I want to introduce my partner in crime, Greg Ratliff. He was the director of the PRI program at the MacArthur Foundation. We're going to trade on and off.

I want to start with something from Thomas Friedman. Last Friday I got a voice message about Outsourcing. Top down ideas are so Twentieth Century. He's seen business models around the world and there are collaborative models. He talks about his cab driver with a web site that reaches out to people around the world. We are seeing the emergence of collaborative business models that were unimaginable just a decade ago. There are tools and technologies available now as well as business models.

Let's introduce people to the clickers and we can do a few questions.

As a presenter asks a questions you will enter the answer on your

If you choose an answer it turns blue. If you change your mind it will turn yellow.

Questions for Opening Session

1. What type of organization are you?

a.for-profit corporation
b.501(c)3
c .governmental or public sector entity
d. cooperative
e. other

We have 12 for profits and 54 501c3. Are some of you Foundations?

2. What field/sector do you work in?

a. financial services
b. social services
c.ho using
d. small/micro business
e. other

Financial services are the clear leaders. There are a lot of others as well. Foundation that grants in multiple disciplines. Development company.

3. Is scale an important goal for your organization?

a. Yes
b. No

73 said yes.

4. Where do you think your organization is at in terms of scale?

a. nowhere near scale
b. close
c.al ready there
d. don’t think about it or not important

Some are close to being at scale.

5. Where do you think your field as a whole is at in terms of scale?

a. nowhere near scale
b. close
c. already there
d. don’t think about it or don’t know

Some of you feel your organizations are near scale but your field is not.

Elizabeth has told you about the series.

This is a paper we owe to the Chicago Fed. It was published in Profitwise. We need to thank our supporters. The F.B. Heron Foundation and GE Consumer Finance. We have some past supporters like the Annie E Casey Foundation. Thanks to our speakers and presenters today.

We're here to do four things. We want to introduce a new framework for the field. We want to promote scale and sustainability. We want to support sharing infrastructure, collaborative fund raising and to encourage future dialog and even action.

We were traveling around the county and everyone was talking about scale. We began to realize that everyone had a different definition of scale and very few people were using the economic definition of decreasing costs through increasing volume.

Most people we talked to wanted to reach more low income people and provide more services to these communities. They wanted all the good things that scale could bring - and we've been talking bout this as if, we would know we got there by seeing that we are helping a lot of low income people.

This isn't totally true for everyone. There are a number of programs that are probably better served by being small. Scale doesn't mean success for everyone. What are the critical things that you need to go to scale? We really need to understand this better.

We decided we needed a model to understand this. There is an implicit model in the non-profit sector that says, there is an idea and then someone experiments with the idea, then there is early replication and then someone write a best practices manual and then we think we are at scale.

We realized we left out some important steps.

We realized we needed to add standardization, infrastructure building and then rollout. If you want something to be large it just doesn't happen with the idea.

You have to build the infrastructure and invest in the rollout. I remember working on scale for cookies - Nabisco - we spent years looking at the product and we had to think about standardizing how much cream went into every cookie. We then had to develop the infrastructure and the machinery. In the rollout there was a lot of experimenting in packaging and pricing.

Our process

We set out to look at a dozen case studies. We looked at industry leaders and things that people would recognize as companies that scaled. We focused on the financial services industry as well as others.

So what did we learn?

1. Profitability. The profitability and the potential were the dominant driver.

2. Demand for the product was a close second. If the profit or the demand didn't materialize these companies dropped them.

3. Geographic expansion. Many of the organizations in the room have grown out of a local focus and when they try to go to another geography it is challenging. All of the organizations we looked at grew geographically.

4. Infrastructure - a lot of systems and processes in addition to technology. BankOne - one of their biggest challenges was standardizing the risk management part of underwriting loans.

5. Technology - leads to increased efficiency. One of the groups we looked at had a very customer centric focus and the technology supported it.

6. Companies partnered - to gain specific knowledge or expertise.

7. Capital was raised a lot. New product development requires a lot of money and when you roll it out it requires more.

8. Several organizations changed their legal structure to accommodate growth. Some went from non-profits to regulated entities.

9. Regulatory changes often enabled growth and expansion.

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

11. The ability to adapt to changing conditions for survival and growth. We're here because things have changed so much and most of our business models have remained the same.

We went back to our original model and found that we needed three models - product, organization and industry.

There are a whole set of issues you can deal with around the product. After you work on the product and get that going you bump into a larger set of organizational dynamics at some point and you need to address them in order to ramp up your growth trajectory. After addressing the organizational issues at some point you bump into industry dynamics if you want to continue to grow.

What does this mean for the CDFI world? The first is on the product level. The kind of capital that is coming in is not flexible enough to do the things we need to be able to do. We need more money for things like market research. The continued existence of check cashers is an interesting example.

Once you understand the needs of the market can you come up with a product that meets the needs of the market. Then you need capital for standardizing and rolling out the product.

What we need from funders is no more project specific financing. We have needs for unglamorous things like infrastructure and technology.

Foundations only like to fund the incremental needs of a product. We need new kinds of capital to allow more entrepreneurial ventures.

Many programs operate in isolation. We don't have a lot of industry standards. We have a lot of organizations that are managing using different technology like different accounting programs as an example.

What do these things mean? Our panels today will address some of these issues.

In the theory of shared infrastructure, the operating costs can be higher when we work independently. Improvements don't happen that quickly. Common infrastructure can help address inefficiencies and operational gaps. We're also going to focus on networks. We're going to try to understand the operational gaps and how some of these problems can be addressed with shared infrastructure.

How is the world of philanthropy changing and what does it mean for community development? What is the role of the internet in fund raising?

Current business models limit our collective future. Pooled offerings can reduce risk, and help to create the volume to address the Wall Street hurdle. What really needs to be standardized?

We believe that collaborative systems can contribute to a stronger organizations and a stronger industry.

We tried to map the industry and develop a model of all the players. We came up with a set of key players in the industry. We started with the industry players in the middle. Then we have the customers ; the investors, the policy makers and industry intermediaries. All these are part of the model that makes up the industry structure.

These different players seem to configure into several different types of industry models.

The dominant dynamic that seems to be present is the one between the corporation and the customer. In this dynamic the investors only come into play when you aren't raising enough money through operations and serving the customers.

The next type of industry model we see is an industry with a lot of small players and a few larger ones. The customer and the organization still is dominant but the industry association begins to play an intermediary role and helps get to the customer.

In this model we find much of the community development sector. This is the most complicated one in many ways. Investors and policy makers play a big role as do trade associations. In many cases we see the customer being left out of the picture in this model. Strangely enough we neglect the customer because we are tending to the funders and their needs. The weakest part of many of the applications I saw was in the area of market research.

In an industry that is dominated by smaller players there are a lot of opportunities to collaborate and create shared infrastructure. Networks of smaller players can provide greater volume with increased efficiency.

The network can support access to capital and there can be strong training and development efforts to support management. And of course we can improve our infrastructure to support in areas like legal, regulatory and policy.

Collaborative business models can produce higher quality programs and can possibly provide more diversified and comprehensive programming and can promote long term sustainability.

This is our wish list. These collaborative business models can lower costs, make fundraising easier, produce higher quality programs and create greater impact.

The good news is we are going to hear from a range of organizations that have gotten close to achieving this wish list.

You have copies of this and we'll have people demonstrating these things.

We have time for a couple of questions. Any questions about the presentation?

Developing your business models. How are you doing this? Are you constantly refining it? When do you move the business model along?

If you look at the article it has a chart that shows the process of reinvention is ongoing and never ending. Organizations need to look for external shocks and how to reposition our business to be more sustainable.

What did you learn about failure? In thinking about business models - my experience is that failure is not promoted or encouraged or tolerated.

That is a great question. One of the things that happened when we presented this study. We didn't do that - look at companies that didn't make it. If you think about the iterative process of product development, most companies use a portfolio approach to product development (the venture capital model). That is different then what we do in our industry.

In the book you will see an iterative loop and you can go around and fix something but at some point some things don't fix. Some things that don't fix lead to other things that are successful.