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

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Achieving Sustainability, Scale, and Impact in
Community Development Finance Strategic
Collaborations for Success
A Partnership between the Federal Reserve System
and the Aspen Institute
Federal Reserve Bank of Dallas Dallas,
Texas October 10-11, 2006
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New Pathways to Scale Kirsten S. MoyThe Aspen
Institute Gregory A. RatliffThe Aspen Institute
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Achieving Sustainability, Scale, and Impact
in Community Development Federal Reserve Bank
of DallasOctober 10-11, 2006

• Kirsten Moy and Greg Ratliff
• The Aspen Institute

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(No Transcript)
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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!
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Aspen InstituteEconomic Opportunities Program
Practice Areas

• Workforce Development
• Microenterprise
• Access to Capital and Credit

Goals

• Connect the poor and underemployed to the
  mainstream economy
• Facilitate learning
• Applied research to stimulate dialog and action

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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

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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?
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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

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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, theres 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.
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Model for Taking an Innovation to Scale
Idea
Experiment- ation (Innovation Refinement)
Early Replication (Innovation Refinement)
Best Practice
the fantasy short cut
Innovation at Scale!
Source Alan Okagaki Associates
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A Better Model for Taking an Innovation to Scale
Idea
Experiment- ation (Innovation Refinement)
Early Replication (Innovation Refinement)
Best Practice
Standardization
InfrastructureBuilding
Wide Scale Roll Out
Innovation at Scale!
Source Alan Okagaki Associates
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Idea
Experiment- ation (Innovation Refinement)
Early Replication (Innovation Refinement)
Best Practice
the keys to scale
New Innovation at Scale!
Standardization
InfrastructureBuilding
Wide Scale Roll Out
Source Alan Okagaki Associates
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Our Process

• 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

• Research
• Publications
• Conferences
• Interviews
• y
• z

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Lessons from the Case Studies
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Lessons

1. 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.

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Lessons

1. Companies partnered to gain specific knowledge or
   expertise, or to access a needed component of the
   product or service.
2. Capital was raised several times the volume of
   capital raised was tens of millions in every
   instance.
3. Several organizations changed their legal
   structure to accommodate growth.
4. Regulatory changes often supported or enabled
   growth and expansion.
5. Different management skills were needed at
   different points in the growth process.
6. The ability to adapt to changing market
   conditions allowed organizations to continue
   growing.

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Achieving Scale
impact
Product Innovation
Organizational Innovation
Industry Innovation
Design for scale (e.g., standardization,
simplification refinements)
Infrastructure Technology Capital Partnering Manag
ement New organizational structures
Regulatory policy Strategic positioning Industry
intermediaries Industry infrastructure New
sources of capital
actions
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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

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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.

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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

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Basic Model of Key Players
Industry leaders play a powerful role in setting
standards and creating standardization in the
industry.
INVESTORS FUNDERS
CUSTOMERS
INDUSTRY MEMBERS
TRADE ASSOCIATION INDUSTRY INTERMEDIARY
POLICY MAKERS REGULATORS
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Industry Structure 1 The Corporation -Customer
Dynamic
Industry Structure 1
INVESTORS FUNDERS
CUSTOMERS
INDUSTRY MEMBERS
TRADE ASSOCIATION INDUSTRY INTERMEDIARY
In most industries, direct interaction between
the customer and the industry member is a primary
factor.
POLICY MAKERS REGULATORS
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Industry Structure 2 The Small Players Dynamic
INVESTORS FUNDERS
Industry Structure 2
CUSTOMERS
INDUSTRY MEMBERS
TRADE ASSOCIATION INDUSTRY INTERMEDIARY
POLICY MAKERS REGULATORS
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Industry Structure 3 Subsidy Dependent
Industry Structure 3
INVESTORS FUNDERS
CUSTOMERS
INDUSTRY MEMBERS
TRADE ASSOCIATION INDUSTRY INTERMEDIARY
POLICY MAKERS REGULATORS
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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

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Key Issues Facing the Community Development Indu
stry
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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.
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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

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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?

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• 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

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Achieving Sustainability, Scale, and Impact
in Community Development

• Contact Information
• Kirsten Moy and Greg Ratliff
• Kirsten.moy_at_aspeninst.org and Gregratliff6_at_aol.com
  
• The Aspen Institute