1. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM Achieving Sustainability, Scale, and Impact in Community Development Federal Reserve Bank of San Francisco January 24-25, 2006 Kirsten Moy and Greg Ratliff The Aspen Institute

2. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM

3. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM Supporters  Conference Partner: The Federal Reserve System  Research Partners  The F.B. Heron Foundation  GE Consumer Finance - Americas  Deutsche Bank  Past Supporters  The John D. and Catherine T. MacArthur Foundation  The Fannie Mae Foundation  Forum Participants - you! Thank you! GE Consumer Finance Americas

4. 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

5. 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 among four groups in the community development field 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 encourage future dialogue and action on implementation of business models where appropriate

6. 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?

7. 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

8. 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.

9. 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

10. 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!

11. 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

12. 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

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

14. 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.

15. 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.

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.

17. 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.

18. 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.

19. 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.

20. 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.

21. 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.

22. 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.

23. 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.

24. 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.

25. 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

26. 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

27. 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.  Management expertise to guide larger institutions.

28. 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 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

29. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM Issues facing the Community Development Industry

30. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM Child Care Group  Focus on state licensed family child care homes and child care centers.  Programs operate as small businesses in isolation from each other which leads to:  High costs,  Neglect of fiscal and administrative issues,  Neglect of infrastructure,  Minimal program improvements.  Seeks to understand gaps in infrastructure, reduce administrative costs, increase financial expertise of field, facilitate growth of programs.  Organized by Low Income Investment Fund

31. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM Charter School Group  Focus on charter school development in California where there is a critical mass of schools.  Charter operators must act as educators and business managers:  Lack of central administration creates heavier back office burden  Opportunity for innovation and experimentation  Seeks to explore how current inefficiencies can be addressed through common infrastructure without stifling innovation.  Organized by NCB Development Corporation

32. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM IDA Group  Focus on national network of IDA and asset-building practitioners and their partners.  American Dream Policy Demonstration led to creation of multiple programs now at risk due to end of ADD funding.  Seeks to connect IDA practitioners through the creation of a dual system of internet-based and in- person tools, models and activities.  Organized by CFED

33. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM CDFI Group  Focus on mid-sized CDFIs making investments in small businesses.  Current business and earnings model limits collective future.  Seeks 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.  Organized by Shorebank Enterprise Groups

34. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM Issues facing the Community Development Industry 1. 1.Industry Structure 2. 2.Infrastructure 3. 3.Subsidy 4. 4.Model for achieving scale

35. 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.

36. 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.

37. 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

38. 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

39. 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

40. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM Community Development Innovation Searching for a Better Business Model?

41. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM A Better Business Model to Allow Organizations to:  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

42. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM A Better Business Model to Allow Organizations to:  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  Create greater impact

43. THE ASPEN INSTITUTE FEDERAL RESERVE SYSTEM Collaborative Business Models  Unified Western Grocers, Inc.  Lenders One Mortgage Cooperative  Credit Union Cooperative Structures  Seedco: EarnFair Alliance  Professional Employer Organizations (PEOs) and Child Care  Housing Partnership Network

44. 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