The Cathedral Within, page 18
Nonprofits trying to create community wealth have not yet learned this lesson. Indeed, they often do just the opposite, loading themselves up with multiple missions, failing to achieve clarity of purpose at the outset. There are many sad stories in this regard, but to borrow a title from the great novelist Carson McCullers, I’d put “The Ballad of the Sad Café” at the top of the list.
An antihunger organization in New York had the arguably good idea to try to create a restaurant that would use its profits to support antihunger efforts. It was to be called One City Café. So far, so good. Then the organization decided that its restaurant should accept both dollars and food stamps. It turns out that in addition to raising revenues, the group’s mission included providing a place where people on food stamps could receive a restaurant meal with dignity. Nothing wrong with that all by itself, but now the entire character of the restaurant has been changed, and by definition, it will be attracting a different clientele and creating a different set of profit/loss numbers. It turns out that the organization’s mission also included job training for disadvantaged individuals who were transitionally homeless. And so it was felt that giving training to these individuals and placing them in positions as waiters would also be appropriate to the overall concept.
This is a prime example of mission creep run rampant. If any prominent restaurateur in New York—Danny Meyer from Union Square Cafe or Jean-Georges Vongerichten—opened a new restaurant, it would be at least a year or two before it was profitable, and that would be assuming the restaurant had everything favorable going for it. So to think of beginning with every possible disadvantage (or let’s say “challenge,” to be more politically correct) suggests an absence of clarity of purpose from the outset, at least with regard to the nonprofit enterprise.
One City Café closed its doors a little more than a year after opening. No profits were created for antihunger efforts. There is no restaurant where people on food stamps can eat. There is no job training at that site for people who are in transitional housing.
There is another way to go about it. What One City Café could have done was begin by building the best restaurant possible, giving itself every advantage, creating the best climate, and hiring the strongest possible staff. And then, after the restaurant became profitable, and only after the restaurant became profitable, other risks could be absorbed and other expenses incurred, such as the expense of training formerly homeless men.
Jim Collins, the coauthor of Built to Last, addressed this very issue in an Inc. magazine column comparing the social activism of Patagonia and Marriott. Patagonia has a long history of environmental activism, and Marriott, more conservative by nature, has launched a welfare-to-work program called “Pathways to Independence.”
After describing the profound political and stylistic differences between the two companies, he concluded that they share two paradoxical traits: “Both see the corporation as a powerful tool for social change, and both have a ferocious dedication to profit.” Collins admits that he “expected this from Marriott but not from Patagonia. Yet during a short tour of Patagonia’s new surfboard start-up, [Patagonia CEO Yvon] Chouinard spent as much time talking about the importance and mechanics of profit as the need for social change. Patagonia might be a social vehicle, but it runs on an economic engine. It’s not a question of social good or business profit, but social good and business profit.”
Collins also describes a period of economic difficulties that each company experienced in the early 1990s and warns: “Had the two companies continued to decline, their social agendas would have become meaningless. Would anyone pay attention to a bankrupt Patagonia? . . . To do social good you must first and foremost perform well.”
When revenue generation is the principal mission of a community-wealth enterprise, it is important to be clear about it. This might mean that the enterprise is not necessarily related to the mission of the organization, but there is no need to be shy or apologetic about this. Phil Collyer is the executive director of Greater D.C. Cares, which recently created a community-wealth enterprise of its own. He speaks compellingly of the need to be clear about mission: “Contrary to most nonprofits who have for-profit ventures, we are completely going away from the model in that we are starting a for-profit venture that has nothing to do with our mission. It’s not antithetical to our mission—it’s not a video store. It is placing attorneys in situations where they can act as temporary employees, and so, that is not an altogether different field from placing volunteers.”
Greater D.C. Cares had clarity of purpose. They made a conscious decision not to be constrained by their mission, but to start a business that was going to make money, period. They looked at opportunities completely outside of their field—like reselling electricity, because the power utility field has just been deregulated—before settling on the legal temp business they call Cares@law.
Don’t Try This at Home
The most common response of nonprofits after being introduced to the community-wealth concept is to say, “I understand what you’re saying; I know it is what we should be doing and I want to get there, but we don’t think that way or talk that way, and we need someone to come and help us do this.”
Just because a nonprofit organization needs to move in the community-wealth direction doesn’t mean it needs to try to get there by itself. There are several organizations that provide consulting or technical assistance in this specific area. They can be helpful in persuading a board to support community-wealth concepts, in assessing organizational capacity for going forward, and in training staff how to design and build community-wealth enterprises.
There are now a handful of efforts underway to help nonprofits create community wealth.
III
Our experience at Share Our Strength changed dramatically after the publication of Revolution of the Heart. I was accustomed to people coming up to me at an event or after a speech to ask how they could get a grant from SOS. That is the universal experience of grant-makers. But after the community-wealth concept gained currency, the most common request was not for money, but for technical assistance. “Would it be possible to have someone from the SOS staff consult to our organization or come and train us to build the kinds of partnerships that you’ve built?” Nonprofits were beginning to think about how they could better leverage their assets to create new community wealth. It took a remarkably long time for it to click with me that SOS had an asset of our own which could be leveraged—our expertise.
We created Community Wealth Ventures to work with nonprofit organizations to identify and assess their assets in order to help them move beyond traditional fund-raising and design revenue-generating activities, including business ventures, partnerships, and licensing agreements.
Community Wealth Ventures is a for-profit subsidiary of Share Our Strength. It is conceived of more as an engineering and construction firm than a consulting firm, because its mission is to actually design and build community-wealth enterprises. We began this new venture for one simple reason: Our commitment to social change demands and depends on creating new resources to support those programs that are already proven to work but don’t have the capacity to grow to scale. Helping others to design and build successful revenue-generating enterprises is the fastest way to advance the community-wealth concept.
But how could we make such services sustainable? The organizations we most wanted to help were so poor that they were the ones least able to afford us (which is why we wanted to help!). It soon became clear, however, that there was a significant corporate market for such services. The nation’s leading companies have retained Community Wealth Ventures for one of several purposes:
– to reorient their own philanthropy toward supporting nonprofits that are creating community wealth.
– to consult to their own grant recipients, so that those grant recipients would not be forever dependent on them. Some see the community-wealth concept as a corporate foundation exit strategy. Typically, corporate and other foundations fund an organization for three to five years and then must worry about whether the organization or its programs will be able to survive once such funding ends. Making the assistance of Community Wealth Ventures available to grant recipients is a way of adding value to grant partners beyond the dollars donated, and increasing the likelihood that they will be able to stand on their own.
– to explore whether the company itself can generate health and profit through its philanthropy.
And so we became our own first client, experiencing firsthand what an organization must go through to create a for-profit subsidiary, struggling with issues of talent recruitment, salary disparity, business development, taxes and regulations, and capitalization. One extremely valuable early lesson was that capital exists to begin such enterprises, if indeed they are structured as business enterprises.
We concluded that we would need an initial, up-front infusion of $600,000 to support Community Wealth Ventures until our revenues and cash flow were at a level to sustain our business. The five individuals I spoke to were supporters of Share Our Strength, but not one of them had ever donated more than $1,000 a year. Between the five of them we raised the $600,000 in just a few weeks. It was the shortest conversation I’ve ever had with any of them, because it was a business they were putting their money into. They liked the idea of investing in an effort that would be run like a business, and that would recycle their money back to them like a business investment. They felt like their money was going to have a social impact, which was a big part of their interest, but they were also going to get it back, so that it could have a second social impact somewhere else if they so chose. Investments are risky; there was no guarantee they would get their money back, but compared to making a grant, in which the guarantee is that they will not get even one penny back, this was a risk they were willing to take.
The work of Community Wealth Ventures could probably have been accomplished just by creating another department of Share Our Strength, but we thought there were compelling reasons to approach this from a for-profit perspective. First of all, we wanted to practice what we preach. Our expertise is an asset to be deployed. More persuasive was the belief that market forces would result in better products and services, products and services that were really needed, as opposed to those that we thought would be good for others and that we would end up subsidizing.
There is a basic methodology that any organization can pursue to position and prepare itself for creating community wealth:
– Conduct an asset review. Identify the assets of the organization that will most contribute to an enterprise and any gaps that may influence the type of businesses considered. It is also necessary to develop a framework to assess the organization’s strength in delivering upon each asset, as well as its position vis-à-vis other providers in the marketplace.
– Review options. Establish criteria for revenue generation and identify business opportunities that would match the needs and capabilities of the organization.
– Prioritize opportunities. Recommend enterprise ideas (businesses and/or corporate partners) meriting intensive development.
– Conduct high-level feasibility. Examine cost/benefit trade-offs, screen the ideas for viability, and eliminate those with insufficient revenue and/or excessive costs/difficulty of implementation.
Once a concept has been identified, the development phase begins. The basic activities for building an enterprise are:
1. Market research is designed to answer the overall question of whether there is demand for what you are offering. In addition, the data derived here will form the basis of your pro forma financial statements (which go into the business plan). Specifically, the research will answer such questions as:
– What products or services should you offer?
– What are the size, growth, tendency, etc., of the markets?
– Who is the target audience? How much would they potentially pay?
– Who else is offering these products and services? How are you distinct from these “competitors”? What are your strengths and weaknesses relative to competitors?
2. The feasibility phase will examine several things, but mainly:
– Organizational capacity and structure: What professional skills are needed, such as management, industry expertise, public relations, marketing, etc.? Are these skills available among staff and board members, or will they need to be contracted out or acquired? How many people need to be added?
– Potential profit and financing needs: How much income can you earn? What is the financial risk? How much start-up capital is required? How much is required to cover monthly operating costs and cash flow?
– Other issues such as the timing of the product/service offering, consideration of how the venture may affect your public image, etc.
– Do business opportunities fit within identified criteria (revenue, employment, types of employment opportunities created)?
3. The business plan will serve as the main tool to assist in attracting financing for the venture, but will also serve as a plan of action for its first few years of operation. An operational model for the enterprise is developed in this phase.
4. Deciding on structure and financing will be largely dependent on the results of the above analysis. Nonetheless, you can begin to consider different options and financing sources early on so that you will be ready to act as soon as possible.
Upon completion of the development process, you will have a feasibility study with an economic model, operational plan, and market-entry approach. These tools will be utilized to make a go/no-go decision and to seek financing of the enterprise, if appropriate.
Other organizations with assistance goals similar to Community Wealth Ventures include:
– The National Center for Social Entrepreneurs
– The Center for Nonprofit Enterprise
– The Roberts Enterprise Development Fund
Creating community wealth can revolutionize nonprofit work, community involvement, and citizenship by making substantial new resources available for social initiatives. The types of entreprenurial activities described above may not be for everybody or for every organization, but they are for a lot more organizations than are doing it now.
The challenge now is to strategically advance the concept. That will require:
– a clearinghouse of best practices
– technical assistance to nonprofits on everything from how to assess their own assets—or create them if necessary—to tax law and financial planning
– venture capital
It will also take a commitment by the business community to develop its own agenda for creating community wealth by joint venturing, sharing its skills, and supporting community-wealth enterprises through procurement of their products and services if they are competitive in terms of price, quality, and value.
In 1924, George Baker, the president of the First National Bank of New York, donated $5 million to build the campus of Harvard’s Business School on the Boston side of the Charles River. Three years later, as construction was completed, the library was named for George Baker, and the administration building for his close friend and partner, J. P. Morgan. Next to John D. Rockefeller, Morgan is arguably the greatest symbol of capitalism and wealth creation in American history. Today, Morgan Hall houses the office of professor James Austin, whose job it is to challenge, train, and shape the minds of the elite nine hundred students admitted to the MBA program each year from among eight thousand who apply representing sixty-two countries.
The case method is the centerpiece of the school’s method of instruction, and one of the cases Jim Austin teaches is the story of Share Our Strength and Community Wealth Ventures. Ultimately, community-wealth enterprises will grow and thrive when they are able to attract the best business minds and talent available. The challenge today is to ensure that students from the business, law, and professional schools at Harvard, Stanford, and other great universities don’t view working in this sector as a career detour, but rather as a career builder.
CHAPTER NINE
Passion Rules the Universe
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I
At age twenty-six, Mara Manus was the youngest female vice president for production in the history of Universal Pictures. She was also the first to fall off a horse and break her back in three places. The month she spent in bed and in a mobile cast proved to be a turning point. Not because it led to some sudden epiphany, but because it gave her the one thing that had been absent from her life: time to think.
Introspection is a dangerous drug. Under its influence, Mara left a lucrative studio career that began at Stanford University and the British Film Institute and culminated in supervising the development and production of movies for Warner Bros. and Universal with everyone from Chevy Chase to John Hughes. As she thought about her future and talked with friends who worked in human services, she was struck by the passion they felt for their work and that she lacked for hers. After she got back on her feet, she began mentoring school kids. She felt “more connected” than she ever had before and realized, “I gotta pay attention to this.
“The enlightenment point for me was: One day I was scheduled to go to a meeting, and I realized that I already knew everyone who was going to be there and everything that was going to be said. I knew exactly how everything would turn out, and it seemed like a huge waste of time. Besides, it’s a jackpot business—one of the few to put enormous capital at risk with very little research and development—which ends up breeding frenzy and fear at almost every level. The whole town rides upon a sea of fear.”
