On Puerto Rican Pride

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It’s that time of year again. Today, thousands and thousands of Boricuas line up alongside Manhattan’s 5th Avenue for the annual Puerto Rican Day Parade, a bombastic celebration of the tiny island and its culture.  A seemingly endless stream of floats trickles down the avenue, with celebrities like Jennifer Lopez and Marc Anthony in tow.  The sounds of salsa, merengue and reggaeton fill the air; people dance in the streets.  Puerto Rican flags wave wildly as far as the eye can see and adorn nearly every article of clothing.

[Image Credit: Adam Pantozzi via Flickr]

Puerto Rican pride is unparalleled.  Observing other parades or even nationalist marches, I have rarely seen such fierce pride demonstrated.  And for Puerto Ricans it really doesn’t end with the parade. After today, the flags don’t disappear, but merely redistribute themselves throughout the city, to be hung on walls, clipped onto bicycle handlebars, draped onto car hoods, stood on desks, or occasionally worn as capes.

I have long wondered about what drives the ferocity of this pride.  For example, Why do I, a Puerto Rican born and raised on the mainland, and countless others possess such glowing nationalism for an island many of us have never lived in?

Perhaps it has something to do with the fact that Puerto Rico is not a nation, but a Commonwealth territory of the United States, a special relationship that is almost entirely unique in the world.  Puerto Ricans receive federal benefits, such as welfare, but have no elected representatives in the U.S. Congress, and thus pay no federal income tax.  Procedural government is almost entirely autonomous on the island – the Governor has all the institutional authority of a president – yet the U.S. government retains military jurisdiction and can enlist Puerto Ricans to fight American wars, as was done in both World Wars, the Korean and Vietnam wars, and countless other conflicts.

Any person from any developing nation that has visited Puerto Rico will comment on what they see as the undeniable benefits the island has received as a result of its special relationship with the United States.  They will marvel at the relatively higher standard of living and invariably make a remark along these lines:  “Puerto Rico reminds me so much of my home country…except the roads are better.”

Of course, Puerto Ricans themselves don’t see it this way.  Ask us about the Ponce Massacre of 1937, when 20 people were killed and hundreds wounded when police opened fire on Puerto Rican nationalist demonstrators.  Ask us about the mass sterilization campaign,whereby the U.S. initiated a program that sterilized 1/3 of all Puerto Rican females by 1965.    Ask us about the 60-year U.S. Naval occupation of the island of Vieques, where explosives testing occasionally took lives and where toxic materials left behind were argued to be causing serious health problems.  Today, ask any Puerto Rican about their island and they will lament the brain drain that has resulted as educated Puerto Ricans freely moved to the mainland, leaving behind an island prone to economic stagnation and crime.  Today, there are more Puerto Ricans in the mainland United States than on the island.

Which makes the whole Puerto Rican pride question all the more interesting.  Formally, the Puerto Rican flag is never flown independently of the American flag.  The Teodoro Moscoso Bridge in San Juan is almost a celebration of the special relationship, with hundreds of American and Puerto Rican flags flanking its edges.  It is this constant juxtaposition, this understanding of Puerto Rico only within the shadow of its American benefactor/exploiter, that fuels the burning pride that blazes up and down 5th Avenue each year, and throughout wholly acculturated Puerto Rican households across the U.S., and on the island daily.

I recently came up with a parallel involving the relationship between Manhattan and its outer boroughs.  Borough residents are all proud New Yorkers, but the undeniable attention lavished upon the borough of Manhattan leads to a sense of discomfort.  The borough communities and cultures are wholly different, and to lump them in with Carrie Bradshaw and Gossip Girl would rightly send shivers down any borough resident’s spine.  As a result, borough pride is through the roof, no matter how much time is spent in Manhattan.  To represent your borough is to celebrate your distinction from the Manhattan ideology, to show that you have your own style, your own food, your own music, your own culture.  Yet borough residents love as much as anyone to bask in the collective glory of New York, while strategically disowning some of the more criticized aspects of Manhattan life.

Puerto Ricans have settled into a nice 2-bedroom apartment in Brooklyn where they can both preserve their culture and embrace that of the United States.  They can go to the MoMa or stay at the Brooklyn Museum.  They can unce-unce in the meat-packing district or hit up a dancehall party in Flatbush.  They can shop chic in SoHo or thrift it up at Beacon’s Closet.  And lest anyone get confused, they’ll never hesitate to let you know where they come from.

Which is all to say that I believe the Puerto Rico Democracy Act of 2010, which paves the way for Puerto Ricans to decide between statehood, independence and the status quo, will end as similar initiatives have in the past, with a resolution to continue as a commonwealth.

Boricuas have carved out a space where we can embrace the best of the United States while preserving our culture,  waving a Puerto Rican flag  and lamenting el tirano.  It may seem funny, but I think we’ll continue to do it proudly.

Posted on June 13th 2010 in ideas, news

The End of Billboards

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Augmented reality, the process of overlaying digital information atop real life vision, seems inevitable to me given the recent direction and pace of technology – the proliferation of smartphones, location-based services, 3D TVs, etc.

Actually, it’s already here. Layar (fig. 1) is a crazy augmented reality browser, available on Android and iPhone, that uses a phone’s camera and superimposes dynamic, sortable content in real time.  Another example comes from the Museum of London, which launched a free iPhone app (fig. 2) that blankets its historical art and photography library atop your view.

[fig. 1: Layar, via Mobile Crunch]

[fig. 2: Museum of London app, via LikeCool]

I recently started to think about how this would play out for driving. I don’t think it’s that far off before GPS augmentation becomes a feature in cars, with special touchscreen windshields capable of displaying semi-transparent turn-by-turn directions on top of the road as you drive.

It’s not hard to imagine what comes next: superimposed ads, like a McDonald’s logo that grows progressively larger as you approach the store. One might even be able to tap out an order a mile in advance to speed up the drive-thru process.

It may sound scary, but I tend to be one to look for the upside of these things. In this case, I feel this could at long last mark the death of the billboard. With ads streaming directly into cars, there would presumably no longer be a need to have those clunky eyesores blocking the view across cities and along interstates. We could at last tear those suckers down.

But at the end of the day we’ll just be trading a physical eyesore for a virtual one. My jury is still deliberating over whether or not that is any better.  What do you think? Is it worth it to rid skylines of physical billboards, or will it make no difference once the ads are permanently beamed into our line of sight?

Artist Keiichi Matsuda provides an awesome, but dreary picture of what this future might look like, taken to its logical extreme:

[Augmented (hyper)Reality: Domestic Robocop from Keiichi Matsuda on Vimeo]

Cool or scary?

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Posted on June 2nd 2010 in ideas, news, OrgWatch

Benevolent Takeovers, ctd.

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[For context, click here and here]

Earlier this year, I pondered the idea of non-profit mergers and acquisitions, and spoke of a small consulting project I was doing for a local non-profit, whereby I was tasked to explore the potential for such benevolent takeovers.

I analyzed organizations along criteria that included net asset balances, revenues, and efficiency ratios.  Out of the 60 similar service providers analyzed, I found seven that exhibited the minimum criteria for a takeover target.  Firstly, they were organizations with small asset balances, which meant that they were not only affordable but also in danger of going under; a few years of operating losses could wipe them out.  Second, these organizations were less efficient than my client organization, meaning they spent proportionally more on administrative expenses.  Presumably, if my client took over an organization’s revenue and operations, they would be able to do so at a lower cost and pocket the difference.  This is what is often referred to by business folk as synergies.

With the list narrowed down to seven, next came the tough political stuff: founders, funders and boards.  In the corporate world, mergers and acquisitions are often beneficial to the target company, since owners and management usually receive big payouts and a chance for the company to expand.  But in the non-profit world, unique barriers exist.

Exhibit A: Fame and Founderitis

Non-profit leaders are far more possessive about their organizations than corporate leaders.  Each wants to be the leader of the small grassroots organization, and will scoff at the notion of bringing outsiders in to lead or absorbing themselves into another larger bureaucracy.  Founders are often worse.  Among our list of organizations, we immediately scratched one because the family that founded the organization still had representation on the board.  It was not worth entertaining the idea of asking someone to take their name off of the building, even if we could promise better service and a path out of fiscal disaster.

Exhibit B: There’s always another funder

A struggling organization will look fiercely for new funders and can continue to tread water so long as it has the energy to keep chasing the dollars.  Fortunately, there are a lot of options for these organizations: fee for services, foundations, government grants, fundraising events, individual donations.  Only when all of these have been exhausted will the opportunity arise to discuss a takeover.

In the case of the organization’s under discussion, most were heavily government funded and shared many sources with my client.  As such, there is room for discussions with the city funders, who may be able to recognize one organization’s weaknesses vis-a-vis another one’s strengths.  The CEO of my client has already been in discussion with various city officials who are looking to reapportion their grants.  This could ultimately prove to be the key to loosening the grip over these struggling organizations.

Exhibit C: the politics

At the same time, organization’s that are heavily government funded might exhibit signs of patronage.  Their continued funding and support may come directly from strong relationships with important government officials and not much else.  One of the organizations that was in the worst shape was unfortunately dead-on-arrival because the board was full of community leaders and others with ties to government.  We felt there was little chance of getting them off of the government grant-roll.

Finding the one

The only thing that can overcome these hurdles is desperation, the reality that an organization will not survive much longer without some outside help.  For that, we had to narrow down the list to organizations that had lost money in recent years and didn’t have much of an asset cushion to survive similar losses.

Ultimately, only one organization fit the bill of an ideal takeover target.  It has low asset balances, had struggled in recent years, shares many funders with my client, and most importantly, the CEO was about to retire, creating a unique opportunity to enter into discussions.

Starting with 60 organizations and ending with one doesn’t particularly seem like a good rate of return, but I still stand behind the idea of non-profit mergers and acquisitions.  And there are other options, too.  While some of the organizations were too entrenched or too indebted to be considered takeover targets, we did flag two as potential management agreement targets.  Under such a scenario, our more efficient client could manage the operations of a piece of another organization’s business, thus doing it cheaper and potentially helping them to get out of their fiscal woes.

The point is that there are gains to at least sharing capacity across the non-profit sector and we need to find ways to allocate it best.  Many peoples’ lives depend on it.

Posted on May 28th 2010 in ideas

On Microfinance

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I worked for a microfinance organization, so it’s a little strange that I have not come around to talking about it yet, but a recent New York Times article touched on all of issues surrounding microfinance that I have been pondering.  So I guess its time for me to confront my opinions.

Microfinance has been hailed by Muhammad Yunus and many others as the elusive formula to improving the lot of the world’s poor.  It is thought that providing small loans to poor people will allow them to pull themselves out of poverty by virtue of no longer having working capital constraints on their entrepreneurial ventures.

One must first consider that lending to poor people is not, in and of itself, a novel idea.  People with capital have always been there to lend it to those who don’t have access to it, and to take profits off the top.  We called these people loan sharks, and have long stigmatized them in film.  They sit in dimly lit rooms and finance a protagonist at a time of desperation. Later, when the loan goes sour, they use violent methods of collection.

There are certainly these sorts of loan sharks out there, but that is not the whole story.  Some are just moneylenders, respected members of their communities, attempting to fill a capital gap because banks, the “formal” arbiters of small business finance, refused to lend in these communities.  The banks considered it too costly to reach these borrowers, and the interest to be earned off of their small balances, has not traditionally been worth the effort.

Enter microfinance.  It has always been an attempt to “formalize” the practice of small-scale lending, to provide safe and affordable access to capital to the segments of society forced to rely on predatory lenders.  And formalize they did.  MFIs simply institutionalized the practice of community lending that existed, which is why many people remain so skeptical.  The interest rates still appear predatory and there are still rumors of abusive collection practices.

The question of whether or not small loans, in and of themselves, can eradicate poverty is hotly debated.  After much internal debate, I have come to the conclusion that, financially speaking, it is simply not feasible.  Even the cheapest microfinance organization is lending at well above 20% APR and thus for this sort of small-scale entrepreneurship to be sustainable, microborrowers would have to be earning above that.  Now, imagine what Compartamos borrowers would have to earn.

But not even the largest, most efficient corporations in the world are capable of consistently earning returns like that – the market average is, at best, 10%.  If it were indeed the case that microentrepreneurs could consistently earn 30-130% on borrowed capital, we’d all be hawking handmade goods on the street and selling fish out of the back our cars, and you can be damn sure that banks would be lending to us.  This is why the interest rate question is so important, because if you can’t earn above the cost of borrowing, the only options are then deeper indebtedness (i.e. more microlending) or bankruptcy.

But I am still a huge proponent of microfinance.

The way I see it, microfinance is the stepping stone between the bottom of the pyramid and the true engine of wealth building, savings.  Microfinance has introduced millions to formal financial services, and as MFIs struggling to become self-sufficient have turned to collecting deposits, they are introducing people to the real consumer benefits of banking, saving.

In the future, we will see that MFIs simply laid down the distribution channels, proving that the poor demanded financial services and that they could be reached affordably – that was the true innovation. And as mobile technology and other innovations bring down the cost of banking to the poor, the logical conclusion of the story, like it or not, will be the transformation or consolidation of MFIs into the traditional banks.  MFIs may survive as full-time distributors, selling loans and receivables between banks and borrowers, but the net effect will be the same, JP Morgan and co. trolling around the bottom of the pyramid.

The reason this scares people is that they think banks will profiteer off of the poor.  But one should remember that banks are heavily regulated with respect to the interest rates they can charge; the same cannot be said for all MFIs, especially non-profit ones.  If there is any reason that banks and MFIs can get away with charging exhorbitant interest rates, it is because the local usury laws permit it.

This is not a question of greed and profit margins.  It is a question of democracy, the will of the people and the rule of law.  It is about what interest rates we as a society are willing to accept.

At the end of the day, if we get the laws right, we will have expanded access to financial services to all corners of the globe, with regulated lending and the opportunity to save open to all.

And isn’t that what we truly want?  Because think about it: if the end of this story is not about savings, are we not just creating another generation of debt-addicted citizens?  Are we not just blowing up another lending bubble?

[The caveat of all this, of course, is financial literacy and how  well we educate ourselves on the responsible use of financial services.  This is not limited to the poor.  It should be a mandated part of high school curriculum for all]

Posted on April 14th 2010 in ideas, news

The Myths of Consulting

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Non-profits often think of consultants as too costly or too out-of-touch to bring real value to an organization.  But properly understood, the consulting industry seems like a perfect fit for the non-profit sector.  Below are the principal misconceptions I once had about consulting.

[Disclosure: the following observations were made during a failed attempt to solicit internships from top tier management consulting firms. I did not even get any bites. This may threaten the validity of my conclusions. Oh well.]

Myth 1: Consultants are industry and/or functional experts

It always blew my mind to think that management consulting firms hire an endless stream of twenty-somethings, have them analyze multi-billion dollar businesses and present their recommendations to C-level executives. What about the validity of these kids’ conclusions?  Well, I quickly learned that what consultants are truly expert at is knowledge management.  They amass tons of information about every company they serve, every balance sheet they analyze, every project they implement, every management issue they see; organizations of every size, shape and  mass.  Every country.  Everywhere.

Information is documented, organized and at the fingertips of every single consultant in the firm.  If you need advice, there is the primary human recall of hundreds of people that have willingly drowned themselves in these issues.  And by the way, they work for every company in every sector.  They record every best practice and basically distribute freely.  Copyright law need not apply.

In a way, its scary.  They sort of have their hand on entire industries.  Entire economies.  That is damn BIG PICTURE.  But they are able to test different theories in different circumstances.   They are able to see what works and what doesn’t and are paid to share these secrets with you.

Myth 2: Consultants don’t understand my organization

At the big management consulting firms, consultants spend anywhere from three months to multiple years working on a single project for a single company at a time.  They spend four business days a week embedded in the company, and every waking hour sifting through complex management questions.  They have management and staff at all levels available to answer questions.  I’m sorry, but if you can’t teach someone the ins and outs of your organization in three months, now would be a good time to reevaluate your training programs.

Myth 3: Consultants brings unique skills and perspective

Whenever I asked a consultant about the work that they did for clients, I often heard that they did exactly what I understood was supposed to be the client’s primary value proposition.  Due diligence for private equity firms?  I thought that is what PE firms did.  Why would you hire a consultant for something you are already damn good at?

But then it hit me; consultants often bring nothing more than extra capacity.  They are highly competent individuals that understand how to complete functional tasks.  Often, they are brought on to fill the gaps when extra hands are needed at a company.  In that way, they are like sub-contracted employees and can be seen as an effective way to turn fixed costs into variable costs.

Together, these reasons are why the non-profit sector should embrace consultants.  Non-profits are fundamentally resource-constrained organizations.  Consultants offer the opportunity to bring in the best practices and knowledge of the sector that non-profits often do not have the time and resources to obtain themselves.  They should be able to immerse themselves in an organization, understand how it fits in the larger world, and work with management to develop coherent and promising strategy.  And they make strategy development ad-hoc for organizations, saving critical resources that might otherwise be spent on full-time staff that do not have access to the same knowledge-base that will allow them to develop strategy quicker and comprehensively.

Posted on March 23rd 2010 in ideas

Benevolent Takeovers, ctd.

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In a previous post, I wrote about the potential for mergers and acquisitions in the non-profit sector and a project I am working on towards that end.  So how does one go about finding a suitable target?

First, I found all of the organizations in NYC that operate in the same business as the acquiring organization and looked up their Form 990, the tax form that must be filled out by any 501(c)(3) non-profit organization with more than $25,000 in revenue.  By law, these forms must be public.  I located the majority of them using Guidestar and began by analyzing the following criteria:

  • Revenues - the principal reason for absorbing another organization is to expand your reach.  The financial metric that corresponds to this is top-line revenues, which represents the money to be invested in organizational operations.  In the non-profit world, revenues are comprised of grants, donations and fees.  No matter what the source, this is what the acquiring organization stands to gain; the target’s grants, donors and fees would presumably carry over into the new organization.
  • Net Assets – this is essentially the cost of acquisition.  It represents the leftover assets of the organization, after liabilities have been paid.  If this value is too much for the acquiring organization to pay for out of their own assets, then they have to look to smaller organizations.
  • Revenue-to-Net Asset ratio – this gives you some perspective about the organizations you are purchasing.  If this ratio is high for a target, you are getting more bank for your buck, in the sense that the amount of revenue you acquire would be greater relative to the amount you’d have to spend to buy the assets.
  • Burn Rate - for organizations that are currently in trouble (i.e. carrying a net operating loss), this measure estimates the length of time they can survive if the continue in their current state.  It is basically net assets over net operating loss, thus telling you that if the organization continues losing this amount of money, it will burn through its assets in x years.
  • Operational Efficiency – this measure refers to the percentage of total expenses spent on program services , as opposed to overhead and fundraising.  Organizations that have high efficiency ratios can boast, for example, that 90 cents of every dollar is spent directly on program beneficiaries, and they do so loudly.

Using these, I filtered down the list of organizations to those that were viable based on our criteria.  Revenues must be large enough to make the transaction worthwhile in terms of time and money spent.  Net assets must be affordable enough for the acquiring organization.  The burn rate will be a proxy for organizations that are in greater danger of going under and may thus be open to being absorbed by another organization.  And operational efficiency gives an idea of where money can be saved.

There are plenty of valid criticisms of using operational efficiency as a non-profit metric, particularly for organizations like Kiva or Acumen Fund.  The most trenchant criticism is that efficiency has no direct correlation with impact.  But for the purposes of my project, operational efficiency is an important deciding factor.  For any target organization that is less efficient than the acquirer, the difference represents the savings that can be gained through the combination, which can be particularly attractive to funders and the organization itself, since it will pay a lot of money to expand its reach.

The filtered list only represents the viable.  Next I must figure out which organizations are ideal.  Here I will have to dig deeper into funding sources, governance and the people involved.  Stay tuned; that is when things may start to get dirty.

Posted on March 8th 2010 in ideas

May I Buzz In?

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So Google Buzz blindsided us.  People woke up to a new little icon in their gmail, curiously clicked it, and found themselves once again exposed to the people they communicate with.

Many found they had been nudged in a direction that they didn’t want to go.  Status messages, Picasa uploads and what soon amounted to online chats were shared, by default, with nearly every person we’d ever contacted, from our closest friends to that dude we once had an ebay transaction with.

Some expressed concerns.  Google made some changes.  People started freaking out.  Google apologized and made some more changes.  People filed a law suit.  And so it continues.

I tend not to worry too much about the privacy stuff, which puts me in line with the younger generation but a little distanced from my peers.  But to many people, the problem with Buzz wasn’t just the sharing part, it was the “by default” part.  It was the proposition that Google would go ahead and decide who would be privy to your personal information without even bothering to ask you.

It reminded me of something.  The notions of nudges and defaults, based in theories of behavioral economics, has influenced a lot of policy decisions recently.  For example, in New York City, Mayor Bloomberg initiated calorie labeling at fast food restaurants in hopes of curbing the obesity epidemic and people lashed out this apparent paternalism.   The news of an initial study showing labeling might actually increase calorie consumption provided comfort to critics.  But theories posited that people grew overconfident about consumption since they had more information, and the more encouraging news emerged that the key was to also affix a line suggesting a 2,000 calorie diet.

In other news, the Obama administration has pushed for automatic enrollment in 401(k) plans.  One of the biggest economic mysteries has been why people so often fail to take full advantage of the tax benefits of a 401(k).  But recent studies suggested that people were far more likely to maintain a 401(k) if they were enrolled by default, with an option to opt-out, instead of choosing to opt-in.  Retirement savings are getting a big boost from this minor default switch.

The point I hope to make with these two stories is that defaults and nudges are good in that they force us to educate ourselves about the issues.  Fast food patrons are more cautious when they understand how one meal can easily take up 75% of their daily recommended calories.  Workers are more likely to take advantage of 401(k) plans once they learn about the tax savings.  The Google Buzz debacle’s silver lining is that it once again forced us to educate ourselves about our online privacy.

Because let’s be honest; we didn’t bother to learn about these privacy issues on our own.  Most of us were on Facebook for years before the news broke that they “owned” our photos and information, sparking outrage and forcing changes to the terms of service.

So if Google Buzz’s brief overexposure forced me, and students, and employees, and parents around the world to take a closer look at their privacy policies and educate themselves, I for one don’t mind.

Posted on February 27th 2010 in ideas, news

Owners vs. Donors

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There is no shortage of legitimate debate about what ideas from the business world can and should be applied to the non-profit world, but one that I often wonder about is the Board of Directors.

It is pretty much assumed that non-profits should have a Board of Directors, as they bring in outside expertise and help craft a long-term strategy for the organization.  But that is not the true reason boards exist in the private sector.

For-profit entities create boards for one fundamental reason: to protect the interests of shareholders.  As owners, shareholders are the beneficiaries of the company’s profits as well as the victims of its losses.  Thus, they appoint a Board of Directors to oversee management and make sure they don’t do anything that might threaten their payout.  Long-term strategy development is simply the outcome of this pure self-interest.

Non-profits have adopted board governance, but that founding logic doesn’t hold quite as well.  These board members are not owners; they have no stake in the outcomes of the organization.  Instead, they are often appointed on the basis of their ability to raise funds or through personal relationships.  And unlike for-profit board members, they are not paid; their involvement is strictly extracurricular.

Yet non-profit boards tend to perform the same role, overseeing management and crafting long-term strategy.  I will concede that there are plenty of boards that perform this role well and enthusiastically, but one has to question whether this is the correct alignment of power and incentives.  If we were to rethink this structure, would we maybe consider appointing other stakeholders? Employees? Foundation Reps? Dare I say clients?

To drive the point home, think of Bravo’s Real Housewives of Wherever, who are all often engaged in some charity work.  Close your eyes and imagine that one of them is in control of your organization’s mission and long-term strategy.

Are you worried yet?

Posted on February 24th 2010 in ideas

Finding the needle in a haystack

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I always knew that I loved open-source collaboration, but I didn’t truly understand why until I saw this video:

It’s a fairly long one, but watch it when you have a moment.  I promise it will turn some wheels in your head, and there’s a shout-out to Coney Island’s Mermaid Parade.

I will not attempt to explain things as lucidly as Clay Shirky does, but the bottom line is that the advent of open-source collaboration and social networks is truly revolutionary.  It is deconstructing institutions in a way where we are able to create better outputs, while being more labor-inclusive and operating at a fraction of the cost.

Of course, it can veer out of control and amateur-ize everything in sight; witness Twitter and blogging.  But also witness the cost: virtually zero.  Given the enormous potential upsides, that seems pretty profound to me.

Posted on February 9th 2010 in ideas

Benevolent Takeovers

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We hear about mergers and acquisitions all the time in business news.  It almost seems as though private markets necessarily consolidate, a process that can help great companies achieve improved growth or operational efficiency.  Some of these deals are mutually beneficial arrangements that allow companies to achieve economies of scale and synergies (see HP-Compaq).  Many others represent attempts to diversify the product portfolio or extend the business model (see Apple-Lala).  And then there are the few that are hostile takeovers aimed at acquiring market share (see Kraft-Cadbury).

I’ve always felt there was a place for mergers and acquisitions in the non-profit world, where success is defined less by financial gain and more by developing effective, efficient solutions to pressing problems. One would assume that anyone truly seeking to solve problems would welcome convergences that would allow the best organizations to extend their reach and create more efficient impact. Yet the non-profit world is replete with anti-cooperative structures, despite the requisite non-compete proclamations. Organizations vie for the same talent. They fight for the same grants and funding. And even if they only care about the end result of eradicating the problem, they still face extinction-by-funders if their organizations are not playing some dominant role in the process. No matter what is said, we are not in this together.

Fortunately, there is hope. I am currently working on a consulting project for a non-profit organization that has given me an interesting task: find organizations to take over. The organization is engaged in services that are heavily financed by local government. The CEO, noting significant budget cuts now and in years to come, imagines that many similar organizations will be in danger of going under. I have been asked to identify those organizations and develop a plan for potential benevolent takeovers.

There is strong support for this idea. The Boston Consulting Group recently published a study that showed that the most successful mergers and acquisitions occur during periods of economic downturn. In times of crisis, many fundamentally strong companies enter periods of distress that threaten their sustainability, making them ripe for takeover. An acquiring organization can gain greater efficiency through operational synergies and economies of scale, as well as an opportunity to broaden their impact. The risk of inaction is letting a fundamentally strong organization fail.

There are barriers. Non-profit boards and founders are far more possessive about their organizations than their corporate counterparts. And finding the appropriate measures by which to identify suitable targets is always a challenge. Nonetheless, it will be very interesting.

I will chronicle this experience. Although I will not divulge specific information about any of the organizations, I will certainly share all lessons learned. Stay tuned.

Update: follow-ups here and here.

Posted on February 3rd 2010 in ideas
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