Scaling back (or forward)?

My regular bleeps know I have made a few posts which are skeptical of the fashionable demands for "rapid scaling" of all social enterprises. It is a key item to think about for a new venture, but the answer is not always "be the biggest." You do, however, want to figure out a way that your new venture makes a significant impact and also can pay its bills.

Beth Rhyne, head of Accion's Center for Financial Inclusion, has an interesting systemic perspective on the appropriate scale for financial system fixes that was written for the Davos crew. Beth suggests that "a return to a banking microgrid, in which each institution operates a locally-grounded business, could help stabilize markets in many countries." She points out that banks based on local deposits and loans have a better track record on durability than the global institutions.

This theme, of "going local" has long been present in the field of sustainability, and I always felt it was a bit too "granola" for me. Bill McKibben (Deep Economy) and Michael Shuman (Small Mart Revolution) helped change my perspective with their discussions of enterprises that went well beyond local food businesses. There are industries that seem to fit well into more local systems, and as these grow, clusters of related companies seem to grow. The community reconnects and grows stronger.

Microfinance and community development institutions (such as Accion, FINCA, Shore Bank and Opportunity International) can help build connections between these more local communities, just as the Slow Food movement builds global connections between local food enterprises, and Fair Trade approaches connect agricultural producers and local artisans.

When the going gets tough, even for those that attend Davos, a common response seems to be to fall back on relationships and communities. I sense that this may reinforce preferences for more local solutions and accelerate networked business models based on local relationships and communities. And this may help entrepreneurs think about scaling in different ways.

What's a BOPreneur, 2.0?

As my bleeps know, BOP stands for Base of Pyramid. But maybe today, inauguration day, it should stand for Barrack Obama's Promotion of entrepreneurship. Some excerpts from his speech today (emphasis added):

"In reaffirming the greatness of our nation, we understand that greatness is never a given. It must be earned. Our journey has never been one of short-cuts or settling for less. It has not been the path for the faint-hearted - for those who prefer leisure over work, or seek only the pleasures of riches and fame. Rather, it has been the risk-takers, the doers, the makers of things - some celebrated but more often men and women obscure in their labor, who have carried us up the long, rugged path towards prosperity and freedom."

"To the people of poor nations, we pledge to work alongside you to make your farms flourish and let clean waters flow; to nourish starved bodies and feed hungry minds. And to those nations like ours that enjoy relative plenty, we say we can no longer afford indifference to suffering outside our borders; nor can we consume the world's resources without regard to effect. For the world has changed, and we must change with it."

"Our challenges may be new. The instruments with which we meet them may be new. But those values upon which our success depends - hard work and honesty, courage and fair play, tolerance and curiosity, loyalty and patriotism - these things are old. These things are true. They have been the quiet force of progress throughout our history. What is demanded then is a return to these truths. What is required of us now is a new era of responsibility - a recognition, on the part of every American, that we have duties to ourselves, our nation, and the world, duties that we do not grudgingly accept but rather seize gladly, firm in the knowledge that there is nothing so satisfying to the spirit, so defining of our character, than giving our all to a difficult task."

If our new administration can understand the power of the combination of these themes- the duty not just to help others, but to help others help themselves; of serving others with "tolerance and curiosity" and of emphasizing "the doers, the makers of things"- then they too will become BOPreneurs!

So, just for today, BOPreneur will be redefined in honor of our new president. And I hope that he will, in turn, redefine our nation's concepts of service and approach to international development. His advice to put "an end to the petty grievances and false promises, the recriminations and worn out dogmas" is applicable to our international policy, as well as our domestic politics.

Good luck, Mr. President.

Poor Man's Burden

Bill Easterly's latest, Poor Man's Burden, appears in this month's Foreign Policy. Reminding us that economic freedom is the driver of development, not state planning. As Ben Franklin warned centuries ago "They who would give up an essential liberty for temporary security, deserve neither liberty or security."

The role of the state is to provide economic freedoms- consisting of property rights, business rights, and freedom to associate- not to try to pick winners (although one might argue that picking winners is better than bailing out losers). These attempts to force outcomes are (in) vain. I doubt the second $350 B is going to have a different impact than the first, even with different leaders in charge (although this is probably some social scientist's dream experiment).

While I agree with much of what Easterly writes, I wonder about the gratuitous Sachs-bashing. I think you've made your point, Bill, now move on. Time for a change, isn't it?

Speaking of Faith, Carl Blogs from Kenya

The following is a guest post from my colleague and friend, Carl Hammerdorfer, who is director of the Global Social & Sustainable Enterprise Program at Colorado State. Carl has spent much of his career in the Peace Corps as well as being involved in several entrepreneurial endeavors. In his first post, he jumps right into the fray with his thoughts on mixing religion and development.

"I spent the better part of the day with an amazing Kenyan entrepreneur, Haron Wachira, who I had the good fortune to meet, briefly, in Fort Collins. He's built successful businesses in computer assembly and sales, software development, consulting and publishing, just to name a few. He also worked for Price Waterhouse Coopers in their IT practice, and he appears to bring that same disciplined systems approach that one gets at the big consulting firms to his new passion: development and poverty reduction.

I see Haron as a great potential partner for our program, and he's been very gracious in setting me up with potential students and partners here. Yesterday he brought me to Africa Nazarene University, just outside of Nairobi, to meet with their Vice Chancellor, Dr. Leah Marangu, herself a remarkable woman. If I'm not mistaken, she is the first Kenyan woman to receive a PhD, has lived, studied and worked in the U.S., and has made huge impacts on higher education in Kenya. Still, I went to the meeting with some unease. As an employee of Colorado State University, a public institution, I wondered if it would be appropriate, or even possible, to partner with a religiously supported university. The U.S. government's increasingly bold embrace of faith based development organizations notwithstanding, I've never felt comfortable with aid programs that contain an implied requirement that the recipients accept Jesus, Allah or any other God or belief system. This is not a matter of my own belief, but rather a concern about fairness, freedom of thought and ideological litmus testing entering the aid equation. Not that I believe that secular, publicly funded foreign assistance has a stellar, or even mediocre, record of accomplishment. But that's another discussion.

Despite my concerns, the meeting with ANU was terrific. The subject of faith or religion did not come up during three hours of meetings. Rather, we discussed history, poverty, the drought and, most extensively, how a business approach to development could change the game in Africa. Among many other things, we discussed how the intergovernmental aid establishment has been unable to propagate a highly effective and inexpensive water filtration system over the past five years. Haron, having learned that less than 100 units had been installed, is working with ANU on a program to commercialize the technology via village entrepreneurs. He expects his network to be installing as many filters every week as the multi-billion dollar aid establishment has been able to install over years. We spoke about Envirofit, a business born at CSU, and how they were poised to move more improved cook stoves than had ever been sold before, primarily due to a commercial consumer products approach.

Clearly, we were on common ground here as we began talking through a potential partnership. Yet, my concern about mixing public and religious organizations still nagged at me. And maybe it showed, because towards the end of our discussion, Haron changed the subject to an article he'd read in the Times online edition. He wondered if he'd remembered to share it with Dr. Marangu who, laughing, said she had a copy of the article in her desk. Written by an avowed atheist who'd grown up in Africa, the article argued, apparently, that faith based efforts did more to develop Africa than governmental efforts. I had to read this.

Back in my hotel room, I sent Haron an email thanking him for his help and asking him to send me the article, which I just finished reading. It provides a very compelling personal argument for the benefits of faith based development efforts in Africa.

Although the Bush administration has been at the center of the controversy over public funding of faith based charities, it's worth noting that Barack Obama is squarely on record as supporting a continuation of these efforts. He does acknowledge that some of the Bush efforts were overly ideological. It's also worth noting that World Vision and Catholic Relief Services have been long time major recipients of public funding, so this is not a new controversy.

Finally, I'll close with an observation on church based development that ought not be ignored. It is not possible to evaluate the pros and cons of this issue without understanding the broad range of approaches and philosophies. There are numerous efforts funded by religious organizations that promote much the same enterprise approach that our program promotes, although often with significantly more focus on profit, than on people and planet. There are other efforts that focus primarily on religious conversion, on saving souls rather than lives. And still others promote a liberation theology approach which, far from the enterprise model, argues for essentially Marxist solutions to poverty.

While I'm on board with the free enterprise focused efforts, I have very serious reservations about the latter two."

Maury Albertson

Maury Albertson, a CSU Engineering professor, passed away yesterday. Maury was a BOPreneur for sure, and an inspiration to many of us through his work at CSU, the Peace Corps and Village Earth.

He may be best known for his work in helping start the Peace Corps. An opportunity, which, according to one story, he learned about from a student. But he is also an example of a lifelong learner and teacher, who worked well into his 80's with energy and persistence. Most recently, he has been pushing for more rapid adoption of a hydrogen fueled economy.

Maury's stone has caused many ripples, and I hope the organizations he started, the students he taught, the thousands of Peace Corps volunteers he helped go abroad, and the many other people he has inspired amplify his ripples and cause many waves in the future.

As Churchill said, "A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty." I am not sure Maury ever thought a problem was unsolvable. Not a bad approach, or legacy.

R.I.P. Maury.

Lone Wolves

I saw my first wild wolf yesterday. A half hour south of Jackson, WY across the frozen Hoback River. It was a lone wolf, and it had taken advantage of the snow pack to corner 2 elk. The elk sunk deep in the snow, the wolf did not. The wolf was about 25 feet from the elk, waiting. It appeared to have one thing on its mind.

Seeing a wild wolf had been something I thought would take more work. A visit to Yellowstone, for instance. Yet here was one just a hundred yards off the highway. They are beautiful animals. At least from a car- I don't think the elk were appreciative of its beauty. The site made my neck hairs crawl just a bit. To me, who read all of Jack London's stories when I was young, the wolf is the epitome of the wild.

It was surprising, however, that there was only one wolf. How could one wolf take on two elk? Where was the proverbial pack? Was this a scout? Were the other wolves back in the timber, hidden from the highway? Or was this a true "lone wolf"? I don't know. Soon a pickup came up behind me and stopped, and the wolf disappeared into the trees.

Lone wolves are the stuff of myths. The term is used to describe loners (often dangerous or anti-social ones) from software programmers to terrorists. Since this is a blog about business, I will briefly write about a different type of lone wolf.

A lone wolf is an "outlier" (but not one described in Gladwell's new book). Some entrepreneurs (only males, which is actually appropriate) fancy themselves as lone wolves. Outsiders, toiling away against the entrenched economic interests. While iconic, these are not typical. The term can be ironically descriptive, as lone wolves are often the pack's weakest members, and are driven from the pack. Sometimes, they find a mate, and start a new pack. But not always. Their fate is not always a good one. A lot of howling at the moon, so to speak.

Of more interest to me is the lone wolf investor. Usually an angel investor (doesn't business just love its metaphors?) and doggedly independent from other investors since he is smarter/wiser/more experienced/less trusting. Most investors display a pack mentality- they take comfort from seeing others sharing the risk, and often share duties (due diligence, board directorships) to hunt more efficiently. [Note: Please don't infer that I think they view the company as prey. In fact, I think I am being charitable, as some have described investors as having a herd mentality, which implies a different role in the food chain.] These investors see the entrepreneurs they fund as joining their pack, not as their prey (I don't buy the whole "vulture capitalist" theory).

But not the lone wolf. The lone wolf is often a former executive from a related industry, but not necessarily an entrepreneur. Particularly if the entrepreneurial founders are more technically oriented, the lone wolf may be seen as an attractive "business guy" to round out the team. But as with the wolves who wear sheep's clothing, or are the mythic shapeshifting wolves, entrepreneurs will need to be VERY careful. There is a reason this wolf doesn't have a pack, and the story he tells will need a little checking. "What a big set of teeth you have, Mr. Gekko." "All the better to chew up your company, darling."

The value of an investor pack, in terms of their networks, is often very useful in the early days of a company. With a good pack, you get wisdom, connections, and advice far beyond what a single person can provide. And, if it is a healthy pack, there seems to be a social norm that prevents bullying by a single individual (not always). My other concern with the loan wolf is that he will scare off other investors. Investors are familiar with pack rules, but the lone wolf often tries to cut special deals that don't work when a pack comes along. Special anti-dilution rights, or voting rights, or valuations.

While the many myths and legends surrounding wolves may seem unfair when applied to the beautiful animal I saw yesterday, I think they raise good cautionary instincts for entrepreneurs. Pay attention to your neck hairs.

*the picture is not mine, but looks most like the wolf I saw yesterday.

Capitalism, Death and Sex

One of the things I am truly grateful for with the internet is the access to great talks by great thinkers. TED, ForaTV, YouTube. It is a moveable feast and a great way to "sit in" on lectures around the world. I do realize, however, that watching videos of lectures is less popular than other forms of adult internet video entertainment.

A friend recently sent me a link on a FORA.tv talk with Hernando DeSoto, Joseph Stiglitz and Naomi Klein (well, two great thinkers and Naomi) discussing economic power and the financial crisis. The meta-topics of globalization, politics and economics. Stiglitz starts out the forum saying that the financial crisis has caused the death of "market fundamentalism." Klein is also well known for her antipathy to capitalism, which she calls Disaster Capitalism, and she too seems to think capitalism is gasping its last breaths. So, is capitalism dead? Is it truly a disaster? Or will it evolve and survive?

Not surprisingly, I find DeSoto's viewpoints the most convincing. In his view, unfortunately, the US is beginning to look a bit like a banana republic, where our promises (or "paper") are no longer trustworthy. But that is not a fatal flaw of capitalism, just of the way it has been practiced lately. Sick, maybe, but not dead.

I think the topic is more nuanced than Stiglitz and Klein present; there is not one way to do capitalism, anymore than there is one way to have sex, swing a golf club or brew beer. And some ways are better than others. Baumol, Litan & Schramm have classified four types in their book Good Capitalism Bad Capitalism; entrepreneurial, big firm, state-directed and oligarchic. And there are mixes of the four (they prefer a blend of entreperneurial and big firm). Here is a video link discussing the options (for capitalism, not sex, golf or beer).

Of interest on the political side is Paul Collier's recent work. Collier wrote the Bottom Billion in 2007 and offers a lot insight into why the poor countries have been left behind as the rich world has developed. He has more recently been poking around about the role of democracy in development, particularly with respect to commodities booms. As he pointed out at TED, commodities offer tremendous opportunity for development (commodities revenues dwarf foreign aid). But commodities revenues can have an adverse effect on development if governance is off. Even in democracies. The emphasis on democracy in the developing world has been on elections, not on checks and balances. His recent studies of commodities booms indicate that they are unhealthy for economies if they don’t have the checks and balances. It seems that there is such a thing as unprotected democracy. That the outcome of a quick election is not enough.

So, I think capitalism "is not dead yet," and I don't think that our recent experience was Stiglitz's "market fundamentalism." Some of Stiglitz's own data in this month's issue of Harpers seem to indicate we have been experiencing a blend of big firm and state-directed capitalism (with some old fashioned cronyism tossed in as well). This is hardly "market fundamentalism," as it is hard to see free markets at work in his data. Rather, it seems to be the effect of a number of political decisions (two wars, Medicare) which have increased the role of the federal government in our economy for years to come. To update an old (if misattributed) saying, “a trillion here, a trillion there…pretty soon you are talking real money.”

It is really discomforting to see how large the role of our government has become in our economy while there was a “Conservative Republican” in office. I sure hope the incoming “Liberal Democrat” administration proves to be as paradoxical, and moves us toward a policy favoring a more entrepreneurial capitalism. That is likely to be the better path for recovery, as opposed to an embrace of further government regulation of the affairs of business and society.