Achieving Sustainability, Scale, and Impact in Community Development Finance:

1. Achieving Sustainability, Scale, and Impact in Community Development Finance: Strategic Collaborations for Success A Partnership between the Federal Reserve System and the Aspen Institute Federal Reserve Bank of Dallas Dallas, Texas October 10-11, 2006

2. New Pathways to Scale Kirsten S. MoyThe Aspen Institute Gregory A. RatliffThe Aspen Institute

3. Achieving Sustainability,Scale, and Impactin Community Development Federal Reserve Bank of DallasOctober 10-11, 2006 Kirsten Moy and Greg Ratliff The Aspen Institute

5. Supporters • Conference Partner: The Federal Reserve System • Research Partners • The F.B. Heron Foundation • GE Money • Deutsche Bank • Past Supporters • The John D. and Catherine T. MacArthur Foundation • The Fannie Mae Foundation • Support for Related Research • The Annie E. Casey Foundation • Forum Participants - you! Thank you!

6. Aspen InstituteEconomic Opportunities Program • Workforce Development • Microenterprise • Access to Capital and Credit Practice Areas Goals • Connect the poor and underemployed to the mainstream economy • Facilitate learning • Applied research to stimulate dialog and action

7. Conference Goals • introduce a new framework for scale and sustainability for the field of community development institutions • explore the feasibility of collaborative models with potential for promoting scale and sustainability in the community development field • provide a forum where stakeholders can share information and participate in the exploration and design of shared infrastructure, collaborative fundraising and pooling models • encourage future dialogue and action on implementation of collaborative models, initiatives and platforms where appropriate

8. What is Scale? • More capital • More customers • More effectiveness “Economies of scale” usually refers to the development of mass markets and progressive cost reduction through increased business volume. Can the industry groups assembled achieve this kind of scale?

9. Why Pursue Scale? • To reach more people • To provide access to services to as many low income people and communities as possible on a permanent and sustainable basis • To tap into economies of scale • To become more sustainable • To have greater impact in low income communities

10. But • But … scale itself is not necessarily a suitable proxy for success. • And the very characteristics - high customization and high touch - that helped make each group successful in the past are barriers to achieving greater impact because they lead to high cost delivery. • In other words, there’s no “economy of scale” if the cost to deliver the service goes up with increasing volumes. So we need to better understand what scale is, and the dynamics of getting to scale.

11. Model for Taking an Innovation to Scale Idea Experiment- ation (Innovation & Refinement) Early Replication (Innovation & Refinement) Best Practice the fantasy short cut Innovation at Scale! Source: Alan Okagaki & Associates

12. A Better Model for Taking an Innovation to Scale Idea Experiment- ation (Innovation & Refinement) Early Replication (Innovation & Refinement) Best Practice Standardization InfrastructureBuilding Wide Scale Roll Out Innovation at Scale! Source: Alan Okagaki & Associates

13. Idea Experiment- ation (Innovation & Refinement) Early Replication (Innovation & Refinement) Best Practice the keys to scale Standardization InfrastructureBuilding Wide Scale Roll Out New Innovation at Scale! Source: Alan Okagaki & Associates

14. Our Process Case Studies Banknorth Group 7-11 VCOM Visa Ace Cash Express Allied Capital The Reinvestment Fund Fannie Mae Self Help ACCION Dell Unified Western Grocers Carpet One • Research • Publications • Conferences • Interviews • y • z

15. Lessons from the Case Studies

16. Lessons • Profitability was the primary driver of product development. The ability to produce a diversified yet complementary set of products was critical to achieving scale. • Demand for services or a clear market gap were the primary drivers in determining which products and services to scale up. • Geographic expansion was central to generating sufficient volume of transactions to reach scale. • Infrastructure investments were crucial to growth. Investments often increased integration of operations and facilitated product development. • Technology investments often led to increased efficiency and cost savings.

17. Lessons • Companies partnered to gain specific knowledge or expertise, or to access a needed component of the product or service. • Capital was raised several times; the volume of capital raised was tens of millions in every instance. • Several organizations changed their legal structure to accommodate growth. • Regulatory changes often supported or enabled growth and expansion. • Different management skills were needed at different points in the growth process. • The ability to adapt to changing market conditions allowed organizations to continue growing.

18. Achieving Scale impact Product Innovation Organizational Innovation Industry Innovation Design for scale (e.g., standardization, simplification & refinements) Infrastructure Technology Capital Partnering Management New organizational structures Regulatory policy Strategic positioning Industry intermediaries Industry infrastructure New sources of capital actions

19. Product Level Needs • Practitioners have 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

20. Organizational Level Needs • Practitioners have an urgent need for investment to support organizational growth: • 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, expansion capital • Management expertise to guide larger institutions.

21. Industry Wide Needs • Improved competitive positioning of the industry possible through a series of investments in: • Infrastructure to support the day-to-day operations of organizations in the industry • Industry standards • Industry specific technology: e.g., cost accounting or portfolio management software • Branding, marketing and communications to support the industry • Industry intermediaries that broaden the range and increase the sophistication of the product and service mix offered by organizations

22. Basic Model of Key Players Industry leaders play a powerful role in setting standards and creating standardization in the industry. INVESTORS & FUNDERS CUSTOMERS INDUSTRY MEMBERS TRADE ASSOCIATION INDUSTRY INTERMEDIARY POLICY MAKERS & REGULATORS

23. Industry Structure 1: The Corporation -Customer Dynamic Industry Structure 1 INVESTORS & FUNDERS CUSTOMERS INDUSTRY MEMBERS TRADE ASSOCIATION INDUSTRY INTERMEDIARY In most industries, direct interaction between the customer and the industry member is a primary factor. POLICY MAKERS & REGULATORS

24. Industry Structure 2: The Small Players Dynamic INVESTORS & FUNDERS Industry Structure 2 CUSTOMERS INDUSTRY MEMBERS TRADE ASSOCIATION INDUSTRY INTERMEDIARY POLICY MAKERS & REGULATORS

25. Industry Structure 3: Subsidy Dependent Industry Structure 3 INVESTORS & FUNDERS CUSTOMERS INDUSTRY MEMBERS TRADE ASSOCIATION INDUSTRY INTERMEDIARY POLICY MAKERS & REGULATORS

26. In industries dominated by smaller players … … industry networks and other forms of affiliation become more important as agents for successful scale and growth. • Access to common infrastructure can enable networks of organizations to work cooperatively to deliver greater volumes of product with increased efficiency • Networks 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 • Sufficient industry clout can create a more supportive legal, regulatory and policy environment and increase the availability of subsidy where needed

27. Key Issues Facing the Community Development Industry

28. Cooperative and collaborative systems can contribute to stronger organizations and a stronger industry. The emergence of a strong industry structure will position the community development field for scale and growth.

29. Collaborative Business Models Could Help Organizations: • Retain local control and ownership • Lower cost of operations and improve long term sustainability • Access larger pools of capital • Reduce effort devoted to fundraising and access a more diverse universe of funders • Access better management talent and specialized expertise • Generate better pay and benefits for employees • Access more up to date technology and infrastructure • Increase ability to reach more people and create greater impact

30. New Approaches To Fundraising: Questions To Consider • How is the world of philanthropy changing, and what does it mean for community development? • Can CBOs effectively raise money from individuals? What does it take? • Is the Internet playing an expanded role in structuring/formalizing giving relationships? • What new organizations, platforms and portals are emerging to provide a different kind of “giving infrastructure”?

31. Collaborative Business Models: • Unified Western Grocers • Housing Partnership Network • ACCION New Mexico • El Paso Affordable Housing CUSO New Approaches to Fundraising: • Kintera, Inc. • Calvert Foundation • UBS Financial Services

32. AchievingSustainability,Scale, and Impactin Community Development Contact Information: Kirsten Moy and Greg Ratliff Kirsten.moy@aspeninst.org and Gregratliff6@aol.com The Aspen Institute