Aspen Institute is a 50 year old non-profit, we do a lot of seminars. Our practice areas are workforce development, microenterprise, and access to capital and credit. We want to connect the poor and underemployed to the mainstream economy. We also want to facilitate learning and to to investigate applied research to stimulate dialog and action.

Conference Goals
We have four goals for this conference: 1) introduce a new framework for scale and sustainability for the field of community development institutions 2) explore the feasibility of collaborative models with potential for promoting scale and sustainability among four groups in the community development field 3) provide a forum where stakeholders in each group can participate in the exploration and design of business models and share ideas about the future of their respective area of community development 4) encourage future dialogue and action on implementation of business models where appropriate.

Scale - What is it? Why Pursue it?
So the big question is what is scale? People have very different notions of what scale means. We designed our research around scale because it can help us reach more people and have more impact and give us access to more capital. Scale has become our buzz word for success, but it's not always the best approach to simply scale up. Many organizations in the non-profit field were successful because of their high-customization and high-touch approach. Because of this approach it might not be readily apparent on how to scale up successfully. So we need to understand the dynamics of scale better.

A Model for Taking Innovation to Scale
To do that everyone needs a model for taking an innovation to scale. It starts with an idea that leads to experimentation. Then we see early replication that leads to a best practice. From this point innovation to scale should be achieved. But in reality it doesn't always happen that way. Why? Because we ignore standardization, infrastructure building, and wide scale roll out - the three keys to scale. The way you operate has to be standardized. You can't have a bunch of mavericks, you need standards. Scale is intentional it doesn't just happen. In the corporate world there are huge budgets and long test times to do roll-outs to make sure scale is achieved.

Lessons from Case Studies
The models were taken from the corporate and non-profit sector. 1) Profitability was the primary driver of product development. The ability to produce a diversified yet complementary set of products was critical to achieving scale. 2) Demand for services or a clear market gap were the primary drivers in determining which products and services to scale up. 3) Geographic expansion was central to generating sufficient volume of transactions to reach scale. 4) Infrastructure investments were crucial to growth. Investments often increased integration of operations and facilitated product development. 5) Technology investments often led to increased efficiency and cost savings. 6) Partnerships was interesting. Community development world looks for partners that share their common interest, in the corporate world they look for complimentary companies. Companies partnered to gain specific knowledge or expertise, or to access a needed component of the product or service.7) Capital was raised several times - the volume of capital raised was tens of millions in every instance. 8) Several organizations changed their legal structure to accommodate growth. 9) Regulatory changes often supported or enabled growth and expansion. 10) Different management skills were needed at different points in the growth process. 11) The ability to adapt to changing market conditions allowed organizations to continue growing.

Product, Organization, and Industry - Achieving Scale
If you put it all together product innovation, organizational innovation, and the industry innovation are the three levels to achieving scale. If you begin to pay more attention to the organizational dynamics you can ramp up the rate of growth by focusing on infrastructure, technology, capital, partnering, management, and new organizational structures.. If you pay more attention to the industry dynamics then you can ramp up even more by focusing on regulatory policy, strategic positioning, Industry intermediaries, Industry infrastructure, and new sources of capital.

Product Level Needs
In order for scale to happen there needs to be a major shift in funding. There is an urgent need for investment in the following areas of product development: Market research to improve understanding of current and emerging community needs;. Patient capital for experimentation, reinvention and refinement of products; Pilot testing and eventual roll-out of quality products that make it through a rigorous development process

Organizational Level Needs
At the organizational level the needs are: Infrastructure to integrate larger, often physically distributed, operations; Technology to increase efficiency, promote cost savings and higher quality services to low income customers; Capital to support broader organizational needs e.g., research and development, operational cash flow; and. Management expertise to guide larger institutions.

Industry Wide Needs
At the industry level there's a need for improved competitive positioning of the industry made possible through a series of investments in: Infrastructure to support institutions across a range of activities and service delivery methodologies Industry specific technology - management software, cost accounting, branding marketing and communications; Industry intermediaries that broaden the range and increase the sophistication of the product and service mix offered by an individual organization.

Issues Facing Community Development Industry
I want to quickly take you through the four groups that are here. We found similarities in all the issues you were working on.

ChildCare Group Issues
We have the Child Care Group. The focus is on state licensed family child care homes and child care centers. the programs operate as small businesses in isolation from each other which leads to: high costs, neglect of fiscal and administrative issues, neglect of infrastructure, and minimal program improvements. The ChildCare group is seeking to understand the gaps in infrastructure, reduce administrative costs, increase financial expertise of field, and facilitate growth of programs. They're organized by a low income investment fund.

Charter School Issues
The next group is Charter Schools. Cindy Stewart and Scott Sporte are organizing this group. In California there are 600 charter schools. Their focus is on charter school development in California where there is a critical mass of schools. Charter operators have a unique role in that they must act as educators and business managers. This leads to two things: 1) Lack of central administration which creates heavier back office burden 2) Opportunity for innovation and experimentation. They're seeking to explore how current inefficiencies can be addressed through common infrastructure without stifling innovation. They are organized by NCB Development Corporation

IDA Issues
We have an IDA group. Kim Pate and Andrea Levere are organizing IDA. Their focus is on national network of IDA and asset-building practitioners and their partners. It started because of the American Dream Policy Demonstration which led to creation of multiple programs. These programs are now at risk due to end of ADD funding. IDA is seeking to connect IDA practitioners through the creation of a dual system of internet-based and in-person tools, models and activities. They're organized by CFED

CDFI Group Issues
Roni Monteith is organizing this group. The focus is on mid-sized CDFIs making investments in small businesses. The current business and earnings model limits the collective future. CDFI is seeking to support CDFI delivery of products and services available through larger financial institutions to people, places and markets that are not well served by those institutions.They are organized by Shorebank Enterprise Groups.

Issues Facing the Community Development Industry
The four issues facing the community development industry are: industry structure, infrastructure, subsidy, and a model for achieving scale.

Basic Model of Key Players
How do we think about this? We thought we could identify the basic players in every industry. The basic players are customers, Industry members, Investors and funders, policy makers, and trade associations - those are the five basic ones.

The primary relationship in the corporate world is between the customer and the industry member. Industry structure two shows the small players dynamic. The trade associations become important because they support the smaller ones and they help them compete. Then we come to third example, which is our industrtm it's subsidy dependent. Interestingly, you will note that the customer is not part of the most critical dynamic. What happens when the customer cannot afford to buy the product? There's more attention paid to the funders and the regulators - that's an interesting dynamic.

In industries dominated by smaller players …
Industry networks are really important in small, local, vertical industries. Network collaboration is really important and can help companies facilitate access to capital often at a lower cost of capital. Strong training and development efforts through network services support the development of management talent. Lastly, sufficient industry clout can create a more supportive legal, regulatory and policy environment and increase the availability of subsidy where needed.

Community Development Innovation: Searching for a Better Business Model?
The goal is to find a new business model. Our wish list: retain local control and ownership; lower cost of operations; access larger pools of capital; reduce effort devoted to fundraising; access better management talent and specialized expertise; increase ability to reach more people; produce higher quality programs; provide more diversified and comprehensive programming; promote long term sustainability; generate better pay and benefits for employees; access more up to date technology and infrastructure; and create greater impact

Collaborative Business Models
If you want to accomplish something you first have to envision it. After a question an answer session we will hear from organizations that are already working on collaborative business models.

Questions

Q: One of the early slides was about market gaps and demand. The tricky thing is in our industry there's not really a market gap. They can't afford the cost of child care at its market rate or housing -- so there's no effective demand there. So we're capitalizing on the subsidy streams. Do you agree with that? And if so, what does that imply for our industry? It seems like it would imply different things, it's a very open ended question.

A: I agree. You put your finger on the conundrum. Another phrase you hear a lot is "smart subsidy." We want to make sure the operations behind this are very efficient.

We're trying to do new research on subsidy and how the gaps can be filled.

Q: We didn't touch on this - how you market to communicate. Perhaps through policy advocacy there's a way to create demand.

A: You also hear a lot about cross-subsidizing customers as a way to reach more of them.

Q: The chart with the red line from product to organization, to industry -- in the child care context the product would be very difficult to standardize I think. Is it a step process?

A: I think it's not a linear process. The product organization is more linear than the childcare world. The point is that there are different issues driving growth and development and different stages. The focus of funding and management is key.

In technology industry the way they approach that is to create a platform. They try to create a platform that allows anyone to create a product and build on top of it. It's a different way of thinking about scale.

Q: Is subsidy research going to include private sector?

A: Yes. Part of the problem is that it's not term subsidy it's R&D.

Kirsten Moy

OK, take a 10 minute break.