Flexibility and the Marine Corps


After reading the article, " A Few Good Principles," I was struck at some of the steps the Marine Corp has taken to get itself to be be more responsive. Overall, for such a large organization it very much tried to operate like a small one. The Marine Corps is not the only large entity to try to emulate smaller ones. One generally thinks large companies can leverage economies of scale and other benefits of their size to gain a competitive advantage, and to some degree they can. However, innovation is most often the realm of smaller, nimbler companies or at least those able to replicate such a business structure.

Going into the biotech word, and the banking side in particular, I am acutely aware of how innovation is often spurred by ideas and passion. I am also keenly aware that many big pharma companies have revised their business plans to strategically partner or acquire these biotech companies instead of developing new technologies themselves. In essence, they are outsourcing innovation. This prevalence of acquisitions and partnerships, I feel, allows innovators to focus even more on their ideas knowing that when said ideas come to fruition there is a partnership to help them grow past inflection points. I feel that this period of growth is the most difficult for small, innovative companies. Cash flow issues, business management, capital access - these are all things that can cause a company to crash without the underlying innovation being faulty.

With the biotech/pharma world in mind, I wonder how socially innovative companies may be able to replicate the process seen in this space. The founders and entrepreneurs who work in both areas share similar qualities - passion for the work, new ideas, and, at least most likely, a shortage of pure business experience. While the major payoffs that a blockbuster drug gives may not be as common in social entrepreneurial ventures, I do believe the idea of being acquired or partnered with a bigger company has its appeal. Not only does this provide the expertise mentioned before, but it is a way to multiply the social impact. Large companies instantly give greater reach and resources. Therefore, could social ventures start with the idea that an acquisition is a very desirable outcome? If they do, can they focus on innovation that would impact large for profit or non-profit entities, thereby increasing the chance of partnership? I know many feel like they want to create something on their own or not be "in bed" with corporations, but if they want the highest probability of making the biggest impact, I think this would be a solid way to go. Innovation is not just creating something never seen before, but applying something that exists to a new application. Why not take the innovative world of biotech and use it as a social venture strategy?

Back to the "why" of social innovation

Why social innovation?

I am driven to it by two core beliefs, one normative, one positive:

1. That each person in a society, by mere virtue of their presence as a human being among fellow human beings, deserves full access to the array of opportunities to pursue the good life that society offers the most fortunate.  Anything less denies the individual the full measure of dignity that is their birthright.  
2. That many of the mechanisms that have historically served to equitably provide that access to opportunity are deeply broken and/or facing deeply rooted institutional threats.  

For me, the first belief is evidenced by a chorus of witnesses: from scripture and accompanying Christian theological tradition to the lived faith of advocates for justice like Martin Luther King, Jr., and my friends from the Rutba house in Durham, NC. I find it increasingly important to return to these wells of inspiration to drive me forward when the way forward is unknown and to bend the progress of my little farm idea closer to moral arc of the universe, which, as King reminds us, "is long, but bends toward justice."

For me, the second belief is evidenced by the increasing gap between rich and poor.  This is a complex issue not easily reduced to a paragraph in a blog post, but a few thoughts:

• Public Education:  As education becomes paramount to earning a living income, the vast inequity in the quality of public education becomes more of a barrier to kids who happen to live in neighborhoods with bad schools.  An article looking at education and inequality here.
• Technology: Technology is increasingly amplifying the productivity of educated "knowledge" workers.  Not many technological innovations are dramatically increasing the productivity of a fast food worker or janitor.  Thus, their wages stagnate while programmers' wages rise.  An article looking at technology and urban inequality here.
• Politics: The political reality of national debt and austerity make a serious debate on opportunity and social justice unlikely.  Government funding for all sorts of economic development in cities is falling. 
• Unions: In the face of globalization, labor's negotiating position has weakened.  Private sector unions are weaker than ever in terms of membership.  Most private unions position themselves  increasing competitiveness.

In the fifties and sixties, I hope I would have had the courage to march for civil rights and also join King's poor people's campaign (in which he advocated for a national minimum income.)  But today's mechanisms of injustice are more complicated than "whites only" signs and blatant red-lining by banks.  Globalization has complicated the economics of a national social safety net, not only its political rationale and implementation.  

A friend recently encouraged me to get more involved in local politics.  "Make your voice heard," he said.  As someone who is committed to doing justice, I must confess that I do not believe that our democracy is the most powerful amplifier of my voice.  Given my particular set of assets, access to capital, etc., I think that riding the wave of the market and broadening the concept of value creation is the best way to amplify not only my voice but my vision for justice; for beloved community in Pittsburgh. 

Can a small urban farm actually achieve this?  Maybe.  Farming is hard work.  It requires labor and lots of it.  If aquaponic production and energy efficiency innovations can take urban farming to scale and compete in the wholesale, this would be a technology innovation that not only amplifies the productivity of low-skilled labor, it would break into an inner-city labor market that is in dire need of job opportunities.  Could the presence of an urban farm that feeds and employes its urban neighbors even as it ships out high-quality lettuce to suburban grocery stores help re-draw the cultural map that divides city and suburb, black and white, rich and poor?  Can it bridge a social gap?

I'm finding that normative framework for this venture is as important as its positive social, economic and political assumptions.  The "why" is as important as the "how" in guiding decisions and sustaining the hard work. 

Thanks, finally, to Prof Zak and the class for a great semester.

The shots we don't take

In “A Few Good Principles, What the Marines Can Teach Silicon Valley,” the author shares some points which I think are excellent.  Below are my favorite lines from the article:   

 Fast is better than perfect- the 70% solution:

“Decision makers who are perfectly clear on what they need to accomplish sometimes fail to consider the unintended consequences of their actions. Determining what actions must be avoided can sometimes be at least as important as deciding on the actions that must be taken. The Marines hold as an article of faith that there are always angles they aren't anticipating.”

Make every team member a problem solver:

“The answer, in other words, is empowerment carried to an extreme: allowing someone at the lowest level of the organization to make decisions that can impact the success of the organization's most important missions.”

For fun, I think that this brief clip featuring the great Dominik Hasek demonstrates this principle well: http://www.youtube.com/watch?v=J8M2SNe6siA

Reward failure:

“A Marine who rarely fails is a Marine who isn't pushing the envelope enough.”

Seek Outside Perspectives:

“The goal of Klein's teaching process is to turn decision-making trainees into what he calls "reflective practitioners"--that is, people who can think about and articulate the elements that contribute to their decisions. He prescribes that one-third of all exercise time be spent in debriefing.”

It seems like so many principles that result in better entrepreneurship also result in better decision-making in life.  Based on my experiences thus far, I want to add a few to the list:

·         Intentional improvement: align incentives and focus on improving

·         Abandon pre-conceived notions, acknowledging that there is no silver bullet

·         Employ the four cornerstones of motivation to management: competence (helping those around you believe that they have the ability to complete the task), autonomy (making sure that those around you have choices about how to undertake tasks), helping the people around you see value in what you’re doing, and relatedness (creating a sense of belonging or social importance)

It’s been a great semester, and I feel fortunate that I’ve had the opportunity to be in the class!  As Wayne Gretzky said, "You miss 100% of the shots you don't take."

Next Stop: Kenya

If someone were to ask me two years ago, "Can you picture yourself working for a non-profit in East Africa upon graduating CMU?" I most likely would have responded by a drawn out "hmmmmm..." Knowing that I am passionate about social innovation in emerging markets, the idea to pack up my bags for a couple years and move to Kenya is intriguing yet difficult decision nonetheless.

Fast forward two years.

After two degrees and countless conversations with peers and professors, I slowly but surely drafted an identity of myself.  This identity is not a sum of characteristics that comprise my interests and strengths, rather it is formed from taking a passion and multiplying it by experiences and education.  The resulting formula equates to working with entrepreneurs in Nairobi for 16 months to help them discover new ways to grow their business while attracting new equity capital.  The ultimate goal: build companies in a sustainable fashion in order to reduce poverty in East Africa.  This class and others I have taken by Prof Zak will be tremendously beneficial throughout the next couple years for me, and I am sure will pay dividends throughout my career in international development.

So lets discuss Kenya and the challenges the country is currently facing.   I came across this article by the Economist and thought it would be a great read for anyone reading this blog.

Upwardly Mobile Africa: Boomtown Slum

One of my favorite quotes from the article states: Kibera may be the most entrepreneurial place on the planet. 

Some will question, "how can one of the biggest slums in the world be so innovative?"  Resource scarcity can have the ability to spark innovation, but a better question to ask should be "How can we take the innovation created in slums and spread it to the rest of the world?"
  
I am hoping to have an answer to that question after experiencing social entrepreneurship in the field.  The challenges facing developing countries may not be the same ones facing developed ones, however learning how individuals go about solving complex social problems can be easily transferred.  I am not sure what the future entails for me after my time in Nairobi, but I can be sure to use the skills and knowledge I have gained in graduate school to help navigate my next adventure.

Changing the way we think about charity

I recently watched a Tedtalk by Dan Pallotta entitled "The way we think about charity is wrong", which can be found by clicking http://www.youtube.com/watch?v=bfAzi6D5FpM. I was consulted to watch this video by a friend and found this to be the best youtube video I have ever seen. In this video, Dan Pallotta breaks down the problems associated with the non profit sector and why it has steadily been 2% of GDP since 1970, when this statistic was first measured. Dan Pallotta breaks down 5 key reasons for why this industry is suffering, especially compared to the private sector which has grown immensely during this period:

1. Compensation - In the non profit center, making money is considered a bad thing, especially when compared to the private sector. Dan Pallotta makes a point that "how can the non profit sector grow and do well when people can't make money in this sector". He goes on to challenge the taboo behind making money in private sector. Why is it such a terrible thing to create social impact and create money in the private sector? I completely agree with this argument. If you want your charity to have the best and brightest people to create change in the world, you should compensate them well to attract the best talent. Dan Pallotta cites a Businessweek survey that tracks the median income of a Stanford MBA 10 years out of college, which is 400k. The average CEO of a Hunger Charity is 80k. Seeing this change, it becomes very clear why Stanford MBA's are not joining Hunger Charities. This creates a world where people in non profits have to live frugal lives. We can clearly see why non profits are struggling, when compared to the private sector. I truly believe that if non profits compensate their employees better, they will be able to fundraise more money since they will have brighter minds leading their company. 
2. Advertising and Marketing - In todays non profits, spending money on advertising and marketing is considered a terrible thing. People expect that non profits not waste valuable dollars on advertising and marketing when they can get that donated. However, in business we know how valuable advertising and marketing is. You should always advertise and market your company/product when you can gain some return that is greater then your cost. This is how companies grow. However, when people donate money, they do not want to hear that their donation went towards marketing and advertising. I think if we want charities to grow and prosper, advertising and marketing is necessary. It is marketing and advertising that will allow non profits to really grow and make people aware of their cause so that they can get more donation dollars. If non profits can't show the good they are doing and use that good to attract more dollars, then how can we expect people to give them more money.
3. Taking Risk on new revenue ideas - In the private sector, taking calculated risks is strongly encouraged. It is taking these risks that allows employees to try out new things and find true innovation. If you think about any company that really thrived, they did so through risks. It takes risk to issue a new product or to try and change the way people think about certain products. However, in non profits, taking risks are not encouraged at all. If a non profit takes a risk and looses a million dollars in trying something new, that company is crucified and held accountable by the attorney general. However, it is these risks that could allow non profits to find new innovation and grow. 
4. Time - Private companies can take time in not returning money to investors because investors know that they will get paid at the end of the timeline. However, non profits are not allowed to take money and try to build scale so that they can do extremely well competing in the long run. They have to take the money and donate it right away, which does not allow them to build a framework for the long run.
5. Profit to attract risk capital - The for profit sector has a multi trillion dollar market to pull money from, but since the non profit sector can't have any profit, they have no access to this money. I think this needs to change, because it can be an opportunity to non profits to have access to much more money.

After listening to this whole talk, it becomes clear to me that we need to change the conversation around non profits and the private sector. Non profits should not be held to a standard of almost sainthood and the private sector should not be treated as corporate sell outs. If we brought them on the same page i.e. non profits are treated as a business and allowed to make money, then we can allow them to grow and spend money on infrastructure so that non profits can gain more fundraising and ultimately create more social impact. 

Semester reflection

What a fabulous semester this has been! I was drawn to this class from the course description that  “general do-gooders” will find value in this course and I certainly have.

I have learned the steps to be an entrepreneur, but frankly, it’s not in the cards for me.  I am a bit too risk adverse to be the one person that everything falls on.  BUT what I can do is be a strong corner in a winning team.  I want the world around me to change, I want to pursue a career that I find personally fulfilling, and I think that will bring me to crossroads and ventures such as Face Race.  I want to be a person that uplifts visionaries and assists them in mapping a long term path.  I want to be the person in brain storming sessions and that is part of moving organizations and ideas forward.

I have been repeatedly inspired this semester to watch the passion and perseverance that you have all used to pursue “a greater good”.  Learning the backgrounds of where the ideas came from and all of your personal experiences has been an interesting and a learning experience for me! I mean aquaponics?!  Keep on pushing your ideas forward and I can’t wait to read about your progress as your visions become closer to reality! (I will also really enjoy getting to brag about knowing all of you in the early stages.)

A special thank you to all of you that I have had the pleasure of getting to know and the great conversations surrounding your ventures.  Even in a policy school, we can get so overwhelmed that we miss the opportunities to talk and reflect on why we are pursuing this work in the first place.  This class allowed me to slow down and have those conversations with many of you…even if it was somewhere in between having a paper due and a test the next day. 

 Good luck to you all and a big thanks to Tim Zak for allowing us the space and flexibility to pursue our passions!  Contact me if you need a pep talk on a venture set back day!

Social Innovation: A Reflection

As this is my last blog post, I thought it would be fruitful to provide some summary remarks about my semester developing a business.  Kerouac famously utilized stream-of-consciousness in his writing, and I’m afraid the many lessons, fears and triumphs of my business will manifest in that way as well.

I am blessed to have been offered the chance to start a business.  When you try and quantify the many factors that make a chance like this possible, you start to think you were fated to do so: financial support from my family, a trusting fiancé, enough space in my academic schedule, the learned courage it takes to challenge assumptions, the humility to repeatedly hear how dumb your idea is, the gall to press on anyways.  A great many people learn about entrepreneurship, but few are empowered to pursue it.  I count myself among the fortunate.

It sucks to be broke.  I wish I had the resources to swing open the front doors to my business tomorrow, but my financial reality makes this a part-time gig.  Much like a musician who works by day and lives her dream on a beat-up, barroom stage at night, I’ll make time on the side to share my performance with the world.  

While being broke sucks, it is far worse to be creatively bankrupt.  The people who trouble me are not the ones who take issue with my ideas, but those who never thought ideas had value in the first place.  That I as a thinker, a dreamer was inferior to the nine-to-five doer and provider never quite registered with me.  Perhaps those people were not blessed with the chances I had.  Perhaps ideas never did them much good.  In my world, at least, there is no greater currency.

I would flounder without good people around me.  

I’m not yet sure if starting a business is more about competition or cooperation.  It is easy to say both, but the nervousness I constantly feel about the next best alternative to my business muddies the conversation a bit.  

They say that working for yourself is a great thing, but I’m not sure if they accounted for living with yourself in that scenario.  As a man who loves his soon-to-be wife and wants to create some semblance of stability after school, I struggle to call this pursuit as anything but selfish in the short run.  “It will be popular”…”Businesses will love it”…”I’ll have a bunch of new clients this week”…do these statements help or hurt the budding entrepreneur, his family?

I would flounder without good people around me.  

Social media is the best tool and biggest threat to your business.

They say that working for yourself is a great thing, but I’m not sure if they accounted for living with yourself in that scenario.  As a man who loves his soon-to-be wife and wants to create some semblance of stability after school, I struggle to call this pursuit as anything but selfish in the short run.  “It will be popular”…”Businesses will love it”…”I’ll have a bunch of new clients this week”…do these statements help or hurt the budding entrepreneur, his family?

Partners earn their equity not with work or money necessarily, but with counsel that only a close friend can provide.  They are the person who tells you how you flunked a meeting or how you saved the business, all in the same day – with the promise of a beer together either way.  

All in all, this has been less about experience and more about learning than anything I’ve ever done before.  I’m frightened daily by what could happen, and exhilarated just the same.

Maybe that means I’m doing it right?

What have you learned from your time learning about Social Innovation?

A Strategy for Execution

Thinking through the financials and our assumptions behind them with Adrianto this past week is helping to iron out many of the outstanding question marks related to how our venture will operate.  When doing the financials a lot of our assumptions kept going back to our operating plan.  For example when thinking about sales and revenue assumptions we were looking back at our operating plan to see how our marketing and production strategy should translate into sales.  This process of building the financials subsequently also helped us strengthen our operating plan. 

Personally I put a lot of weight on a venture’s operating plan, particularly when asking for money because it fundamentally explains how much money a venture is asking for and what they are planning to do with it.  Once this is known I think it is easier to put some of the other pieces of the venture plan in context, such as the management team (are these the right people to execute the operating plan?). 

The question about who will be the right people to execute the operating plan is not a simple one.  I came across an HBR article recently Strategy vs. Tactics from a Venture Capitalist by Arthur Rock who points out that good execution, good management, and good people are rare.  This article is mainly focused on what are the characteristics of ‘good’ people for a startup and one characteristic that I found particularly interesting was related to financial management.   Arthur suggests it is better to have a CFO that will scrutinize the operation closely and impose controls rather than a CFO that is focused solely on making a short-term sales quota because this mentality can often ruin the hopes of establishing a long-term revenue stream.  So in this case finding the right person to manage the financials of an operating venture seems to be more critical that getting the financial projects right upfront before the venture is established. 

In any case as Arthur suggests good execution comes down to good people.  So where do you find good people?  I think one place to find good people is through the networks of some of the funding sources we discussed in class, particularly venture capitalists.  Personally I have always been of the opinion that VCs are nothing but vulture capitalist and I’d just assume that I’d never want to be part of a venture that they were involved with but perhaps that is too pessimistic of a view, particularly when I start thinking about the added value beyond cash a VC can bring to the table in their network.  With this in mind I continue to ponder the question might it make sense to partner with an institutional investor so you can have access to their network even if you don’t really need the financing?

How Much a Venture Should Impact Society to be Considered as Social?

During the last several weeks, I have been thinking about the real impact of a social venture, especially in developing countries. I believe that in some ventures there is a misperception between a social venture and a social impact. My belief is that real social ventures should try to focus on the unprivileged groups of society, rather than the privileged ones. Nonetheless, a social impact could be generated even by non-social ventures.

In a recent post, I stated, in reference to a friend’s thought, that current tech start-ups are focused in the profits more than in the impacts, consequently brilliant minds are being employed to make profits rather than solving world social issues. Even more, some projects are focused on small privileged groups. But, is this totally wrong for generating a social impact?

I am hesitant about the applicability of some “social” projects to certain developing countries. In specific, those projects requiring Internet connection, smartphone interfaces, high literacy rates, or electricity to be successful. Although some developing, or emerging economies have high mobile penetration rates, it doesn’t mean that there is a linear relationship (one mobile per person); even more, it doesn’t mean that all people have access to smartphones, or to mobile Internet. While the World Bank reported in 2011 a gross national income (GNI) per capita of $7,470 in Botswana, and $48,620 for the United States, this last has an average of 93 mobile subscriptions per 100 people, but surprisingly Botswana has 143. In terms of Internet users, the United States has approximately 77.9 users per 100 people, and Botswana only seven users.

Projects using these interfaces are reaching some privileged sectors, or in the worst scenario are failing as “social” ventures. I remember hearing about an interesting project in Mexico to bring computer clusters to distant communities, but the project failed in some communities because there was not electricity. So often, great ideas are worthless due to failures in planning. So, why a project that will help to a reduced number of people, or to people with more opportunities should be considered to be a social venture?

Additionally, there are several examples of business that were created without the idea of being social ventures, and they have become extensively recognized in the developing world, to the point of having a great social impact. For example, the origin of portable communications, specifically mobile phones, was not planned, or accessible for all population, however nowadays mobile subscriptions are almost doubling the labor force in the world. Probably those ventures never visualized the future trends (in some sense irrationals). As argued before, who will think that low-income countries will have a higher number of subscriptions rather than the richest country in the world?

How can we foresee the real social impact of a (social) venture? In fact, how can we establish if it is or not a social venture? Probably, some start-ups will generate a bigger social impact than the ones that are defined as “social” from their origin. Maybe that is why I am reluctant to listen to entrepreneurs defining their project as “social”, when they are targeting, since the beginning of the project, just a small group of privileged people, especially in developing countries. I prefer to hear someone being realistic about the impact of the venture, even if at the beginning it is not defined as social. 

Growing Pains

 It has been interesting see the evolution of the project. It has defiantly been a learning process and one have thoroughly enjoyed. Now that we find ourselves in the last few weeks of classes the project still has much work to be done. One thing that has stood out for me since the first day of class has been the idea of financial stability. Yes, as a social venture the main objective of your company is to have positive social impact but just as important is to be in a financial stable. The company can not make any impact if it can't sustain itself.

There are have been two main issues that I have thought about through out the process. One, the location where we are attempting to launch the venture and the streaming of revenue to keep the venture alive. Given that these establishments we are attempting to target are unsure about our practices they will probably not be receptive at first (or at all), yet we are relying on Pedro's knowledge of the area and connections to successfully launch the venture.


 But as I have learned time and again we cannot rely on assumptions and predictions to determine if the venture will succeed. I am certain that we will quickly find out what works and what does not. Things such as hiring the right people, market, and business plan will all come to shape. But before anything of this is done we need to perfect our craft. There has not been a time were both Pedro and I have sat down and said to each other that everything has been figured out. Each time we talk about the venture there is a new idea or focus on a problem that either one of see with the venture. The flow of ideas have increased by talking to other entrepreneurs who have already started their own ventures.

Ultimately, we both know that it will be difficult process if we attempt to launch the venture. Of course there's the vision of having this take off and really bolstering the Mexican economy. We have had conversation to implementing this in other parts of Latin America and even the United States. Whatever the outcome is, it has defiantly a great experience were have learned a great deal. Time only tell to see where the ventures ends up.

What difference can bicycle helmets make?

My BHAG is to get all urban Indians who use cars and motorbikes to cycle to work, school and college. This will ease traffic congestion within cities and effectively curb raising levels of pollution and microclimate change which is affecting all Indian cities. How will I get Indians to bike? My social venture is going to support urban Indians who are so poor that cycling is their only possible mode of transportation. I hope that by supporting the majority of Indian cyclists, more people will be inclined to cycle, forcing urban design authorities to take notice and start including bicyclists in their infrastructure plans for cities.

My point being, I know the impact that I could have in an ideal world and it isn't exactly measurable unless you see a drastic change and there is an obvious link to my venture.

I decided to try a different approach to understanding the social impact.

What does a helmet do? Protect. Prevent injuries.

I started looking into incidents of traffic accidents in India. India has the highest number of deaths due to traffic accidents in the world. As of 2009, the 344 people are killed per day on Indian roads. 78.5% of the accidents are because of the fault of the driver and 1.2%  are the cyclists fault. In 2010 4.8% of the fatalities were cyclists and the total number of cyclists killed in India in 2010 is 6,203. Almost 50% of people who die in traffic accidents are pedestrians, motorcyclists and bicyclists. While 47% of the bicycle accidents are caused by solo falls, 18% of them are due to collision with motor vehicles. These numbers might vary for India because the cycling speeds are lowers and motor vehicle drivers do not to share the road.

In economic terms the Indian government is putting infrastructure in place to help people injured in accidents. The government has spent about $114 million on road safety in 2011-12. This includes advertising and education on TV, radio, hoardings, cinema slides, posters and murals. The government has also spent $0.16 Bn on setting up trauma care centers around nation highways.

So what difference can bicycle helmets make?

http://zeenews.india.com/news/nation/india-no-1-in-road-accident-deaths_704455.html
http://morth.nic.in/writereaddata/mainlinkFile/File761.pdf
http://www.unescap.org/ttdw/common/Meetings/TIS/EGM-Roadsafety-2011/Status/Countries/India-2010-Status.pdf
http://www.transportgooru.com/wp-content/uploads/2010/03/091126-HealthEU-RoadAccidents.png

Questions about measuring social impact

Last week’s discussion about measuring social impact made clear to me the magnitude of ways that you can measure social impact.  With Face Race, we need to measure the bottom line difference that this program or platform would have on customers businesses.  But I have been thinking back to earlier this semester when I was pursuing my own venture, I still have questions of how the measurement would have been an accurate “dipstick” of the teacher training.  I can see how the other ventures in the class would be measured using a variety of techniques, but how do you measure when there are a multitude of other interventions or services at play? In the case of teacher training, the data could just vary from year to year because of different students?  Or other variables that can’t be controlled? In my experience in education, this is a common problem with “statistical” data about a given program, curriculum, policy or reform.  The new item is not able to be truly isolated to test.  Technology interventions in schools with e-learning is the best example I can think of that pointedly can be measured.   In reflection, that’s my question for this week.  How do you truly measure social impact of a public school when there are a variety of factors at work? I am not invested in the teacher training concept as a feasible venture, but I know I will still spend some of my career seeking solutions to bettering our schools and it would be beneficial to seek an answer now. 

On another note, I wish I would have read ahead as the readings for this week would have been a good refresher for the financial exam I had last week.  : )

But the timing is also perfect, I spent this weekend talking to close friends who are looking for ways to increase cash flow in their business.  Now, I will have more to contribute at the continuation of our conversation. 

Financial Sustainability

As this week's topic will be on financial plan and we've had the basic assumptions for our financial projection, I think it is the right time to give a heads-up of how our financial posture will look like. The results can become a basis for our discussion on which factors are unrealistic and how we can mitigate the downside risks of some highly influential factors. I did my projection using Risk Solver Platform add-in in Microsoft Excel to incorporate variability in the assumptions. I got the numbers from the assumptions in our feasibility plan, but I added some ranges (minimum and maximum values for these numbers) and included other new assumptions as well.

After performing a financial simulation for our venture, I found out that our money at the end of the third year will be somewhere between -$80,000 and $900,000, with the expected value of around $300,000. This might look like a wide range, but the probability of our money and its NPV will be above zero, i.e. financially sustainable, is around 90 percent, a reasonably high chance of being profitable. These results are of course highly dependable on the assumptions I typed in in my financial model, and the estimates are useless if I inserted wrong numbers.

But first, I want to discuss the result. The model suggests that the expected NPV in three years of operation is around $290,000. Divided by three, our expected annual profit is around $100,000. It looks like a thin profit by American standard. However, in Indonesia, it looks very promising given the range of salary of a person with 0-5 years of experience and tertiary education is between $6,000-$12,000 a year. Furthermore, given the 90% probability of positive values, there is a high upside potential with a low chance of loss. This might sound too optimistic and I realize that there might be an inherent personal bias when I inserted the assumptions.

Thus I will also discuss the assumptions that have the biggest impact to the projection. Two of these assumptions are uncontrollable, i.e. population growth and the percentage of primary motorcylists. This might create some risks to our venture. The other one, market penetration, is the biggest risk that we need to monitor, but its outcome can be influenced by our action.

Below are the assumptions in my financial model with their minimum, likelihood, and maximum values. 

Assumption	Minimum Value	Likelihood value	Maximum value
Annual population growth (baseline: 10,187,595)	1%	1.4%	2%
Percentage of primary motorcyclists (from the total population)	40%	54%	60%
Market penetration: Percentage of penetrated market size	0%	1%	2%
Market penetration: Annual percentage change in penetrated market size	-0.1%	0%	1%
Market penetration: Average annual sales per customer	1 raincoat	-	2 raincoats

Market penetration

Market penetration is the biggest factor that can affect our financial outcome. I assigned 0 and 2 percent as the minimum and maximum values for the penetrated market size, with the likelihood value of 1 percent. Obviously, our ability to penetrate the raincoat market in Jakarta depends largely on customer's perceived value on our product and whether our product is distinct enough in comparison to our competitors'. We have performed a simple conjoint survey, which I believe Dan will have had the result this week. Through this survey, I expect that we will have a better understanding of customer preference. Although we still yet to predict the purchasing decision, we can use the survey results as a consideration for which features should we include in the design. Marketing is also crucial. We've discussed about two different distribution channels and how we will do our marketing efforts (e.g. through our sales force, Google Adwords, and blogs). This is how we try to minimize the downside risk. To evaluate our penetrated market size, we can perform field surveys by observing the number of motorcyclists wearing our raincoats in the streets in Jakarta and compare it to the other brands. 

Population growth and the proportion of primary motorcyclists

According to historical data, the average annual growth of population in Jakarta is around 1.4%. Population growth is a factor that we cannot influence. We must adjust our calculation according to the newest data available and see if it erodes our bottom line. Having said that, Jakarta is the center of gravity for rural workers as job opportunities are better than other cities, thus creating high urbanization rate. This may be good or bad. The bad thing is that it is a sign of how unequal economic development in Indonesia is right now and it may create a lot of urban problems; but at the same time, denser Jakarta means a bigger market for our raincoat. We can monitor population growth by collecting data from the Statistics Bureau and adjust our calculation over time.

Primary motorcyclists are part of the population that use motorcycle as their primary mode of transportation. From an article, we found that 54% of the population use only motorcycle to commute. I think that in the future, the trend will continue to increase given the fact that the Indonesian government will continue to reduce the fuel subsidies and the number of primary motorcyclists is largely affected by the fuel price. This is also the factor that we have little influence on, but we can monitor the values over time by collecting data from the Statistics Bureau.

This is how our financial projection will look like in three years:

Note: The horizontal line categories are months in Year 1 (from November to October), and quarters in Year 2 and 3.