Achieving Sustainability, Scale, and Impact in Community Development Finance:

Achieving Sustainability, Scale, and Impact in

Community Development Finance:

Strategic Collaborations for Success

Federal Reserve Bank of Dallas

Dallas, Texas

October 10-11, 2006

A Partnership between the Federal Reserve System and the Aspen Institute

New Pathways to Scale

Kirsten S. MoyThe Aspen Institute

Gregory A. RatliffThe Aspen Institute

THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEM

Achieving

Sustainability,

Scale, and

Impact

in Community Development

Federal Reserve Bank of DallasOctober 10-11, 2006

Kirsten Moy and Greg Ratliff

The Aspen Institute


Supporters Conference Partner: The Federal Reserve System

Research Partners

The F.B. Heron Foundation

GE Money

Deutsche Bank

Past Supporters

The John D. and Catherine T. MacArthur Foundation

The Fannie Mae Foundation

Support for Related Research

The Annie E. Casey Foundation

Forum Participants - you!

Thank you!


Aspen InstituteEconomic Opportunities Program

Workforce Development

Microenterprise

Access to Capital and Credit

Practice Areas

Connect the poor and underemployed to the mainstream economy

Facilitate learning

Applied research to stimulate dialog and action

Goals


Conference Goals• introduce a new framework for scale and sustainability for the

field of community development institutions

• explore the feasibility of collaborative models with potential for promoting scale and sustainability in the community development field

• provide a forum where stakeholders can share information and participate in the exploration and design of shared infrastructure, collaborative fundraising and pooling models

• encourage future dialogue and action on implementation of collaborative models, initiatives and platforms where appropriate


What is Scale?

More capital

More customers

More effectiveness

“Economies of scale” usually refers to the

development of mass markets and progressive cost reduction through

increased business volume. Can the industry groups assembled

achieve this kind of scale?


Why Pursue Scale? To reach more people

To provide access to services to as many low income people and communities as possible on a permanent and sustainable basis

To tap into economies of scale

To become more sustainable

To have greater impact in low income communities


But But … scale itself is not necessarily a suitable proxy

for success.

And the very characteristics - high customization and high touch - that helped make each group successful in the past are barriers to achieving greater impact because they lead to high cost delivery.

In other words, there’s no “economy of scale” if the cost to deliver the service goes up with increasing volumes.

So we need to better understand what scale is,

and the dynamics of getting to scale.


Model for Taking an Innovation to Scale

Source: Alan Okagaki & Associates

IdeaIdeaExperiment-Experiment-

ationation(Innovation(Innovation

& Refinement)& Refinement)

EarlyEarlyReplicationReplication

(Innovation(Innovation& Refinement)& Refinement)

BestBestPracticePractice

InnovationInnovationat Scale!at Scale!

the fantasy short cutthe fantasy short cut

THE ASPENTHE ASPENINSTITUTEINSTITUTEFEDERAL RESERVE SYSTEMFEDERAL RESERVE SYSTEMA Better Model for Taking an Innovation to

Scale


IdeaIdeaExperiment-Experiment-

ationation(Innovation(Innovation

& Refinement)& Refinement)

EarlyEarlyReplicationReplication

(Innovation(Innovation& Refinement)& Refinement)

BestBestPracticePractice

StandardizationStandardization InfrastructureInfrastructureBuildingBuilding

Wide ScaleWide ScaleRoll OutRoll Out

InnovationInnovationat Scale!at Scale!


New Innovationat Scale!


Idea

Experiment-ation

(Innovation& Refinement)

EarlyReplication

(Innovation& Refinement)

BestPractice

StandardizationStandardization InfrastructureInfrastructureBuildingBuilding

Wide ScaleWide ScaleRoll OutRoll Out

the keys to scale


Our Process Research

Publications

Conferences

Interviews

y

z

Case Studies

Banknorth Group

7-11 VCOM

Visa

Ace Cash Express

Allied Capital

The Reinvestment Fund

Fannie Mae Self Help

ACCION

Dell

Unified Western Grocers

Carpet One


Lessons from the

Case Studies


Lessons1.Profitability was the primary driver of product

development. The ability to produce a diversified yet complementary set of products was critical to achieving scale.

2.Demand for services or a clear market gap were the primary drivers in determining which products and services to scale up.

3.Geographic expansion was central to generating sufficient volume of transactions to reach scale.

4.Infrastructure investments were crucial to growth. Investments often increased integration of operations and facilitated product development.

5.Technology investments often led to increased efficiency and cost savings.


Lessons6. Companies partnered to gain specific knowledge or

expertise, or to access a needed component of the product or service.

7. Capital was raised several times; the volume of capital raised was tens of millions in every instance.

8. Several organizations changed their legal structure to accommodate growth.

9. Regulatory changes often supported or enabled growth and expansion.

10.Different management skills were needed at different points in the growth process.

11.The ability to adapt to changing market conditions allowed organizations to continue growing.


Product Innovation Organizational Innovation

Industry Innovation

Design for scale (e.g., standardization, simplification &

refinements)

InfrastructureTechnology

CapitalPartnering

ManagementNew organizational structures

Regulatory policyStrategic positioning

Industry intermediariesIndustry infrastructureNew sources of capital

imp

ac

tAchieving Scale

ac

tio

ns


Product Level Needs

Practitioners have an urgent need for investment in the following areas of product development: Market research to improve understanding of

current and emerging community needs. Patient capital for experimentation, reinvention

and refinement of products. Pilot testing and eventual roll-out of quality

products that make it through a rigorous development process


Organizational Level Needs

Practitioners have an urgent need for investment to support organizational growth: Infrastructure to integrate larger, often physically

distributed, operations. Technology to increase efficiency, promote cost

savings and higher quality services to low income customers.

Capital to support broader organizational needs e.g., research and development, operational cash flow, expansion capital

Management expertise to guide larger institutions.


Industry Wide Needs

Improved competitive positioning of the industry possible through a series of investments in: Infrastructure to support the day-to-day

operations of organizations in the industry Industry standards Industry specific technology: e.g., cost

accounting or portfolio management software Branding, marketing and communications to

support the industry Industry intermediaries that broaden the range

and increase the sophistication of the product and service mix offered by organizations


CUSTOMERSCUSTOMERS INDUSTRY MEMBERS

INDUSTRY MEMBERS

TRADE ASSOCIATIONINDUSTRY

INTERMEDIARY


INTERMEDIARY

INVESTORS & FUNDERS

INVESTORS & FUNDERS

POLICY MAKERS& REGULATORS


Basic Model of Key Players

Industry leaders play a powerful role in setting standards and creating standardization in the industry.


Industry Structure 1


INDUSTRY MEMBERS


INTERMEDIARY


INTERMEDIARY

INVESTORS & FUNDERS

INVESTORS & FUNDERS



Industry Structure 1: The Corporation -Customer Dynamic

In most industries, direct interaction between the customer and the industry member is a primary factor.




INDUSTRY MEMBERS


INTERMEDIARY


INTERMEDIARY

INVESTORS & FUNDERS

INVESTORS & FUNDERS



Industry Structure 2: The Small Players Dynamic




INDUSTRY MEMBERS


INTERMEDIARY


INTERMEDIARY

INVESTORS & FUNDERS

INVESTORS & FUNDERS



Industry Structure 3: Subsidy Dependent


In industries dominated by smaller players …

… industry networks and other forms of affiliation become more important as agents for successful scale and growth.

Access to common infrastructure can enable networks of organizations to work cooperatively to deliver greater volumes of product with increased efficiency

Networks facilitate access to capital often at a lower cost of capital

Strong training and development efforts through network services support the development of management talent

Sufficient industry clout can create a more supportive legal, regulatory and policy environment and increase the availability of subsidy where needed


Key Issues Facing the Community

DevelopmentIndustry


Cooperative and collaborative systems can contribute to stronger organizations and a stronger industry. The emergence of a strong industry structure will position the community development field for scale and growth.


Collaborative Business Models Could Help Organizations:

Retain local control and ownership Lower cost of operations and improve long term

sustainability Access larger pools of capital Reduce effort devoted to fundraising and access a more

diverse universe of funders Access better management talent and specialized

expertise Generate better pay and benefits for employees Access more up to date technology and infrastructure Increase ability to reach more people and create greater

impact


New Approaches To Fundraising: Questions To Consider

How is the world of philanthropy changing, and what does it mean for community development?

Can CBOs effectively raise money from individuals? What does it take?

Is the Internet playing an expanded role in structuring/formalizing giving relationships?

What new organizations, platforms and portals are emerging to provide a different kind of “giving infrastructure”?


Collaborative Business Models: Unified Western Grocers Housing Partnership Network ACCION New Mexico El Paso Affordable Housing CUSO

New Approaches to Fundraising: Kintera, Inc. Calvert Foundation UBS Financial Services


Achieving

Sustainability,

Scale, and

Impact

in Community Development Contact Information:

Kirsten Moy and Greg [email protected] and

[email protected]

The Aspen Institute

Achieving Sustainability, Scale, and Impact in Community Development Finance:

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