Too Many Nonprofits…Or A Weak Ecosystem?

Greenlights for Nonprofit Success, Austin’s nonprofit management assistance organization, today released the findings of a research study on the number of nonprofits in Central Texas.  The results weren’t surprising: we have more nonprofits (over 6,300) per capita than any other large Texas city and any other city in the Southwest region. And our nonprofits tend to be small: 93% (compared to 89% nationally) have a budget under $1 million, and 89% have a budget under $500,000.  In light of this study, Greenlights offers some good advice about looking towards cooperation, collaboration, and even  mergers given the number of nonprofits that exist and the increasing competition for funding, especially given the current economy.

What is missing from the study, however, is an analysis of the overall social sector in Austin, including philanthropy and other funding mechanisms, other social impact organizations–like social enterprises (creating social impact through market-based activity)– and the role of the public sector in all of this.  We need to take a bigger picture view and understand all of the elements and entities at play in the sector and how these elements could be better supported, analyzed, strengthened and winnowed, if necessary.  We need to take a look, as I explained in an earlier post, at the overall ecosystem for social innovation (ideas that solve existing public challenges). And we need to look at similar cities (like Portland, Seattle, San Francisco, Denver, Pittsburgh) to understand how their social sector is innovating and thriving and what we could learn from them.  The ecosystem for a thriving social innovation sector includes:

• An Engaged Public Sector: A city and/or state-level office for social innovation, similar to the White House Office of Social Innovation that puts public sector focus and resources toward strengthening an innovative social sector.  One-Star Foundation is moving in this direction.
• Larger, Innovative Philanthropy: An increased number of area philanthropists, giving more grants for capacity-building, providing growth capital to scale great ideas, giving seed funding for ideas that have potential, using mission-related investing and program-related investments, working as a group to discuss innovations in philanthropy and share and leverage projects.
• Social Investment: Adding a social element to the entrepreneurial investing that is already rich in our area, investors could create innovative funds that provide nonprofits and social enterprises financial tools such as loan guarantees, quasi-equity deals, and networks, advice, and entrepreneurial knowledge.
• Colleges and Universities Encouraging Research: Our local colleges and universities could launch centers for research on social entrepreneurship and social innovation. The RGK Center is a good start, but I’d love to see more.
• Discussions and Experiments: More events, gatherings, workshops, think tanks and other activities that help social entrepreneurship and innovation take hold in our region.

I think to truly understand where the Austin social sector is and how the number and capacity of nonprofits fit into that, we need to understand the entire ecosystem.  If we want to boast a thriving, innovative social sector we need to take a step back, analyze what we have and what we can do to encourage even more innovation.  The end result is a stronger, healthier city that ties its spirit of entrepreneurship and innovation to its desire to give back and strengthen the communities in which we live.  That is the Austin I envision.

Tags: Austin, Greenlights, nonprofit, One-Star Foundation, Philanthropy, RGK Center, Social Enterprise, Social Entrepreneurship, social innovation, Social Investing, White House Office of Social Innovation

Understanding Social Innovation

If you are interested in learning more about the social innovation movement and will be in Austin on May 14th, join me for a seminar, “New Models: Social Innovation.” This 90-minute session will discuss what social innovation is, what the terms social entrepreneurship, growth capital, venture philanthropy, mission-related investing, and social enterprise mean, and what some really innovative organizations are doing in this space.  If you run a nonprofit, serve on a board, run a social business or are thinking of launching one, donate to social impact organizations, or are interested in solutions to social problems, there is great significance for you in the social innovation movement. And because Austin  has a lead role to play in the movement, I’ll examine how Austin compares to the rest of the country.  You can read some of my past posts on Austin’s social innovation ecosystem, where Austin is going and what it needs to be a leader in this space here, here and here.

If you’ve been intrigued by social innovation and want to learn more, join us:

Lunch and Learn: New Models  – The Social Innovation Movement

May 14, 2009
11:30am-1:00pm
At Greenlights

Click Here to Register

Tags: Austin, nonprofit, social business, Social Enterprise, Social Entrepreneurship, social innovation, Venture Philanthropy

Working Towards Scale in Austin

Something pretty interesting is happening in Austin around growth, social entrepreneurship and investment capital.  The KDK Harman Foundation, launched in 2004 by Janet Harman with a $26 million endowment, is spearheading an effort to get the social sector here talking about and thinking about how to grow and replicate successful nonprofit models.  The mission of the KDK Harman Foundation is two-fold:  “To break the cycle of poverty through education while promoting a culture of giving excellence.”  While the first part of the mission is admirable and necessary, it’s the second part that really excites me.  In 2008, when the foundation was only 4 years old, they decided to modify their mission to include the giving excellence piece because, per their website:

Janet [had a] desire to assist Central Texas in creating a culture of giving excellence. The Foundation is actively involved in the community through its role as a host and convener of community stakeholders interested in education and philanthropy. The Foundation also offers opportunities to share information about grantmaking with newly formed foundations as part of its Foundation 101 trainings. KDK-Harman Foundation is committed to funding and celebrating excellence; excellence in programming, excellence in nonprofit management, and excellence in grantmaking.

To that end, the KDK Harman Foundation launched what they call the “Growth Learning Collaborative” last year.  The Growth Learning Collaborative is a social innovation project that brings together various Austin-based nonprofit Executive Directors to discuss and analyze various growth models. The group wanted to talk with and learn from experts and peers about options for growing organizations.  These nonprofits are social entrepreneurs with great organizations that want to figure out how to scale.  I presented to the group in December about the process an organization that is thinking about growth should go through.

One member of the Collaborative is well on their way towards scale.  Heart House is a daily afterschool program for school-age children in neighborhoods known for high crime and high unemployment in Austin and Dallas.  The program has achieved some pretty impressive results for these kids, including:

• 90% of Heart House children improved their reading level by at least one level.
• Teachers report that 96% of Heart House children have improved their math skills.
• Teachers believe 85% of Heart House children have shown an improvement in behavior with adults and other children at school.
• 0% of Heart House children were victims of violent crime or engaged in juvenile delinquency.

Heart House has plans to grow to 25 sites throughout Texas.   They have a great growth plan, and I’m helping them refine it and create an investor pitch for the growth capital they will need to make it a reality.  The founder of Heart House, Anna Land, helped KDK Harman launch the Growth Learning Collaborative because she wanted to learn with others how best to replicate, as she explains:

The idea of the Growth Learning Collaborative has been more than simply expanding our organizations. I wanted us to meet to discuss and plan implementation of best-practice techniques to help grow and — more fundamentally — replicate our organizations. In our case, children across Texas need a resource like Heart House. To that end, we focus on how we can naturally nurture and maintain our sense of organizational culture, our enactment of our missions and values, through cycles of leadership and volunteers across Heart House hubs.

These are relatively new ideas for Austin and Central Texas.  Austin doesn’t tend to grow homegrown nonprofit organizations state- or nation-wide.  By bringing local nonprofits with a vision for growth together and giving them the space and expertise to envision growth and make it a reality, KDK Harman is providing an invaluable service.  It will be exciting to watch how this momentum grows and whether other local foundations and philanthropists follow their lead.  I’d like to see more philanthropists both here and across the country take the lead in encouraging scale, best practices, innovative use of funds and so on.  They are a key player in the movement for social innovation, and they have the resources to make a real difference in the success of the movement.

Tags: Austin, Heart House, KDK Harman Foundation, scale, Social Entrepreneurship

Innovation Cities in a New Economy

Innovation often comes from chaos and crisis.  In this month’s The Atlantic magazine, Richard Florida, author of The Rise of the Creative Class and director of the Martin Prosperity Institute at the University of Toronto’s Rotman School of Management, wrote an interesting prediction of how the recession will change the landscape of American cities.  He argues that the financial crisis will create “great mega-regions that already power the economy, and the smaller, talent-attracting innovation centers inside them.”  He includes Austin in the short list of mega-regions which also includes Boulder, Research Triangle and Silicon Valley.  He sees the innovation that is happening in these areas as key to the next iteration of the economy.  He argues that a reshaped America will be focused on these “mega-regions” and be “a landscape that can accommodate and accelerate invention, innovation, and creation—the activities in which the U.S. still holds a big competitive advantage.”  It seems, at least to Richard, that Austin is key to this new economy.

Along the same lines, McKinsey recently did a study of the world geography of innovation, how cities compare in terms of innovation.  The results, in a pretty interesting interactive map, place Austin in the “Silent Lake” category (in the middle between “Dynamic Oceans” and “Shrinking Pools”), which means we have “slow-growing innovation ecosystems backed by a narrow range of very large established companies that operate in a handful of sectors. These clusters are frequently the source of a steady stream of “evolutionary” innovations and step-wise improvements.”

Taken together, then, it appears that there is a bright future for Austin.  What neither the article nor the study take into consideration, though, is social innovation.  I would love to see a similar analysis of hotbeds of social innovation, areas where sectors are converging and new ideas, products, services which include a social element are emerging.  That would be fascinating and would probably mirror the mega-regions Richard describes.  Because I believe that at the end of this restructuring we are undergoing, we will have an economy where social and financial returns are fundamentally integrated. And those cities that understand and leverage this change will be far more successful.

Tags: Austin, Boulder, Economy, innovation, McKinsey, Research Triangle, Richard Florida, Silicon Valley, social innovation

Finding Investment Capital for Social Impact

RISE finished up late last week.  It was great to see all of the energy and excitement around social entrepreneurship.  Indeed it seems that Austin has caught the tide of interest in social entrepreneurship that is sweeping the nation in the wake of the economic meltdown.  Even the New York Times got on board last week with an article about how social entrepreneurship might be the best business model for some market opportunities.

In all of the interest in social entrepreneurship, one serious hurdle (among others, surely) is investment capital.  Good Capital is planning their second annual Social Capital Markets Conference for this coming September.  This is an opportunity for venture capitalists, philanthropists, social entrepreneurs and others to get together to talk about how we create a marketplace for capital interested in social impact.  SoCap is a great thing, and I’m really hoping it will continue to expand the conversation and get people thinking, talking and experimenting with investing in these new entrepreneurs.

But a social capital marketplace hasn’t hit Austin yet. I do think, however, that there is tremendous potential for some of the wealth we have here to be turned into investment capital for social entrepreneurs. With that in mind I hosted a session at RISE on Wednesday about finding Growth Capital for Social Entrepreneurs.  The session discussed two kinds of investment capital for social entrepreneurs: growth capital that helps an organization grow to scale (however they define scale), and capacity capital that helps an organization increase their capacity and sustainability.  Both types of investment capital BUILD organizations instead of BUYING services.  And both kinds of capital are difficult for social entrepreneurs to find, particularly in Austin.  However,  I laid out a plan for social entrepreneurs that takes them to their boards, major donors and friends to secure capital, much like a traditional business secures investment capital from angels and VCs.  I think there is a lot of potential in this model, which even suggests PRIs (Program-Related Investments) as a vehicle to use to increase the capacity (particularly the fundraising function) of an organization.
The session ended with a comparison of Austin’s versus the rest of the nation in the social innovation movement.:

As you can see, when compared to similar cities, Austin’s use of these new tools is low.  There is tremendous room for Austin to embrace social innovation.  And I think the excitement around social entrepreneurship evident last week at RISE is a great place to start.

Tags: Austin, capacity capital, growth capital, investment capital, RISE, SoCap, social entrepreneurs

Accelerating Austin’s Social Enterprise Conversation

This is RISE week in Austin.  RISE (Relationship and Information Series for Entrepreneurs) was started by the Sosa crew–Roy and Bertrand Sosa (brothers) and Roy’s wife Suzi.  The brothers immigrated from Mexico in 1986 and started a company called NetSpend, selling prepaid credit cards to recent immigrants.  Netspend went on to be very successful, and they sold the company in 2006 to launch MPOWER Ventures, a double-bottom-line venture capital fund whose mission is to empower the world’s underserved, and MPOWER Labs a research and development incubator and business accelerator.

The Sosa’s are firm believers in entrepreneurship and are a testament to its power to transform people and communities.  They launched RISE in 2007 as a way to ensure that “Austin continues to be a leader in developing top level entrepreneurs who transform their vision into successful businesses that greatly contribute to our local, national and global economy.”  They believe that Austin has been and will continue to be uniquely positioned to foster successful entrepreneurs:

There is no better place on earth than Austin, Texas for an entrepreneur to gather the tools they need for success. As a unique intersection of the academic, public and private sectors, our city has proven itself to be an environment for entrepreneurs to succeed. Austin is home to household names such as Whole Foods Market, GSD&M Idea City, A Glimmer of Hope Foundation, Silicon Labs, The Lance Armstrong Foundation and Sweet Leaf Tea.

RISE differs from most entrepreneurial conferences, though, in that it includes a social entrepreneurship track.  The Sosas believe very strongly in social entrepreneurship, as they themselves are social entrepreneurs.  There are many great sessions on the schedule this week from Philip Berber’s (founder of A Glimmer of Hope) session on his journey from entrepreneur to social entrepreneur, to Kala Philo’s session on Muhammed Yunus’ social business model, to Doug Ulman’s (CEO of the Lance Armstrong Foundation) session on social entrepreneurship, and several others.  These sessions have all been standing room only.  It’s really exciting to see such an interest in this topic in Austin.

My colleague Jessica Shortall and I even got in on the game by presenting Startups with Social Impact, an overview of Social Enterprise, which we define as “An organization (business or nonprofit) that achieves significant social impact as a product of market-based activity.”  And then broke it down into three types, which is our modification of Venturesome‘s 3 Models of Social Enterprise:

• Subsidized: Business activity operated by a nonprofit–profits are funneled back into nonprofit
• Trade-off: Business balances between the level of profitability & the creation of social impact. An increase in one decreases the other.
• Lock-step/Social Business: Direct social impact increases or decreases in parallel with financial returns.

Social Enterprise can be viewed along a spectrum like the one below, where potential for profit starts at the first Trade-Off model:

Then, two great Austin examples of social enterprise spoke to the standing-room-only group.  First, Missy Nathan, co-founder of Blue Avocado discussed how their green grocery bag system has taken off in just 4 short months through Wholefoods and other distribution channels.  Their Lock-Step business model has a triple bottom-line:  profit, environmental and social return.  They even give 1% of sales to Kiva.  Their supply chain is diligently monitored to ensure that they are environmentally sound, and they closely track and report on the number of plastic bags being reduced.  This team of three smart, tenacious women has huge goals and appears prepared to deliver on them.

Our second social enterprise was English at Work, a nonprofit that teaches English at the workplace to Spanish-speaking company employees.  Founder Maile Broccoli-Hickey discussed their unique business model which charges their company clients (large hotels, restaurants and other employers) to provide on-site English language classes to their employees.  Although they are currently charging the companies only 25% of the costs of the class, the goal is to move closer to 50% and beyond.

The session ended with a vigorous discussion of what is holding Austin back from becoming a leading social enterprise city.  Some thoughts included:

• Lack of capital–investors don’t understand or aren’t familiar with double-bottomline companies, so are unwilling to invest
• Low media interest in/attention to social enterprise
• Few events that bring together social entrepreneurs and investors
• Unclear understanding of the current social enterprise eco-system, and what is lacking compared to other thriving cities like San Francisco, London, Toronto, Pittsburgh

Some suggested the first step may be a wiki that lays out the current social enterprise ecosystem.  Once we understand what we have and where we are, we can determine what it will take to evolve.  Also, many are excited about the possibility of Brewster McCracken becoming our next mayor.  He has expressed a real interest in this area, especially as it pertains to the green economy.

There are many more sessions on tap for today and tomorrow and many more conversations to come.  But the energy and excitement for social enterprise is palpable.  I hope to see it grow.

Tags: Austin, Blue Avocado, Brewster McCracken, English at Work, Kiva, Social Enterprise, social entrepreneur, Venturesome

Growing the Austin Social Innovation Ecosystem

As part of my effort to encourage the growth of a vibrant social enterprise and social entrepreneurship ecosystem in Austin, I am leading two RISE sessions in early March. If you are interested in understanding what social enterprise is and seeing some great examples of it, attend Startups with Social Impact (co-lead by my colleague Jessica Shortall guest blogger of the Across the Pond: Perspectivess on Social Innovation in London post). If you are a social entrepreneur interested in finding growth or capacity capital to build your organization, attend my Growth Capital for Social Entrepreneurs session. Details and links to sign up are below. Hope to see you there!

Startups with Social Impact
Tuesday, March 3, 2009
2:00-3:30pm
This session will provide working definitions for social enterprise and social business and case studies along the spectrum of social impact and profit motivation. A panel of entrepreneurs will discuss their ventures, how they operate, how social impact fits into the business model, and the challenges they face, including raising capital. The session will end with a discussion on steps to make Austin a leader in startups with social impact.

Part of the Social Entrepreneurship series sponsored by The Silverton Foundation.

Click Here to Register

Growth Capital for Social Entrepreneurs
Wednesday, March 4, 2009
2:00-3:30pm

Social entrepreneurs and nonprofits that are interested in scaling their programs or strengthening their capacity have few opportunities to find investment capital. But with a strong plan, creative tools, and a new way to talk to potential investors, you can find the capital you need to grow. This session will take participants through the definition of growth capital for the social sector, provide case studies and develop a strategy for securing investments.

Part of the Social Entrepreneurship series sponsored by The Silverton Foundation.

Click Here to Register

Tags: Austin, growth capital, RISE, Social Enterprise, Social Entrepreneurship

Austin the Social Startup Capital of the World?

One of the things I talk and write about (possibly ad nauseam) is how well positioned Austin is to lead in the social innovation movement.  Our rank as the 3rd largest venture capital city in the country, our entrepreneurial spirit, our tech focus, our passion for green living and our tremendous wealth all make us uniquely positioned to capitalize (both financially and socially) on the growing movement for innovation and enterprise around social impact.

I’ve written here and here about what elements of a city’s infrastructure are necessary to catalyze social innovation.  And I was particularly excited when Nathaniel Whittemore, Director of the Center for Global Engagement at Northwestern University, described in a recent blog an ideal environment to stimulate successful social enterprise:

So here is what I’d like to see. Someone combines The Hub model of collaborative working space for social entrepreneurs with the Y-Combinator model of funding low-cost tech startups [provide promising startups small amounts of seed capital and intense mentorship and networking in anticipation of further investment ]. In this model, which is geared toward social enterprise, the Y-Combinator style investment would be focused on tech startups that are building services useful for other businesses and social startups (things like Yammer, which is great for keeping a team of volunteers or employees connected to one another). In addition to the cash investment, the tech startups get to work (and maybe even live?) in the Hub space. In return, they give up equity – but also a small chunk of their developer time (25%? 10 hpw?) to pro-bono or reduced cost projects for the nonprofit social entrepreneurs who are part of the same Hub community. This combines the density, talent and energy of the tech startup world with the mission focus of the social enterprise world. All it would take are the right partners. Sounds like a pretty good combination to me…

This sounds just like Austin.  And, in fact, we have these kind of incubators on the pure business side.  For example, Capital Factory is an Austin-based seed stage mentoring program for startups that provides a small amount of seed capital and weekly mentoring sessions by entrepreneurs who have founded successful companies.  What if there were a Capital Factory for social enterprises and social businesses?  I’m not aware of anything like that anywhere else in the country.  Couldn’t Austin pave the way in social enterprise by taking something we already do very well (venture capital, angel investing, start up incubators, entrepreneurial mentoring, etc.) and put a social spin on it? That would be truly innovative and get us out ahead of the curve of what is shaping up to be a huge movement.  And there is financial and social profit to be made.  Don’t we want a piece of that?  It seems such a natural thing to me.  What is stopping it?  And how do we overcome those roadblocks?

If you’re interested in exploring this topic more, join me and Jessica Shortall for our RISE session on March 3rd:  Start Ups with Social Impact where we’ll talk with Austin-based social enterprises and discuss what is required to make Austin a leader in this space.

Tags: Austin, Capital Factory, Center for Global Engagement, incubator, social business, Social Enterprise, social innovation, The Hub, venture capital, Y-Combinator