouraging people to do things that they're not sure they can do. Set up a couple of "easy wins" for them to achieve some small successes quickly, and then give them goals that will challenge, but recognize that you need to use a different measuring stick for success and failure for a volunteer (than you would with an employee.) Jose said that if you included the person's enthusiasm in the matching process, you might end up with better results than those that were purely skills-based. Durga asked if simple self-reported skills matching was sufficient, wondering how you really evaluate someone. Renee thought that it was really the personal assessment, getting to know them on a face-to-face basis, that allowed you to make those judgments. Margarita said that some people are really good at intuiting people and finding assignments that are fulfilling for both the organization and the volunteer. Durga asked about how that scales to a hundred volunteers. It became clear that this was not a purely hypothetical question: he's gotten a great response from his request for volunteers in India to help gather data about parent's perceptions of school and why they do or don't send their children.

We were all impressed. Helen echoed my thoughts by saying that her project was still under definition, and she needed to get a task list together before she could productively use volunteers. Renee gave the helpful hint of breaking volunteer groups into "newbies" and "oldtimers" so that the experienced volunteers weren't subjected to the same old orientation every time a new volunteer arrived. Carlos had previously mentioned the notion of "docking points" (areas at the fringe of the project where partners can plug in) and pointed out that they could work well for integrating new volunteers as well. Renee suggested giving feedback to the volunteers, including a self-evaluation component. In designing a successful organization, Margarita came back to an idea from last week: the need for a #2 executive who can "make the trains run on time" (handle the day-to-day operational issues), freeing up the entrepreneur for the more strategic work. She also asked that we not forget that part of the reason that people volunteer is to meet other volunteers: most effective organizations have a social component as well, since people join things to make friends.

For the balance of the session, we helped Jose with a brainstorm on his project, including suggestions for different models (an actor map, a time line, a market analysis) for how he could think about the project and what needs to happen next. It sounds like this may become a regular feature of our Monday sessions.

World Affairs Council Corporate Philanthropy (11/5/2004)

Jeff Mattan and I attended this session mostly because of Janine Firpo, the point person on HP's e-inclusion effort around microfinance. She was one of 3 speakers, by coincidence, Dipak Basu, also an RDVP Fellow, was a speaker on the panel representing Cisco. The third speaker was Bill Manion, of Pfizer.

Bill Manion of Pfizer spoke first, describing their Global Health Fellows program. Some 30 employees since 2003 have spent 3-6 months working with NGO's in developing countries. Katherine Kim was on hand, having spent time on the border between Malaysia (?) and Mynamar. The program has support of the CEO, leadership team (6 senior officials within Pfizer), board of directors, and shareholders (Bill claims to have never gotten negative feedback from shareholders about the expense of the program). The fellow's position is held open during the time he or she is away, and it represents a commitment from the fellow's co-workers as well, as they need to pick up the extra work while the person is away. He said the program is in line with their goal to be the most "valued" company, and they donate $750M/year worth of cash and product. Bill's advice for people travelling to another country is to be accepting of that community's way; in particular, things like schedules and agendas are probably not the same for them. Pfizer partnered extensively, with local and international NGO's, as well as targeting supportive governments. They're focusing now on sending multiple people over multiple years to the same region to leverage their learnings.

Janine Firpo of HP went next. She described HP's interest as a combination of doing good while serving corporate interests (market development). She focused mostly on microfinance, saying only about 10% of the global population that could benefit from it has access. Pushing a typical technical solution may not be the best route, since it requires stable electricity, connectivity, air conditioning, a literate population, generally working only in urban markets. She said that HP has made a 3 year commitment to live in communities (Ander Pradesh in India, Limpopo in South Africa) to experience the needs and understand how to craft appropropriate solutions. In the area of microfinance, HP has created a partnership of 7 entities. They identified some of the challenges with microfinance (rife with errors, long times to collect/enter data) and created a solution based on smart cards and portable readers that enables electronic capture of data, the initial step of a transactional backbone that will enable these borrowers to enter into the traditional banking community.

Dipak Basu of Cisco rounded out the panel presentations. He talked about Cisco's support of NetHope, an organization devoted to helping NGO's achieve benefits from technology. He noted that Cisco also views its "Leadership Fellows" program as one of employee development, and the fellows are people who have been identified as potential senior level managers. The Cisco program is not for generating current profit, but does have strong shareholder support from John Morgridge (Chairman) on down.

Responses to Questions

Janine mentioned that it's important to be creative in re-inventing the technology, re-thinking how the service is to be provided. Competition will be coming not just from the developed world but also the developing world. Making a success in reaching the bottom of the pyramid will help encourage other companies to try, and not just multi-national companies: companies that are based in the developing world are a natural to serve this market since they evolved within it. A deep level of engagement with this community is needed to understand how to serve it. The multi-lateral consultant model (World Bank, USAID) especially needs to be overhauled. Corporations participating in development provide a lot more than financial capital. More important, she said, was the "business sense" the approach to doing things, and the accumulated intellectual capital of the firm. She estimated that about 100 microcredit banks had figured out sustainable business models, but they'd come under pressure as banks such as ICICI moved down market and started providing services to BOP consumers.

Katherine Kim, the Pfizer global health fellow in attendance, described the training that she went through and pointed out that the community needs to be prepared to receive the fellow as well. And individual selection was critical, but not easy--the best resume is not always the best person for the job. Even the Peace Corps reportedly has a 40% return (dropout) rate.

The panel closed with a question about measurements. People agreed that this also was necessary, but hard. Especially since with so many different projects and fellows there was little consistency for a global set of outcomes. Therefore, mostly the project initiators suggested their own metrics, to which things like employee satisfaction, observed outcomes and lessons learned were added for everything.

RDVP Seminar: Jim Koch (11/3/2004)

Jim Koch, from Santa Clara University, spoke about the Global Social Benefit Incubator. Similar in goals to the RDVP, it uses a slightly different method. It focuses on projects that have already been proven effective in one instance, then helps the visionary scale it up. The primary vehicle is an intensive 2-week training program, with mentorship and an ongoing community of social entrepreneurs. During the "boot camp" they write a business plan.

The participants are selected from among the recipients of the Tech Museum Laureates (a prize co-founded by Santa Clara U's Center for Science, Technology, and Society) and two other similar competitions (one in Europe). Most of the winners (80%+) come from NGO's, philanthropic foundations, and social entrepreneurs. Very few come from multi-national companies.

Jim showed some brief video clips of past award winners:

• Equal Access: for rural learning, provided digital satellite radios and local content
  
• Eatset: A filter for transfusing blood back into the patient that lost it
  
• Technology for Sustainable Businesses in Rural Villages: Kilns to make bricks
  

Then he focused on some of the striking trends and statistics. One was the per capita GDP of Europe from 1 A.D. to 2000 AD. It bumped along doubling from about $1,000/person to $2,000 from 1AD to 1850 AD, then shot up by another factor of 15 from 1850 to 2000. He attributed the inflection point to the introduction of technology for aggregating resources, and wondered how we could make that technology deployable world wide. Until we do, half the world lives on $2/day; 1/3 has no reliable electricity, 1/6 of the world has 80% of the resources and 15% of the wealthy nations own effectively 100% of the intellectual property. The next 50(?) years will see a population growth of some 2B people, but only 50M of that will come in the "developed" world (Dipak pointed out that stat changes radically if China and India achieve developed status). The world is working toward the UN millennium Goals, but still has a long ways to go.

He noted the following recurring themes from Tech Award winners:

1. Market Failures: Companies are not seeing the market at the BoP and the poor are paying too much for their goods
   
2. Creating Value: Services like Education, Health, Farming information, E-Business, E-Government and Entertainment drive adoption of ICT
   
3. Social Benefit Entrepreneurs: Have empathy for the social context, and see pockets of innovation
   
4. Rethinking technology: emerging technologies like wireless, low cost devices, community access, LED's, etc.
   

Leadership in these endeavors is split among business, government, NGO's, and universities. The new markets demand investment, and new models of capital efficiency--both for the buyers, such as shared access) and the sellers (high quality goods produced at low cost sold in high volumes). Innovation is not purely (technical) invention. It typically requires a systems view, incorporating people and money.

Jim is working on a web-platform for sharing information and figuring out how to develop community norms like reciprocity and trust. He mentioned the challenge of dealing with the World Bank--a huge labyrinthine organization. The HP e-Inclusion effort is one of the most progressive, but even it is feeling the pressure to show a viable model. The Corporate Philanthropy or Social Responsibility groups are limited, to really succeed and scale, you need the buy-in from the business units, too. Dipak mentioned that IBM has invested quite a bit in disaster relief software, both products and software development effort.

Parting shot: Jim mentioned that one of the GSBI participants from India who had to walk 10 miles to check his email pointed out the absurdity of an elevator pitch in his culture.

We don't have elevators, but we have plenty of time to talk about ideas.

Philantrhopy Class: Hal Harvey (11/2/2004)

Hal Harvey, program director of the Hewlett Foundation spoke mostly about the strategy behind effecting change by looking for key leverage points. Although I'm pretty familiar with decision analysis and some game theory, Hal's talk was still something of a wake-up call: it's every bit as important, perhaps more so, in the non-profit world as it is in thinking about corporate strategy. A quick re-cap of some of the techniques of decision analysis, as presented by Hal:

• Venue Analysis: Consider the following questions:
  
  • Who are the decision makers?
    
  • Who do they listen to? (for expert advice)
    
  • What are the rules (of the decision making process)?
    
  • What are the external and internal constraints that the decision makers are operating under?
    
  • Who are the consitutencies the decision makers need to answer to?
  
  
• Opposition Research: What are the interests preserving the status quo?
  
• Resource Analysis: What is the package of grants that you can apply for? How can you layer them over time to ensure continued access to resources?
  

Two other principles:

1. Get close to the decision makers at the time of the decision
   
2. Think about end-run possibilities.
   

Hal talked a bit about applying these procedures in his own area (energy policy) where the US energy spending is about $600B, but philanthropic efforts are less than $60M (10,000 : 1). By focusing on Public Utility Commissions (PUC's), his organization was able to influence in some cases $2B worth of new projects through $1M in briefs to the PUC. Over a portfolio of 15 "key" states (looking at benefit X likelihood = expected value), they were able to achieve a 1,000:1 return on their resources.

A second example was the improvement in public education in Chicago. The Commerce Club's Civic Committee took on the issue, which CEO's transformed into a business issue, saying they were unable to hire a qualified workforce. The MacArthur Foundation lended support to get more CEO's on board, and that started an avalanche.

A third example was the Joyce Mertz-Gilmore Foundation which was interested in advancing gay rights. They went to community foundations around the country, offering a 2:1 matching program for any new program established at that community fund. The lure of the multiplier encouraged several to move ahead, and the process of looking for organizations to fund in the community, meeting the leaders of the gay community and educating the board members of the community fund (by "forcing" them to read the grant recommendations) made a substantial change over time. The community funds were newly sensitized to the issue, they connected with a new set of donors who were looking for an outlet, and programs that were established in the first year continued even as the matching funds dropped to 1:1 and then 1:2 over the second and third years of the grant.

A fourth example showed that you also need to know when to stop: In the effort to reduce CO2 emissions, the International Energy Fund worked with a number of major companies (IBM, BP, Shell) to set targets to reduce emissions. Each one met the goal, and savings more than covered the costs. Momentum was picking up, with about 1 company per month joining the program. Then, in 2000, George Bush was elected, and the program hit a wall. With no risk of government action, companies chose not to get involved. After 6 months of no additional enrollees, the Fund changed directions and tried to work at the state level instead.

Other interesting thoughts from Hal:

• Philanthropic capital is the ultimate risk capital of society: It's long term, no strings attached. As the rarest form of capital, we should also have the highest expectations for it.
  
• BUT, philanthropy is the last bastion of the unaccountable. If the typical watchdogs are investors, media, and voters, none of these groups has power over the distribution of funds.
  
• Most philanthropic money is given away by generalists, making decisions about technical specifics.
  
• Encouraging donors to give to leveraged activity is hard, because the emotional connection is more tenuous (giving to lobbyists, not street children, e.g.) and it's harder to show the causal effect (since there are so many higher level potential impacts).
  
• Most people answer that their change will come through "public education." Almost certainly it won't. The public is bombarded with too many messages. Non-profits need to follow the lesson of direct marketers and segment their markets, communicating different messages to each. Create a complete communication change that's credible: message, messenger and medium.
  
• Most grant applications don't tell you what success is. The "workshops" they promise are outputs, not outcomes. What change will tell you that the program has been a success?
  

ETL Forum: Randy Adams, CEO Auction Drop (11/3/2004)

Randy Adams, co-founder of Auction Drop, launched it a bit over a year ago.

Background: Randy grew up in Maine, went to MIT, was a program evaluator for NIH, management consulting for Booz, Allan, Hamilton. He joined as general manager for a public company making interactive training videos that was in trouble, there was a struggle for control which ended badly for Randy, so he moved to California in 1985. Since then, he's started 6 companies and raised 6 kids. He talked about the companies, not the kids:

Adams Software Design: first DTP for PC in 1985: published by Heidi Roizen under T-Maker.

Emerald City Software: 1989: Mac Type Software. Raised $1M at $1M pre-money, sold to Adobe for $12M in 9 months, worked for Warnock on Acrobat, PDF, Illustrator

Appsoft: 1991: Productivity software for NeXT. Raised $2M at $5M pre-money from Sequoia (Moritz). Went belly up when NeXT ceased making hardware.

Internet Shopping Network: First e-tailer selling software online with Ingram Micro providing fulfillment (they thought he was running a mail order catalog). Home Shopping Network purchased for $5M, subsequently resold for $500M. ISN had raised $500K at $500K pre-money.

Navitel: Windows CE telephony software Sold to Spyglass for $200M. It had raised $5M at $6M pre-money.

AuctionDrop: started 2002 Premoney $16M, raised $16M

---

Competitors: As a startup, your competitors are not other startups, but big companies that have resources, but move slowly and are risk averse.

What is the goal of starting your company?: Make lots of money, change the world, or build a lasting company that employs lots of people?

Common traits of success

1. Vision: Ability to visualize implementation of idea. Test every decision against the end “pre-visualization”. Viable business model that doesn’t require change to infrastructure or consumer behavior. Unique.
   
2. Plan: Step-by-step roadmap. Measurable milestones to track progress. Fundable milestones to raise more money. But be ready to change on a dime. Flexibility allows you to beat big companies.
   
3. Take Action: Randy's Motto: "Rush forward blindly". Meant to be extreme. Most good ideas die for lack of action.
   
4. Take Risks: Small companies can take big risks, because the downside is minimal. People will tell you it will never work. Ignore them.
   
5. Have Passion: Care about what you do. Be willing to sacrifice. Work harder.
   
6. Never give up: Failing is OK (teaches you lessons, makes you humble, makes you stronger, gives you perspective), but still don't give up. Don’t quit until the board throws you out, then start a competing company.
   

Responses to Questions from Audience
Innovators unwilling to work in big, structured environment. So even those companies today that seem innovative (Google, Yahoo), won’t be long-term.

Look for companies in a head-to-head competitive environment, guess what they’ll need in a year and build that. They’d rather buy than build.

Auction Drop: Average household has $1,000 worth of stuff to be sold, but doesn't want the hassle of selling it on eBay themselves. Deal with UPS in May/June expecting 10 items/day for 3,600 stores. But it didn't happen. They don’t have $40M to launch a national advertising campaign. They're trying to integrate more closely with UPS, looking for viral promotion.

Do informal market research. Ask a lot of people what they think about the idea.

Auction Drop potential exits: eBay or shipping company. Three-year contract with UPS.

Personnel selection: Intelligence, adaptability. Trust.

Advice on dealing with VC’s: When things going well, they leave you alone. Work with the right VC—they won’t do bad things to you. They’ll protect the interest of the LP’s, but among good VC’s the "horror stories" don’t really happen.

Overcoming the fears of starting a company: Looking at the downside: What do you have to lose?

Idea vs. team Which is more important?: Depends on the economic cycle. Team is very important, investors are risk-averse, in “herd mode”. Different firms have different hot buttons. Tailor pitch accordingly. A good idea with proven results will win, investors will bring in the team if necessary.

ESW Meeting: Iqbal Quadir, Grameen Phone (11/1/2004)

Iqbail Quadir was the founder of Grameen Phone, a wireless telecom provider of phones to rural people in Bengladesh. He spoke to the Engineers for a Sustainable World group. (Well, actually he pre-recorded his presentation and sent a DVD since he wasn't able to make it in person.)

He spoke about the failure of development efforts over the last 50 years through either

• investment
  
• education
  
• population control
  

Grameen Phone is the reverse of this top-down approach: view poor people as a resource, not a target. Not 2B mouths to feed, but 2B brains to work, 4B hands and legs to move things.

In Africa, there are about 20M fixed line phones, roughly constant, but mobile growing quickly (about 40M now, growing to 90M by 2008). These phones are transforming the work conditions of taxi-drivers, farmers, and everyone in between.
An economics study concluded that an incremental phone provides a benefit of about $5K, but costs only $1-2K at the GDP where Bangladesh is today.

Iqbal started from the assumption that "Connectivity is productivity," describing a couple of examples where he observed the converse. The high-tech example was when the network went down at his investment banking job. The low-tech example was when he was asked to walk to the next village to get medicine, only to discover the apothecary had done some travelling of his own, and was not there to provide the medicine. A simple phone call would have saved the 10-mile roundtrip on foot. He argued that connectivity enables specialization (in order to aggregate a sufficient market to support the specialization) and that as Adam Smith claims, "Specialization is the path to increased productivity."

To demonstrate the insatiable need for telecom services, he showed a chart from The Economist (10/11/2003) of Household Spending Growth from "Rich" (OECD) countries over 1990 - 2000: spending on communications was the fastest growth among the categories (1.5X over 1990-2000), even though cost per call decreased significantly.

But the telecom situation in Bangladesh in 1993 was dire:

• 2 phones per 1,000 people (mostly analog) (basically none in the rural areas)
  
• $500 connection fee
  
• 5-10 year waiting period
  

Given that this level was even lower than one would expect based on Bangladesh's "nominal poverty", how could you increase penetration, esp. in rural area? What are true bottlenecks?

This lead to a number of observations and demolished "objections":

• If telephones generate income, "poverty" is not really an excuse.
  
• Does increased productivity pay for the equipment?
  
• Do they have initial income to afford? Share access, share expense. And fund the equipment with a microcredit loan. If a cow is a fundable productive asset, why not a cell phone?
  
• If primary needs are not met, do they need telecom? Who are we to decide--give them the choice and let them decide, esp. when options increase income.
  

The US experienced an internet explosion because it had the key existing infrastructure: computers, modems, phone lines, and credit cards. In
Bangladesh the needed infrastructure for this program included: credit check and bill collection. Therefore, Iqbal recognized the opportunity to partner with Grameen Bank (1,138 branches, 2.3M borrowers, lending $33M/month, 94% women borrowers, 96-97% recovery rate) as both a distribution channel to locate able entrepreneurs and a funding source (for the individual "Phone ladies".)

Although the program often sounds almost quaint and small scale, it's important to remember that it's a real business. It was funded by US angel investors and partner Telenor (Norwegian telecom), among others, to the tune of $125M to build the network. Today, the amount of overall investment approaches $500M. However, the business is a profitable one, with $74M of net income in 2003. It has 2M subscribers (largest phone company in Bangladesh) and serves some 40,000 villages with 55,000 phones, giving access to 50M rural people (about 1,000 people per village phone). Usage of each village phone is 12X higher than urban phone, so the 55,000 have the equivalent usage of 600,000 urban phones. Each village phone generates about $100/mo of revenue for Grameen Phone. The individual Phone Lady earns about $2/day income after expenses.

People are using the phones to:

• Substitute for costly trips
  
• Call a doctor
  
• Understand prices
  
• Make deals
  
• Generate profit for entrepreneurs
  

Iqbal closed with the philosophical argument for "bottom up" development:
By strengthening the people, you promote democracy, which is better than
giving money to the government which concentrates wealth and strengthens
an oligarchical ruling class.

RDVP Class (11/1/2004)

The topic this week was Social Entrepreneurship. Readings were drawn from Bronstein's How to Change the World and Mark Twain's Adventures of Tom Sawyer (think the fence white-washing scene...)

People connected with the readings on a very personal level. Several people said "Ahh, so now I know what I am!" saying that this mindset was an integral part of who they were, how they operated, what goals they pursued. It permeated other things that they did, "leaked out" in other aspects of our lives. Some of the common themes were:

1. Leading: Setting out and encouraging others to follow along
   
2. Gathering resources: Asking people to help with specific things that they could contribute (often in-kind donations), but also broadcasting big requests with no clear idea of who will respond or how.
   
3. Unshakeable belief in the goal: A sense of drive that might be genetic, mystical, or from some past reincarnation, but simply not allowing one's self to stop or fail. [Taken to extreme, this toughness and perseverance can bleed into "stubbornness", an unwillingness to listen to reason, especially since a social entrepreneur isn't "accountable" to anyone.]
   
4. Resistance to the lure of (personal) money: Money is a way to advance the goal of the project, not an end in itself. Or, as Dipak said, "Your corner office is not in this world, but the next." On the other hand, people recognize the need to raise funds for the projects, and preferred the models where money came at least partially from the served community as a sustainable enterprise, freeing people from the need for continuous fund-raising and the unreasonable expectations of well-below-market salaries imposed by donors.
   

Stuart posed an interesting question: much of the interest in the dot com boom was generated by stock options and the promise of wealth. What's the equivalent in the social entrepreneurship space? This ended up being a rhetorical question, but it does offer an interesting notion: Most social ventures don't generate personal wealth (practically by definition). But they can generate good will, social capital, PR, etc. In many cases, the founders are only too happy to share that with others. They avoid, rather than seek, the spotlight, sometimes to the detriment of the project. Is there a way of splitting and sharing that credit? It might be like the "meeting with a real American" stories that US Presidents tell during the State of the Union address. "I was sitting down with Marge Tinelius in Akron, Ohio, and marvelling at the way she put 3 kids through school while working 5 jobs and volunteering as an ambulance driver." Could the founder of a non-profit encourage greater devotion by constantly (and explicitly) talking up members of his or her organization at every opportunity?

Stuart continued, describing entrepreneurial mindset as one of the key screening criteria for the RDVP program, quoting a previous fellow: "I'm 57 years old. This is the last thing I will do in my career. It will not fail."
Durga cited Peter Drucker's claim that there were two types of leaders: visionary leaders and "executives" that implement the ideas.
Mans talked about the challenges of intrapreneurship, where there is someone who tells you to stop or that your targets don't meet the cut-offs to be "interesting".
Jack Higgins pointed out that the entrepreneur can play an important part of the company without being the CEO, and that some of us just aren't cut out for the CEO role. The entrepreneur, according to Stuart, needs to communicate the mission so that other people understand it. Once you've pushed it far enough that they not only understand it but also accept it, you can declare victory and move on. Margarita said that the challenge in achieving operations that scale is for the entrepreneur to get other people to do the hard work.

Carlos commented that his previous assertion that Latin America was full of entrepreneurs was not really accurate. Latin America is full of resourceful people, but to truly be entrepreneurs, they would need to:

1. Get others to do what you want, convince them to support you
   
2. Empower others to do more than what they could do
   
3. Work with corporations, venture capitalists, etc
   
4. Scale their projects

Durga concurred; most people couldn't even change thier own lives, much less influence others. There was a brief discussion on whether people who ran a dry-cleaning business were "entrepreneurs". If not, what about a telecenter with a couple of terminals but no plan for growth? Carlos thought that they were successful entrepreneurs when they could grow their business, but most lack managerial or financial skills and access to capital. Dipak commented on the creation of the software export business for India, saying that it was the result of far-range thinkers, starting with an individual vision, building a shared vision that was able to sustain itself over the 5 or 10 years required to build the infrastructure.

From there, we transitioned to a discussion of why Social Entrepreneurship was necessary. Was it, Stuart wondered, the failure of the government? the market? Margarita wasn't sure whether "failure" or "limitation" was a better qualifier, but pointed out that the market doesn't have a conscience. Carlos asked "What if market incentives aren't pushing in the direction of development? If Bottom of the Pyramid (BOP) is a market, wouldn't developing it destroy that market? What producer has an incentive to destroy its market?" [SPK note: I don't think it destroys the market--the pyramid remains, it just has cut-offs at higher absolute levels, relatively, little changes....] Margarita said that if everything is reduced to dollars, the market pushes competitors in a race to the bottom (not in the sense of BoP, but more in the "negative direction"). Carlos said that markets are good for establishing equilibrium prices, not improving the well-being of people. Jose said that he sees the BoP literature as joining the market with development and that he believes development will come from the people themselves, using ICT as a way to organize. Margarita wondered whether US companies should attempt to enter BoP at all, if the lost cost advantage of cheap labor is required to meet the price points, won't China be the source of BOP goods? Greg argued that the benefit to BOP only comes when there is competition to fulfill their needs, and really only when the goods are those that increase the productivity capability, enabling them to escape poverty. Margarita plugged the Maria Flores Letelier paper. Carlos said that sometimes the big companies shut out "development" projects (or other low cost competitors) but eventually someone will compete in a way that forces everyone to adopt it.

Margarita shifted the focus to the importance of protecting human rights while alleviating poverty, wondering if newly industrializing countries can achieve that status without brutalizing their people. Durga said that Grameen was making great strides in this area; Margarita agreed focusing on the economic empowerment of women. Greg argued that a new type of market innovation was required for intangible goods. The traditional market has its familiar prototypes that can be easily explained: farmer's market, department store, stock exchange. What are the narratives you need to tell with intangible goods? Mans talked a bit about IP in developing markets saying that while piracy was beneficial in the short term, it may stunt their development long term. Greg said the analogy to the original piracy (on the high seas) was valid: originally "privateers" were hired mercenaries that could confiscate goods being shipped. Only when this practice became illegal was the "pirate" label applied. Carlos asked whether "fully licensed" photo content appropriately compensated the subject or just the photographer? Greg pushed that to the next level where each contributor to a community paper (writer, editor, photographer, commentor, etc) all have their contributions tracked and share in the revenue according to some formula.

Stuart summed up by saying that ICT can lower costs and increase access, and BoP "exploitation" markets (selling consumer goods) have been validated. But now we're seeing a productive side of this market, where people get more value for their efforts. Margarita concurred: "Faster, better, cheaper" isn't enough to start a new company any more. You need to be at the nexxus of technology and sociology.