This I Believe

I kind of like the "This I believe" program on NPR. I certainly haven't heard all of them, as it is summer and I am trying to commute on my bike as much as possible.

Anyway, at least with respect to the topic of this blog (focus, here), this is what I believe:

I believe that entrepreneurial approaches are needed to help solve the global challenges we face, particularly in the developing world.

I believe that private enterprise, practiced by ethical people, will be the most powerful, and positive, force of change in this century.

I believe that those that "do" can also "teach". In fact, I believe that those that "do" should feel a strong obligation to teach others... there are many ways to teach, and it is so important.

Not sure this would make the NPR cut, but hey, this is my blog.

What a great surprise today! I subscribe to the Stanford Social Innovation Review and was scrolling through the new issue that came out today. One of the articles caught my eye- "Creating Social Change- 10 Innovative Technologies"... I clicked and started reading... Yikes,... our company, Envirofit International, was one of the 10. What an honor- we are really inspired by being in the mix with all these other great organizations.

It is great to get this type of recognition and rewarding for our whole team. So, we're going to go celebrate at Coops, then get back to work. And, while Coops is not our official sponsor... we wish they were.

Bainbridge Graduate Institute

"Changing Business for Good" is the motto of Bainbridge Graduate Institute. One of its founders, Gifford Pinchot, recently invited me up to see BGI in action. What a cool place!

First of all, its location at Islandwood on Bainbridge Island just fits so well. They time-share with the local schools, and take over this facitily for long weekends. Green buildings tucked in the forest.

Second, the community is terrific as well. The students are there to learn, and they are a diverse and interesting bunch. Seeing them interact over the weekend was inspiring... creative, passionate, dedicated to making the world a sustainable place. For those who have built organizations, this one is special and reflects well on all those that have been involved in building BGI. I felt very welcome as a "newcomer" and had great conversations with many students.

Third, the curriculum is ground breaking. I teach a class on Social Entrepreneurship and Sustainable Business, and am in the process of designing a graduate program for the Colorado State Business School in this area. It was great to see a functioning program that emphasizes the "triple bottom line" and see the student presentations applying these concepts. Many of the projects were for companies (e.g., REI, Chaco Sandals) that had sought out advice from these students.

So, I am a big fan and recommend this program to those who believe that business can be a powerful force for positive change. For another take on this program, see the recent article in the Chronicle of Higher Education. Personally... I didn't hear even one chorus of Kumbaya while I was there, although they throw a great end of the year campfire/roast!

I like Seth Godin's concept of the "purple cow" of market differentiation. To me, differentiation is not just about being different, but being "clearly better" for some market segment. BGI lives up to its motto, and for some, is clearly better than a traditional (and not so differentiated anymore) MBA program.

The Mystery of Capital

Hernando De Soto's landmark book, The Mystery of Capital, identified a key reason for economic problems in the developing world: that much economic activity had moved to extralegal sectors due to high government regulation. Thus, while the poor had assets, they did not have capital, in that their assets could not be used for collateral, or sold in legally enforceable transactions. DeSoto's prescription was for governments to adopt private property systems, where the poor's assets could be titled.

But a relatively new financial system is emerging that may help with this issue; microfinance or microcredit. Under this system, the poor are extended credit based on trust, or "social capital" rather than collateral, or "financial capital". Leaders in the area are Grammen Bank, Accion, Opportunity International and SKS. If you are interested, a great place to start reading is a recent series of articles in the Economist. Or read one of the books about the founder of Grameen, Muhammad Yunus. It is encouraging to see unsubsidized microfinance lenders emerging in several markets, as early entrepreneurs are improving the business model.

My view is that microfinance is already providing access to early stage credit that is needed for entrepreneurs to build and expand their businesses. An added benefit is that this form of lending tends to favor women, helping them break a downward cycle of economic dependence. However, the reforms proposed by DeSoto are also needed, or else entrepreneurs will hit a "ceiling" in these societies for two reasons- capital needs for expansion and rewards for big ideas. It is one thing to borrow $100 to start a food stall, but the successful entrepreneur will want to expand with more stalls, or a restaurant. While an entrepreneur can grow a business with internally generated cash, in many cases growth will be quicker with access to larger loans or equity investors.

Also, if you can't sell a successful business (because it is extralegal and unlicensed), this will restrict the "big ideas" that are driven by an exit strategy or liquidity event. In particular, these "rewards" motivate entrepreneurs and attract equity investors. What would Silicon Valley look like if you could get small loans, but not venture capital? Would as many aspire to build the next Google? When entrepreneurs in the developing world are able to derive an enterprise value for their business, this will further drive economic activity.

Fundamentally, poverty alleviation and entrepreneurship are both driven by hope of a better life. Societies and economic systems need to allign incentives to allow these hopes to be realized. Microfinance is a good start, but more will be needed. And those that criticize microfinance lenders for moving to larger average loan sizes don't understand that these lenders are providing services for their successful customers... just as your local bank does.

Sachs or Easterly? A False Choice.

Last week, I was fortunate to meet with three cutting edge programs. They are on different edges of the Bopportunity, but I learned a lot from all three. Here are my observations, as well as a few thoughts on a book I read by William Easterly (www.nyu.edu/fas/institute/dri/Easterly/). I know bloggers are supposed to post more often, but hey, it was a busy week.

Jeffrey Sachs and the Millenium Villages Project- This is a very ambitious new development effort in Africa. The basic idea is to apply the Millenium Development Goal approach to selected villages (+/- 5,000 people) in Africa. The project takes a "teach a person to fish" approach, with a lot of community input in the project. The idea is to bring them improved agriculture, improved health and improved connectivity. He has assembled an excellent team of agronomists, engineers and doctors. For more info: www.earthinstitute.columbia.edu/mvp/ and www.unmillenniumproject.org/press/mvpfactsheet.htm

This project has been criticized by Prof. Easterly as "utopian" in a recent article in Foreign Policy and Easterly raises some good concerns. This lead me to read his book, The Elusive Quest for Growth. It is interesting that although Sachs and Easterly appear to have collaborated in the past, they are fighting publicly now. I think that is too bad... the problems are huge, and I think a more collaborative approach would be better.

Where do I come down, if anyone cares? Well, Easterly makes some strong points about how ineffective most international aid programs have been, but he doesn't offer much in the way of suggestions. As an entrepreneur, I like that Sachs is taking a shot... trying a new approach, with a good team. Will it work? That is the big question.

My concern with the Millennium Development Goals is that they rely heavily on increased funding from the developed nations. While Sachs had some slides on how the amounts pale in comparison to spending on Iraq, this is a very simplistic way to look at it. A closer review of the US federal budget shows that foreign aid already makes up a significant amount of discretionary spending, and I doubt that politically Americans (or French, Germans, Japanese) will dramatically increase these amounts. This number (called ODA) also is much smaller than the amount of foreign direct investment and charitable monies invested in development. So to me, relying on government sources strikes me as risky. To his credit, though, the Villages project is to show what we entrepreneurs call "proof of concept". If he can show significant progress (and he had several great examples with respect to agricultural yeilds and malaria reduction), than I think that other sources of funds may begin to get on board. The trick will then become seeing how much self sustaining economic activity can be generated in these villages. It is a very risky proposition, but it is the best approach I have found.

As for Professor Easterly, my observation is that there are several types of people in the development arena: 1) those that get paralyzed by the complexity of the issues involved in poverty, environmental degradation, disease and education and fail to take action; 2) those that are critics and point out all the things that don't work; 3) those that are trying to make a difference. I would love to see him move from #2 to #3. He has a lot of experience (much more than I)- but the magic comes from improving the lot of the poor. He has a new book out, which is on my reading list- White Man's Burden- and perhaps he offers more suggestions there. But a review by Prof Sen does not give me much hope. (www.foreignaffairs.org/20060301fareviewessay85214/amartya-sen/the-man-without-a-plan.html)

For both, I think that they have spent their careers in international development economics, and need to remember to look at the many impressive things accomplished by business, particularly the social entrepreneurs. It may be my personal bias, but the writings of DeSoto, Hart, Prahalad and Bornstein about these entrepreneurs seem to offer a very promissing, though much less "systemic" solution. But there is a wealth of people that are type #3. As we all know, entrepreneurship is not well suited to large, multinational planning efforts, so I doubt we will see a UN based Millennium Entrepreneur Project. And, frankly, my guess is that most entrepreneurs will be working a little higher on the pyramid ($1-3/day income)- which is why I have a lot of respect for Sachs's efforts at figuring out a way to help those in extreme poverty.

Well, that is more than I meant to write. I will post in a few days about my experiences with two entrepreneurial institutions: the faith based microfinance organization, Opportunity International (www.opportunity.org) and the "Changing Business for Good" organization, Bainbridge Graduate Institution (www.bgiedu.org).