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

2. New Pathways to Scale Kirsten S. Moy The Aspen Institute Gregory A. Ratliff The Aspen Institute

3. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM Achieving Sustainability, Scale, and Impact in Community Development Federal Reserve Bank of Dallas October 10-11, 2006 Kirsten Moy and Greg Ratliff The Aspen Institute

4. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM

5. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM 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. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM Aspen Institute Economic Opportunities Program  Workforce Development  Microenterprise  Access to Capital and Credit Practice Areas   Connect the poor and underemployed to the mainstream economy   Facilitate learning   Applied research to stimulate dialog and action Goals

7. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM 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. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM 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. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM 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. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM 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. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM Model for Taking an Innovation to Scale Source: Alan Okagaki & Associates IdeaExperiment-ation(Innovation & Refinement) EarlyReplication(Innovation BestPractice Innovation at Scale! the fantasy short cut

12. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM A Better Model for Taking an Innovation to Scale Source: Alan Okagaki & Associates IdeaExperiment-ation(Innovation & Refinement) EarlyReplication(Innovation BestPractice Standardization Infrastructure Building Wide Scale Roll Out Innovation at Scale!

13. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM New Innovation at Scale! Source: Alan Okagaki & Associates Idea Experiment- ation (Innovation & Refinement) Early Replication (Innovation & Refinement) Best Practice Standardization Infrastructure Building Wide Scale Roll Out the keys to scale

14. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM Our Process  Research  Publications  Conferences  Interviews yy zz 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

15. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM Lessons from the Case Studies

16. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM Lessons 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.

17. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM Lessons 6. 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.

18. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM Product InnovationOrganizational 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 impact Achieving Scale actions

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

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

24. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM Industry Structure 2 CUSTOMERS INDUSTRY MEMBERS INDUSTRY MEMBERS TRADE ASSOCIATION INDUSTRY INTERMEDIARY TRADE ASSOCIATION INDUSTRY INTERMEDIARY INVESTORS & FUNDERS POLICY MAKERS & REGULATORS POLICY MAKERS & REGULATORS Industry Structure 2: The Small Players Dynamic

25. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM Industry Structure 3 CUSTOMERS INDUSTRY MEMBERS INDUSTRY MEMBERS TRADE ASSOCIATION INDUSTRY INTERMEDIARY TRADE ASSOCIATION INDUSTRY INTERMEDIARY INVESTORS & FUNDERS POLICY MAKERS & REGULATORS POLICY MAKERS & REGULATORS Industry Structure 3: Subsidy Dependent

26. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM 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. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM Key Issues Facing the Community Development Industry

28. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM 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. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM 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. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM 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. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM 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. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM Achieving Sustainability, Scale, and Impact in Community Development Contact Information: Kirsten Moy and Greg Ratliff Kirsten.moy@aspeninst.org and Gregratliff6@aol.com The Aspen Institute