Thank YOU!

I would like to thank Professor Zak and each of you for making this class experience so spectacular. You really do learn a lot spending an entire semester turning a passion into a reality, and watching others do so as well :) Being with such an empowering bunch of folks has really helped me come to terms with the fact that I'm graduating, and it's time to get out and change things, bottom-up and in an innovative way. Could we continue posting to this blog? Would love to hear updates from everyone!

Our team eagerly awaits the results of the Dell Social Innovation Challenge for our water purifier solution for rural communities in India. The five finalists will be announced next week. Today, I met with Josh Knauer, truly a phenomenal person. Before I explain my purpose in writing this post, I have to go on a slight tangent. Josh is currently CEO of Rhiza Labs - a business intelligence start-up that strategically develops ways to easily visualize and communicate data. They do some really cool stuff, including equipping Brazil's fierce Surui tribe to partake in the carbon market and reap the benefits of carbon offsets. Rhiza has equipped the tribe members with a smartphone that includes GPS tracking, a camera, and web capabilities that will enable scientists to construct maps of the rain forest and calculate carbon offsets. Rhiza collaborates with Google Earth to implement this solution.

Speaking of collaboration, Josh suggested our Neer (water purifier) team to explore opportunities with Wello, a social venture that utilizes a WaterWheel to give people in Rajasthan, India easier access to potable water. The Wheel carries 5 gallons of water, enough to meet the needs of a family for a day. http://wellowater.org/the-issue-our-solution/

This opportunity excites me and I'm excited to convey it to our team.

So, as a lot of interesting ideas rush, twist, turn, spark, and flare through my head as a result of this class, I am so thankful that they are now ideas with catalysts for implementation and set of instilled guiding principles. This came from our class. What's more, Ketaki, something you said during your Hult success really resonates with me -- "you don't need to change the world by yourself." There are amazing opportunities for collaboration out there, and I'm every ready to join in on the fun!

Thank you! All the best to everyone.
Amy

The journey we take ...

Time and again we have listened to several entrepreneurs tell us that social entrepreneurship is a journey; not a destination. You start with an idea, one that according to you will make a significant social impact, and then you start building a business model around this idea to make it sustainable, and generate at least a basic revenue stream. Nothing big, just enough to get you by.

Slowly you realize that your initial idea was not as impactful as you thought it would be. Either that, or you realized that people would not be willing to pay any money for it. So, you revise it and start the iterative process: will this be sustainable, will it target the market I am aiming for, will people be willing to buy my product, will I be able to generate a cash flow .... you add and you subtract, you bend forwards and backwards, you spend sleepless nights writing feasibility pitches and chalking out business plans, you practice your pitches - 30 seconds, 1 minute, 2 minutes and 5. Soon you have become a tiny part of the world of social entrepreneurs - all wanting to change the world in a small but significant way.

As I write this last blog before the end of semester, I realize how fortunate I have been, and maybe fortune had nothing to do with it, maybe it was persistence. If you keep doing new things everyday, you have less time to focus on things that did not work out, and instead you are always looking forward to the next thing that might actually work. As I started the year, I interviewed with the best consulting company - which did not work out at all as I had expected. I simultaneously received the confirmation that our team made it past the first round to go to Boston, but I was I so upset about the consulting company that I did not celebrate that success. Soon school started and I kept applying for one competition after another, one scholarship after another, knowing that SOMETHING would give. The Hult competition was such a farfetched victory that I never really gave it second thought until we won the regional finals in Boston.

Then came the Dell Social Innovation Challenge, and I was a little more upset about not getting into the semi-finals than I expected. By that time, however, I had started a process of getting over things that did not succeed much easily than ever before. Be really upset, mope around a little, and then move on. I think the biggest thing I have learned in this journey, other than the technical aspects of how to survive in the world of social entrepreneurs, is the skill to keep at it. Pick yourself up, and start again, and again ... until something just works right and your life changes forever. It will happen, and in some cases, if you put your soul into your work, it will happen sooner than you think. But don't give up. We all have some amazing ideas, and have gained a slew of skills to make the ideas work. All it needs now is our commitment. That, and the ability to fix our processes when things go wrong, instead of lamenting about our failures! I would like to end with another favorite quote:

If you have built castles in the air, your work need not be lost; that is where they should be. Now put foundations under them.”
-Henry David Thoreau

Surge in tech hubs give African startups a place to grow

There was recently an article in Ars Technica, that talked about the boost in technology and innovation in Africa. I really appreciated this article for two reasons:

1. It highlighted a lot of the grassroots innovations happening on the continent
2. It called out Western powers looking to exploit Africa's technological advancements 

I've had the opportunity to work with some amazing social entrepreneurs in Africa and I feel as if the work of social entrepreneurs coming out of African should not be over looked. Due to the negative perceptions the world has about Africa, it is sometimes difficult for the world to believe that Africans have the capacity to be entrepreneurs. And with the way western media portrays Africans' this is not surprising. For those who are familiar about innovations coming out of Africa, they are almost always seen as either, for socio-economic development purposes or not up to par with western innovations. As much as I want to play a role in the socio-economic development of Africa, all Africans do not think like that, some of them just want to make lots of money! Many of them aspire to be like the guys at Instagram or Groupon or any other for-profit startup. There are great organizations such has Venture Capital for Africa, VC4Africa, which recognizes and supports entrepreneurs and social innovators for these purposes. 


Although, many do not think like the folks at VC4Africa, and instead of working to co-create with African entrepreneurs they are looking to capitalize. The Ars Technica article noted:

Some geeks from Africa, however, take issue with Buch’s assessment of the continent's tech picture. To some it smacks of colonialism, with tech boom carpetbaggers descending on the continent. Wired’s article, "Want to Become an internet billionaire? Move to Africa,” cross-published from men’s magazine GQ, evoked a great deal of contempt in the African tech community. Forbes echoed the story in its post, "Africa Could Make You an Internet Billionaire," saying, “More than ever before, this is the best time for venture capitalists and Y Combinator-type incubators to set up shop in Africa, scout for internet deals and invest in budding African internet companies that’ll lead the future.”

With the technological boom African is currently encountering, there are droves of applications and innovations coming out of the continent. Some African communities have even been known to leapfrog the west in it's technological advancements and that says a lot for the potential of Africa's technology scene. Africans have the opportunity to leverage the same tools that there western counterparts are, in a locally relevant and contextual manner. 

A quick cautionary tale

Since one of my older blog posts mysteriously disappeared (ack!), I thought I might take this opportunity to add one more about an experience I had a few years ago.

At the time, I was working with an online music start-up in Austin, Texas, run by recently graduated MBA's. Their business plan described the venture as a website where users could mash up their own music videos from live concert footage taken at multiple angles. It was under this plan that the entrepreneurs acquired investment to launch their operations.

However, the technology to let users mash up music videos on the web turned out to be more difficult to implement than originally anticipated. The entrepreneurs pivoted admirably, transforming their music-video mash-up website into a wide-angle concert footage website where all the angles were placed side-by-side in a beautiful panorama. Not only was this visually arresting, but it was fairly innovative. The number of visitors to the website grew substantially, and the strategic co-marketing efforts the entrepreneurs were arranging with local promoters began to take off.

Unfortunately, our entrepreneurs never vetted this bootstrapping plan with their investors. One day, a meeting was called to discuss progress, and lo and behold, the investors went into a state of shock when they discovered the original plan (which they were passionate about) had been put aside for the new plan (which they couldn't care less about). They decided to pull a substantial amount of funding, and those who remained invested demanded that our entrepreneurs return to the original plan at once.

Our entrepreneurs came to their few employees, explained that pay would be in short supply, and asked if we would like a percentage of ownership instead. Personally, I declined, not because I thought it was a bad business opportunity--they were amazingly industry-savvy, passionate about their venture, and brilliant on the pivot--but because I feared they would not be able to regain the trust of their investors, or that a similar incident could happen again. Well, that, and I needed to eat!

This brings us to the moral of the story, at least for me, which is, Don't shoot yourself in the foot! Talk to your investors (if you have any) whenever you plan to bootstrap or make any major changes to a venture plan. Otherwise, you may wind up executing that exit strategy a little earlier than intended!

A time for mistakes

This week's readings about venture (and entrepreneur) scalability make recommendations based upon a running theme: the inverse relationship between experience and tolerance of failure. We grow up playing by these rules. As children, we can get away with some pretty silly errors of judgement. The older we get, the higher society's expectations of us become, and the less we can afford to slip up. These perceptions have cultural and legal parallels as well.

So obvious in everyday life, this dynamic seems less obvious when it comes to business ventures. We often think that a start-up must be "just right" before setting sail, because we view business growth as a snowball, or perhaps more aptly, a seed--when was the last time you planted a tomato seed and ended up growing a cucumber? We want to plant our venture so it grows the way we want it, solving the problems and serving the customers we currently see as most relevant.

Perhaps that is why David H. Freedman chose to make comparisons to the Marines when recommending best practices for organizing a venture. As Freedman says, we expect the Marines to fit the dynamic of demanding perfection early on, of intolerance of error--lives are at stake! However, the very organization we expect to be the paragon of perfection turns out to be a case study in tolerance of error.

What I found particularly interesting in this article is that "failure tolerance also decreases with higher rank." (305) My takeaway here is that with start-ups, you should feel free to make mistakes, try things, see what happens. Of course, so many investors want to see that you've thought it all through, that you can predict the future. But, we can't predict the future. That tomato seed may actually BE a cucumber seed, much as that child may turn out quite differently from how you expected.

So, I agree that at a low level, it is best to stick to the 70% rule--be fast, not perfect, and don't wed yourself to your ideas. But keep your stakeholders informed--more on that in my next post!

As a business minor, I have been exposed to a decent amount of business plan assignments. Of course I am no MBA but I did take part in classes like Intro to Entrepreneurship, Principles of Marketing, Intro to Financial Accounting and more. Having said that, I have never actually had good time writing these plans until now.

I have never had the chance to write a business plan for a social venture and looking back I am greatly appreciative that the professor pushed me to pursue an industry that I have experience with and am enthralled by. Because I pursued an industry that I am so in love with I now found myself deeply researching the techniques used in launching such a capital intensive businesses such as boat manufacturing. Every day I have grown more and more interested in the business side of running a boat company and hope to own one myself some day.

Also, at the very beginning of this course, I had a very difficult time believing in social ventures. To be honest I can be pretty cynical some times and I entered the class room thinking things like "social ventures cant make it in this competitive marketplace" and "social ventures are not really making a very big difference on their dollar" but on both accounts I have learned I was wrong. This class has opened up so many avenues for me. It has opened my eyes to an entirely new sector of work in which my skills and talents can still be applied professionally.

I have learned a lot about business planning, social ventures, the impact your movement can actually have on an individuals life, and, of course, myself. Im glad I stayed in this class tho my fellow MPDs dropped it. I have learned a great deal about how much planning launching a business actually takes and I think it fits very well with my direction as a student here. Thanks so much for a great semester.

Social entrepreneurship is far outside my comfort range.  The reason I enrolled in this class was because I wanted to do something different, something personally challenging.  My teaching experience with young men in the Philippines who had juvenile delinquency cases led me to think about how their experiences should be different from the norm.  I think many of those young men would find interest and value in Nathan and Emily's venture and in Marcel's.

This course has been personally challenging, everything from the elevator pitches to the blog to the venture plan itself.  It has tied together parts of the curriculum including project management, financial analysis and organizational management.  Presentations and practical applications together has brought things together for easier understanding.

Whether I am able to pursue this any further or not the course has had a positive impact on me.  I am glad that I took it because I found value in it.  

 

Finance vs marketing

I've thought often about does it matter how much money you make if you are really doing good.  Money has never been my first concern.  I do however want to do well by doing good.  I wonder about companies that invite people to buy enough of their products and the company in turn will give one penny or some other similar amount to a charitable organization.  Why don't the companies just make a commitment to giving and then give it.  As noble as these seem I've not been persuaded to change my brand of yogurt or anything else to make some company feel better about what they do.

However I do understand the need to generate income whether through sales, usage, or some other metric.  Whatever benefit is in enticing the buying public to choose product A over product B is a financial gain for the company, possibly the marketing costs are no higher than to not offer a donation benefit.  What other options are available?

Toms shoes and the initial OLPC format with giving an equal product away to someone who needs it is as effective (or more) technique for both name recognition and getting the product to the target community.  Another way to give without giving money, scholastic books has a you are what you read campaign to donate books through reachoutandread.org.  After creating a list of your book choices they will donate a book as a way to promote literacy.

All ways to increase sales by the generosity of doing something already being done

Reflections on the Semester

For my last post, I wanted to take the time to reflect on the semester and the journey we have taken together.  This class and its format was a completely new experience for me, loosely structured and open-ended.  We were given some guidelines, but had the ability to explore our own venture ideas and options in the ways we thought were best.  I remember struggling the first few classes, not sure how to even come up with a social venture concept.  In many ways I was intimidated by the freedom we were given especially coming from an undergrad program that typically provided us strict guidelines and projects.  However urged on by Professor and inspired by my peers, I slowly began to think as an entrepreneur and alongside Nate developed the business plans for BrainWave.

Week after week, the class allowed me to obtain new skills in the art of developing, marketing, and running a social venture.  From elevator pitches to feasibility presentations, we were taught how to present our concepts in the best light possible. We learned to convince people of their sustainability and make individuals want to invest in us and our ideas.  If ever intimidated by public speaking, the Social Innovation Incubator quickly helped everyone get over their fears and market themselves.  The class also allowed us the chance to completely develop a business plan for our venture from start to finish.  We had the chance (especially with our final report) to expand on how our venture would look down to the smallest details and aided with financial statements, implementation schedules, and social impact assessments. This procedure imparted many particular skills that I am positive I will employ in my future endeavors.

The class also gave way to many interesting and thought-provoking conversations supplemented by our readings and blog posts. We analyzed how to measure social impact as well as failure.  We talked about the possibility of failure in the present moment but then having a large influence in the future. Many people posted about inspirational people, events, and organizations.  This aspect of the course altered my view of social ventures as a whole and made me realize the huge impact they can have on their surrounding areas.

Lastly, this class made me go from someone intimidated by the freedom to create and imagine, to someone who enjoys discussing and hypothesizing about future organizations or ventures. I am still slightly surprised when I find myself thinking about the sustainability of a possible organization or daydreaming about how to form a particular venture. I am thankful for the opportunity to take this class and impressed by the skills and knowledge I have gained through it. Plus I know that one of my classmates will probably hit it big in the entrepreneur sector some day in the future. That in itself is a good feeling.

Recently I was introduced to this web page, Educational Technology Debate.  You may find it useful. It is a discussion site for ICT initiatives for education in developing countries.
Previous topics have included reading skill in primary schools, is ict in schools wasted, and mobile phones and computers.
Some topics to be discussed in the future include the role of competition and unintended consequences of ICT4E.

Leadership

I've been involved on some level with quite a few non-profit organizations and they've all struggled in some form.  In thinking about core teams/leadership and sustainability maybe the difficulties can be traced to how the teams were developed.  Passion is good and necessary however the ability for real leadership is difficult to achieve.  

Of personalities and abilities what is the right mix?  Certainly we want people who can do the things necessary but the how (personality) is also important.  For building our own teams to work on projects we want to maximize the abilities of what each person has to offer and take care that one personality does not seriously inhibit anothers.

Patrick Lencioni has written an easy (and cheap) read on leadership: The Five Dysfunctions of a Team.
It discusses what makes teams work (not work).

They are:  (Copyright laws aside)
5: Absence of Trust ---Invulnerability
4: Fear of Conflict --- Artificial Harmony
3: Lack of Commitment ---Ambiguity
2: Avoidance of Accountability---Low standards
1: Inattention to Results---Status and Ego

Building our team is probably the most important thing we do in relation to our ventures and since our ventures are very personal we certainly want to project the right image.  What happens (organizationally) internally affects it externally just like what we feed and hydrate our body with affects our skin.

Quantifying the Human Element: Measurable Returns on Social Investment

There are few objective absolute truths in respect to generating meaningful measurements of social endeavors. Despite the insurmountable challenge of measuring how “much” social good a social venture must accomplish to validate its existence, many non-profits today must have collated metrics for donors and investors. In one respect, these relevant bodies’ demand for such information is well within their right. After all anyone committing human or fiscal capital to a cause would eventually need more than just altruistic tendencies to motivate them to continue. In sum, people want know they aren’t wasting or otherwise misspending their time or energy and thus need a means of measuring accountability and performance of the organizations they support.

There is one issue that has resonated with me since reading the class materials and lecture. First and foremost: does everyone really need to measure impact? I am not implying that there are some projects’ social impact that can’t be measured but rather than with some projects the impact shouldn’t necessarily be quantified. There are some norms which easily rally consensus as positives: saving more lives, saving children, preventing social deterioration through education etc. However, the various formulas and functions of determining social impact must include some form of personal utility into their calculations. Calculating social return can be done through a more abstract lens (x lives saved, y revenue in tax dollars created, z new wells build etc.) but is there room for tailoring social impact to the values of constituents? Is there a way to measure the social value created on a count of the contributors themselves? In other words, say a donor is giving to a fund which contributes to research on a rare disease that affects the elderly and said donor finds out 100 patients nationwide are responding well to a new treatment this fund invested in. 100 elderly people out of 330 million doesn’t seem like many, but to this donor the cause matters very deeply. Perhaps they lost their parent to the disease. Thus the social impact goes beyond the dollars and cents of leveraging investment in the lives of the old and sick as opposed to investment in a fund that addresses childhood terminal illnesses but includes also the positive effects on said donor.

I think that because of the finite nature of resources in social enterprise (both human and fiscal) we are overly prone to say venture a is better or more fundable than venture b. Part of the of the glory of giving what you can to social enterprise is because of the autonomy involved in doing something from the heart that makes you feel something. My background is in the for profit sector and I intend to stay there after my Heinz education, but I can guarantee the social ventures I participate in will not just be a matter of maximizing the return on my social investment. I will spend my time on ventures that make me feel something; it’s that social element of brining people together over the causes they care about that makes them so unique and wonderful. Let’s not sell smaller, less grandiose, or less pressing causes completely short because they can’t meet our thresholds of SROI. Extremely intelligent people may all come up with different ways of measuring and valuing SROI and thus I believe we should always leave room for the seldom quantifiable "gut" feeling that comes from doing something you believe in.

Relevant to today's session on social impact measuring...

Article: Business Measure Profit, What do Social Ventures Measure?

The article discusses some of the common shortcomings and challenges of social impact measurements, the similar challenge within the international development community, as well as some of the new efforts, including using Google hits as a proxy for influence...interesting read!

10 un-FAQs about international development

10 un-FAQs about international development on Prezi

Last month the founder Improve International, Susan Davis, gave a talk questions social entrepreneurs should be asking more. She names them the '10 un-FAQs about international development.' un-FAQs defined frequently asked questions that are rarely asked. Davis takes an interesting approach towards talking about sustainability and international development. The 10 un-FAQ's she listed where as follows: 

un-FAQ 1: Why do people want a safe water project?

un FAQ 2: What happened before you got there?

un FAQ 3: Are you the best organization to help?

un FAQ 4: Is the technology appropriate?

un FAQ 5: How much will it cost now and over time?

un FAQ 6: Who should pay for what?

un FAQ 7: Does your model make the best use of the investments?

un FAQ 8: Who else is working in the area?

un FAQ 9: What impacts can you expect?

un FAQ 10: What happens after you leave?

I really appreciate this article because it forces social entrepreneurs to look into the context of their projects and really assess whether or not they are making real impact. In a previous article I wrote about and author and his cynicism towards social entrepreneurship. The idea that social entrepreneurship was just a buzz word to attract fame and funding toward a person and a project. While I do believe there are people in the social entrepreneurship space who are genuine in their approach, I feel many do not even realize the implications of their projects. 

With the high failure rate of many international development oriented projects, asking questions as the early on as possible is very important. I especially like how these questions revolve around a very important, yet often ignored, theme of contextual innovation. That is creating a product or service that keep in the mind the contextual user wants and needs. As we create our venture plans I feel these are very important questions that we ask ourselves. 

Social Entrepreneurship & Finance - Balancing Earned Income & Funding

This week's readings were like a nice recap of last year's Intro to Accounting course at Tepper. Income Statements, Balance Sheets, Cash Flow Statements...these are all certainly important for any enterprise, including social ventures. I know that under the guise 'Social Venture' as explained by Prof. Zak at the beginning of the semester, our ventures are expected to be financially sustainable, if not profitable. But in reality, the road to profitability for any venture can be long and windy and it is important to realize & remember that we do have the other options of seed funding, grants and donations available for at least the start-up phase (I say this from my biased perspective as a former Development Associate who's major task was to seek corporate sponsorships and grants for Echoing Green's fellowship grants and operations). Partnerships and in-kind donations are also oft-overlooked sources of capital and other assets for start-up social ventures.

A good example of how real-life social ventures seek to balance earned income and funding is  GTECH Strategies, the local community development organization that was created by two Heinz alum a few years ago (Andrew Butcher and Chris Koch), which is registered as a 501(c)3 nonprofit and currently earns about 30% of its revenue. It is trying to ramp up its income-generating activities as well as its local individual donor base in order to depend less on grants. An organization's revenue mix not only effects long term financial sustainability but immediate cash flows as earned revenue, foundation grants and individual giving tend to follow different schedules and are vulnerable to different kinds of risk and market volatility. Just something to keep in mind when making forecasts and financial plans for social ventures that will, at some point, depend on more than earned income.

Interestingly, Echoing Green has seen a surge in applicants building social ventures with a nonprofit and for-profit 'hybrid' model that captures the best of both worlds (tax benefits and earned income). Find out more about this here from Echoing Green's Finance Director: http://www.davidblerner.com/david_b_lerner/2012/04/john-walker-of-echoing-green-on-seed-money-for-social-entrepreneurs.html

Financial assessment tools

To complement the all text information on making profits and balance sheets (having no visuals to convey these concepts makes them tough to grasp!), here are some savvy financial assessment tools I came across on multiple reliable websites.

The Financial Modeling Guide aggregates them as the "10 Most Innovative Online Financial Analysis Tools for Investors" In addition to providing tools to track financial data and pinpoint investment opportunities, they also enable ways to connect with peer investors and to form an investment idea exchanging network. While there is a charge to use some of these tools, I think it would be a worthwhile expense for our social venture, as long as we still take the responsibility to understand how to accurately conduct financial assessments and how our financial statements can tell a lot more than we think about our social venture - year to year trends, increase or decrease in program expenses, current ratio and days cash on hand, etc.

http://www.financialmodelingguide.com/analytical-tools/innovative-financial-analysis-tools/

Food for Thought

I stumbled upon an blog post this past week that seems to do an excellent job summarizing this class as well as many of the things posted about on this blog.  The post titled "From 'Too Big to Solve' to Too Big to Fail"was written by the founder and global director of Hult Global Case Challenge, Ahmad Ashkar.  In his article, Ahmad brings up many different points that I immediately thought should be shared with our class.

The post centers on the notion that college and grad students (especially MBA students) are at the forefront of social entrepreneurship.  Ahmad, when initially starting the Hult Global Case Challenge that is based on the goal of identifying and launching the best student developed solutions to the world's biggest problems, argued that business students have the drive and tenacity that most NGOs and non-profits lack when addressing social issues.  Playing off the notion of too big to fail, he claims that many traditional organizations believe that most social problems are essentially too big to solve and therefore only have missions of solving problems as best as they can but not actually believing they can completely fix or eradicate them.  However, today's generation of business students are not limited by this mindset or previously established boundaries.  With their knowledge, business skills, and other resources such as grants and case competitions they will be able to come up with sustainable but also scalable solutions to some of the biggest and most pressing issues in today's world.  Ahmad hopes that our generation can present "young and fresh ideas, from students who were not jaded by what others have dubbed impossible and certainly not restrained by the 'too big to solve' mindset."

This blog post was in many was inspiring and reminded me that while yes at some points when looking at social ventures such as the ones we are developing in this class we start by targeting specific problems in particular populations or regions, it is possible that some days we can grow these ideas on a much bigger scale.  The Hult Global Case Challenge along with other initiatives and competitions are just some ways that we can shift the way social issues are looked at and solutions are developed.  The link to this post is below.  I especially urge everyone to read Ahmad's article. Enjoy!

http://www.huffingtonpost.com/ahmad-ashkar/from-too-big-to-solve-to-_b_1312941.html

Caine's Arcade

The attached link is about a young boy named Caine, and his cardboard arcade, built in front of his fathers los angeles auto-body shop. Caine not only designed and built each game in his arcade but created an entire system behind it. There are different ticket values, membership packages, currency, and prizes. While it started as fun for a young boy, it turned into an internet phenomenon. A video about Caines arcade has gone viral, triggering a website launch, where profits are held in  a college fund for Caine himself.

I think this a great example of how innovation and imagination can be powerful parts of the things you love to do on a normal basis, and just how far those things can take you. Entrepreneurship comes in strange forms, including 9-year-olds.  Enjoy!

Caine's Arcade

Money and the social entrepreneur - where Monopoly meets Innovation

Reflecting on Kelechi's blog post a few days ago re: possible current overuse/abuse/cynicism of the term "social entrepreneurship"  and our assigned weekly reading on Financial Planning for the enterprise, I remembered "Monopoly" the board game that helped me develop my concept of banks, capital, investment and business transactions as a kid. My view of entrepreneurship was shaped by playing hours of Monopoly. Later life experiences shaped my desire to get out of the Monopoly mindset and stop profiting from the suffering of my patients.

http://boardgamegeek.com/boardgame/63888/innovation

I came across this boardgame called Innovation. I have not played it. but the premise is interesting. I quote

"This new game by Carl Chudyk is a journey through innovations from the stone age through modern times. Each player builds a civilization based on various technologies, ideas, and cultural advancements, all represented by cards. Each of these cards has a unique power which will allow further advancement, point scoring, or even attacking other civilizations. Be careful though, as other civilizations may be able to benefit from your ideas as well!
To win, you must score achievements, which you can attain by amassing points or by meeting certain criteria with the innovations you have built. Plan your civilization well, and outmaneuver your opponents, and with some luck you will achieve victory!"

 Applying the same principles in a simple manner to carve out space for a social venture on the Monopoly Board, it would be fun to develop a "strategic" board game uniting the two concepts to create a new one where perhaps a team (instead of an individual) could win when there are more than 3 players.  What determines victory? Amassing profit? Benefiting a large number of  previously neglected members of society? Putting out a product that may help a few people in a profound way though it may not be profitable? Could and does society find a way to reward all of the above and would they be equally rewarded?   I wish I had a game to try this out in 30-60 minutes instead of agonizing over it for months! I'd christen  my game " Bang for the Buck"

SALES vs EBITDA vs EBIT vs NI vs FCF

Revenues...
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)....
Earnings Before Interest and Taxes (EBIT)...
Net Income...
Free Cash Flow (FCF)...

Which is the most important for early-stage ventures? What should be the primary focus when constructing our financial models? It depends. All are important, but some are neglected more than others.

Top-line growth is obviously important to grow the business. EBITDA is considered to be a strong proxy for cash flow and profitability. EBIT serves as the actual operating income of the business and net income represents the actual profits. Clearly, all of these are important... but the problem is that all of these are derived 100% from the income statement.

When looking at these figures in isolation, it is almost impossible to determine the strength of the company's financial performance. To begin with, the balance sheet is not taken into consideration. Without observing the level of capital that is deployed, one cannot determine the relative strength of profitability. A company with $1,000 in profits that has $10,000 in capital is much different that a company with $1,000 in profits and $1,000,000 in capital. Capital structure, debt levels, cash, Capex, PP&E levels, etc. are arguably even more important to closely monitor than income statement data. Even more importantly, the cash flow statement is needed to calculate whether the company can meet its financial obligations and/or redeploy excess cash. FCF is often neglected for early-stage ventures, as pointed out by the readings and by Professor Zak. A company can have strong profitability and still become insolvent if it produces negative cash flow.

On a more technical note, you will likely want to build out a discounted cash flow (DCF) analysis within your financial models. Building a DCF will enable you to forecast company cash flows into the future, while simultaneously serving as a strong tool for valuation purposes. Below is the calculation you should use to arrive at FCF:

EBITDA – depreciation & amortization (D&A) = EBIT
EBIT * (1-tax rate) = net operating profit after taxes (NOPAT)
NOPAT + D&A +/- [change in CAPEX] +/- [change in Working Capital] = FCF

Also, here is an overly simplified DCF as an example:

Again, I am more than happy to provide additional info regarding financial modeling, discounted cash flow analysis or other valuation techniques. Please feel free to reach out in class or through email.

A New Model for Innovation: Buy, Buy, Buy!

Facebook's recent acquisition of Instagram (for $1 billion) has captured many people's attention. The ability to create vintage-looking photos and share them with the world has definitely changed the photography landscape. But is creating and sharing vintage-looking photos all that novel? Apparently so, considering that huge companies such as Google, Apple, Facebook, Nikon, and Canon have not been able to successfully develop an application that can convert today's snapshots into timeless photos despite their robust R&D capabilities. 

Personally, it's hard to imagine a large company not being able to do what it wants, when it wants. But I guess that's why there's a market for start-ups. Start-up companies have the flexibility to do daring and disruptive things; they can look at a market, identify the pain points, and create a solution. If that venture doesn't work, they pivot and go at it in a different direction. Not much has been gained, but not much has been lost. For larger companies, it is harder to pivot when all their revenues or successes are tied up into their cash cows. According to Nick Bilton, "the challenge of creating something small and disruptive inside a large company is one that many face today." [1] But let's give large companies some credit. They are not just relying on their cash cows; they are constantly looking for stars. But how do you balance between cash cows and stars? How do you innovate at the expense of your revenue driver? (Just ask NetFlix, who lost $12 billion in market value after transitioning from DVDs to digital downloads.) 

The answer: Maybe you don't have to. Who needs to innovate when you can just buy innovation? That's what Facebook did. 

1. Bilton, Nick. Innovation Isn't Easy, Especially for an Industry Giant. NY Times. 16 Apr 2012. 

Measuring social impact? That is not for us to do.

As my team nears the Hult Global Case Challenge Finals, one of the biggest challenges that we have constantly faced is whether One Laptop Per Child is actually making any impact on the education in the countries it sells its laptops. Recently, an article published in the Economist titled "Error message: A disappointing return from an investment in computing" discussed how, despite enormous spending in Peru, children with OLPC laptops did not show any improvement in maths or reading. Nor did it find evidence that access to a laptop increased motivation, or time devoted to homework or reading.

OLPC's model of handing out laptops to children, through the government or the education ministries, has always been a very top-down approach. Once the laptops are distributed, and a small amount of additional infrastructure has been set, OLPC believes that it is the school and its stakeholders' responsibility to take charge of building a curriculum around the laptops and of measuring the obvious positive impact these laptops have had on existing educational practices. However, as the article mentioned, this approach has received some criticism.

So then what should OLPC do - change their model to make sure it has a positive impact or build programs for assessment and evaluation of some basic metrics to deduce whether the laptops even make an impact? Or not change anything and continue with their current strategy because they believe that in the long-term it will produce an impact? An article by Prof. Alnoor Ebrahim discusses the idea that non-profits needs to prioritize their accountability demands, and not aim to comply to the demands of all the stakeholders, but focus on accountabilities that matter most.

An interesting solution that we came across was the idea of empowering teachers with training and certifications, and then allow them to champion for the OLPC cause. Teachers would then build the curriculum in order to get certified with OLPC credentials, and connect with other teachers in the community and the region for support. This idea is actually making the kind of impact that OLPC sought to achieve with their original model. All it needed was a little tweaking.

So then, what is the key take-away for me? Social impact is important, and measuring it doubly so. But if you are not making the kind of impact you had set forth to achieve, it does not mean that your idea is not working, it may just be that you need to change your implementation process or tweak your model just a little, and maybe, that will do the job. This lesson, especially with the kind of social impact my "Promise2 Protect" package is supposed to achieve, will be extremely valuable if the going gets tough.

Entrepreneur as Experimental Scientist

     I enjoyed this week's reading sourced from MIT Sloan Management School Review. Principally interesting to me was the assertion that one of the means of minimizing risk exposure and approaching the entrepreneurial space tactfully is to frame it in a scientific mindset. This was fascinating to me mainly because it would seem any rational entrepreneur would choose this approach. The reason things may not be done as systematically in practice are three fold in my opinion: fist is that many people don't have experience with scientific procedural mechanisms of experimentation, the second being that this method is extremely time consuming in terms of planning, and lastly that when change inevitably does come to the business plan it may drastically alter many of the apparent and (more importantly) confounding variables in your model. I found this interesting article that explores how some of these methods may appear when executed...

http://steveblank.com/2010/10/25/entrepreneurship-as-a-science-%E2%80%93-the-business-modelcustomer-development-stack/

Robin Hood gives to Mulgan

In this week's readings, I found that Brest, Harvey, and Low (Calculated Impact) had something important to say to Mulgan (Measuring Social Value).

As I read through Mulgan, I appreciated his proposal for a more subjective measure of social impact vis a vis effective demand and effective supply. Trying to assess social impact as an objective standard is a nutty concept, as social values can be observed but not measured (certainly not comparatively).

However, Mulgan's solution--a framework of judgments on a 1-5 scale--seemed a little TOO subjective to me. Shouldn't there be some comparison involved, rather than simply checking later down the line to see if a proposal meets its own standards?

For me, Brest, Harvey, and Low's recommendation to compare the proposal to a real or hypothetical alternative solution solves this problem. I think this should be added to Mulgan's method in the form of a comprehensive competitive analysis.

Is this missing Mulgan's point, or lending his tool some much-needed credibility? What do you think?

Measuring Social Value: Acknowledging and Learning from Failure

"Measuring Social Value" by Geoff Mulgan is a very interesting and useful read, but I am curious how acknowledging and learning from failure can be incorporated into measuring social value. While it is true that measuring social value is difficult because it is unclear what the social outcomes are, it is also true that measuring social value is difficult if you don't even consider the possibility that you created zero social value in the first place, and in some cases, may have even taken away from social value that already existed.

I'm a very optimistic person when it come's to social ventures and grassroots ideas, but nonetheless, I'm realizing how practical and beneficial it is to openly admit failure and act on it. It may be hard to grasp, but studying failure adds another lens for our understanding of social value.

David Damberger is an engineer and social entrepreneur. He has worked with Engineers Without Borders in communities from India to South Africa in building agriculture and sanitation infrastructure. My friend recommended that I listen to his Ted talk and strongly recommend you do too. He begins with the story of Inook, a young boy in Malawi and stated that in the past ten years, 5 million people in Malawi have gained access to fresh water. He shows a picture of Inook, happily cupping water into his hands from a faucet, and then claims "this picture is a lie."

Damberger's first project with EWB was in India to develop rainwater harvesting systems in schools -- that would collect water from rooftops during the monsoons, bring through gutters filter and store them for the dry season. A year after implementation, he contacted an NGO to see how the rainwater systems were functioning, they informed him that not a single one was functioning due to lack of maintenance among other factors.

EWB specifically makes learning from failures a priority and has an innovative marketing campaign "Sponsor an African Spreadsheet" and now publishes an annual failure report, in addition to a website: www.admittingfailure.com. EWB is a great role model for thinking critically of social value.

Ted talk link: http://www.ted.com/talks/david_damberger_what_happens_when_an_ngo_admits_failure.html

Steps To Start Up Succes

A couple weeks ago I stumbled across this article. I meant to share it but had not remembered it until now. Its an extremely simplified method of breakdown of the insights necessary to survive as a start up. Starting with capital, the article mentions themes and concerns that are imperative to address and goes on to give a small description

It begins by acknowledging the fundamental need for funding. Then goes into ramp time, overhead and maintenance, and then goes into business model and structure. Fully understanding your revenue streams is key to success. Just because a business model worked for one company doesn't mean it will work for all of them. The article then goes on to explain idea testing phases, idea evolution phases, and building your network.

This article is very basic. It hasn't delivered information to us that is new but its a fast simple way to visualize all the necessary actions to launching a start up and mitigating risks up front, and exposes you to the variety of concerns to address when launching a start up.

The Risk-Averse Entrepreneurs Guide To Start-Up Success

Nate

The Problem with “Social Entrepreneurship”: A Student’s Perspective

In a recent article in the 'Standford Social Innovation Review' an undergrad student wrote about his views on the term 'social entrepreneurship' and how this term applies to current students. He posits that 'social entrepreneurship' has no real meaning and is a buzzword and  that the term "facilitates obfuscation and equivocation." He seemed to be very cynical of people who called themselves social entrepreneurs as people that take advantage of the term to attain funding and recognition and such. 

I understand the term is broad, but what is wrong with that? People have been doing work in social entrepreneurship for years, branching from the for-profit model, with a social impact as their goal. In the tagline, the author writes "Much good can be done under the guise of “social entrepreneurship,” but that doesn’t excuse our collective failure to acknowledge its limitations." but I didn't feel like he listed these limitations in his piece. I felt as if his whole argument revolved around the following statement 

 "Our society prizes the traditional form of entrepreneurship and respects its practitioners in a way that our society doesn’t necessarily support advocates of social change. In using the term “social entrepreneurship,” those who use it attempt to deemphasize the “social” component in favor of the more accepted “entrepreneurship” component, signaling that they share mainstream values. "

Although, I don't agree with this. I feel the author is too cynical in his views of social entrepreneurs. Though it may seem altruistic, I do believe their are people in the social entrepreneurship field with good intentions. Social entrepreneurship is really about solving problems that increase people livelihoods and it takes a special type of person to do that. I feel the author has a very narrow view in the capacity he has seen social entrepreneurs. Again with me being altruistic, I really feel when it comes to social entrepreneurship 'social' is the term people take pride in. The idea that rather then creating a product or service that serves the status quo, one that disrupts it.  

This article started with the author questioning the definition of 'social entrepreneurship.'  “society’s change agents: creators of innovations that disrupt the status quo and transform our world for the better.” While making statement such has "transforms our world for the better" is I agree equivocal, has the autor puts forward, when juxtaposing this definition next to general entrepreneurship, it subsets the term making the mission more targeted. 

But this is just my opinion. Here is a link to the article. 

http://www.ssireview.org/blog/entry/the_problem_with_social_entrepreneurship_a_students_perspective

Guide for Modeling Risk Sensitivities

As we enter the financial modeling phase of our venture plans, I thought it would be appropriate to share some modeling tactics for assessing risk. Risk sensitivities are helpful analysis tools as they effectively show the upside/downside movement of the model's most important variables. Below are some methods of conducting your own risk-sensitivity analysis (these are very quick-hit explanations and I can definitely provide more information to those who may be interested):

1) Worst/base/best case scenarios: The base-case scenario uses reasonable assumptions to forecast the most likely outcome for your projections. The best-case, often referred to as "management case," should reflect your most bullish assumptions that you expect to achieve if everything goes according to plan. The worst-case, or "pessimistic case," should utilize the assumptions that reflect the greatest downside. This model should be dynamic, in the sense that when you change your assumptions it will simply run through the model. You can then use the "Choose" function in excel to choose the scenario that you want to run through the model, as shown in the below example. When "1" is filled in the box on the left, the model will then run through the worst-case scenario.

Sample assumptions tab using various scenarios

2) Data tables: This is the method of choice used on Wall Street for conducting risk-sensitivities. These are a little trickier to get used to, but really paint a great picture. In order to run a data table in excel, you typically choose two variables (one horizontal and one vertical) and plug them into the table as shown below.  The shortcut for data tables is alt-a-w-t and you need to plug the formula for the main variable (the result variable) in the top left corner of the table.

The below example displays the accretion impact on earnings per share by looking at potential changes in purchase price and synergies. As indicated by the red circle, when the purchase price is 70 EUR per share alongside annual synergies of 441 EUR, we expect the deal to be 0.55 EUR accretive to shareholders (this is the base-case). However, if you were to raise the purchase price to 90 EUR and reduce synergies to 241 EUR, then the deal would only be 0.02 EUR accretive (this is another form of the worst-case). Inversely, a best-case result can be achieved by landing in the bottom left hand table of the table. By using this one table, the viewer now has a good understanding of what happens to earnings if the deal structure is altered.

Sample data table used for M&A analysis

3) Tornado Diagrams and Spider Plots: These are statistical tools used in excel to convey the coefficient of each variable, or its importance relative to other variables. In order to run these in excel you will need to install the SensIt Sensitivity Analysis Add-In. The below figure displays a tornado diagram, which intuitively shows the viewer that miles per gallon is the most important variable as it can greatly change the NPV of the project. On the other hand, $/kWh is the least important and only has a minimal impact on NPV.

Sample Tornado Diagram

The below example is a spider plot. This works similar to that of the tornado diagram, in which one can observe that miles per gallon has the steepest slope and therefore has the greatest impact on NPV. Although both spider plots and tornado diagrams make it simple for the audience to visually comprehend results, neither method is used much outside the academic environment.

Sample Spider Plot

Hope this was helpful. Again, feel free to reach out if you would like to dive into more details.