Month: March 2013

Four tips for better group decision-making

~ Sasha ~ 2 Comments

I’m most of the way through Bruce Feiler’s The Secrets of Happy Families.  The book takes the best, recent insights on how groups/organizations perform and applies it to families and raising kids.  This results in surprising suggestions like using agile development principles to make getting kids to school on time less stressful or coming together to write down and display family mission statements.  Feiler is non-doctrinaire in his writing, avoiding “must do” and “top 7” lists in favor of a series of surprising, useful, often counter-intuitive recommendations, many of which seem worth a real shot.

Outside of the book’s relevance for anyone raising kids, The Secrets of Happy Families is also a great refresher on new thinking in organizational behavior.  There’s lots to mine here, and I thought Feiler’s summary of four factors for better group decision-making were particularly on point.  (all the quotations below are from The Secrets of Happy Families).

  1. Too Few Cooks Spoil the Broth.  This addresses the wisdom of crowds (Surowiecki) and how large groups with the right information can be smarter than the smartest person in the group.  The part that I found most interesting was: “Uzzi [a sociologist] analyzed 321 Broadway musicals and found that teams of people who had never met did not work well together and produced more flops.  Meanwhile, groups that had collaborated before were also not that successful, because they tended to rehash ideas and not come up with fresh concepts.  The sweet spot was a mix of strong and weak ties, where trust existed but new ideas could flow.”  To me this speaks to the need to have fluidity of both people and ideas (often from outside the organization) to get to the best decisions.
  2. Vote first, talk later. “I was shocked to learn that groups are better at making decisions if participants express their views at the start of a meeting before they’ve had a chance to listen to anybody else.  Countless studies have shown that once the discussion begins, the people who speak first tend to persuade others of their position, even when their positions are wrong.  Daniel Kahneman offered a helpful blueprint. ‘A simple rule can help: before an issue is discussed, all members should be asked to write a very brief summary of their position.’   This seems like the easiest tactic of all to employ – simply ask people to write down what they think at the start of an important conversation.
  3. Hold a premortem.  “As the conversation reaches a climax, it’s important to encourage people to express their true opinions, especially if they disagree with the group…psychologist Gary Klein calls [this] a ‘premortem.’  When teams engage in prospective hindsight…they increase their ability to identify what might possibly go wrong…[e.g.] ‘Let’s imagine it’s a year from now.  We’re following this plan, and it hasn’t worked out.  Let’s write down what we think would have gone wrong. Klein says the main value of a premortem is to legitimize doubts and let skeptics voice their concerns.”     What’s powerful about this is that it engages us in a concrete thought experiment that grounds a conversation of “what if’s” and complex dependencies.  By placing ourselves in a future space, we can see the decision from a new vantage point and understand the risks and opportunities of the different paths we might take.
  4. The Law of Two Women.  “One night I was having dinner with an executive at Google, and I asked him to tell me the most significant change he’s seen in how his company runs meetings.  Without hesitating, he told me they always make sure there is more than one woman in the room.  He then told me about the study that led to this principle…”  I won’t summarize the subsequent MIT study – the punchline is “groups that had a higher proportion of females were more effective.  These groups were more sensitive to input from everyone, more capable of reaching compromise, and more efficient at making decisions.”      This one is fascinating and, again, very easy to implement.

Increasingly I’m coming to appreciate the importance and power of small groups that come together to make decisions.  I’m also coming to understand that just putting a handful of smart, effective people together and saying “be an effective group” is a pretty terrible strategy.  You need trust and safety and mutual investment and a sense of shared purpose and higher goals.  And you also benefit greatly from tactics that are proven to result in better decisions.

This list seems like a great way to start the important work of making your groups as high-performing as the individuals in them.

Not just whether, how

~ Sasha ~ Leave a comment

One way to end a sales meeting is with the big push.  You’ve done the work, you’ve made the pitch, you go to close the sale.

Before that moment, and in the meetings preceding that meeting, you’re having a different conversation.

And it IS supposed to be a conversation.  That means questions are very often the answer.  One of the biggest mistake people make in trying to make a sale is the rush to get out your “whole story:” your job is to make a pitch, and you’d better say everything you need to say the clock runs out on your meeting.

Of course the problem with that is that you can’t solve someone’s problem if you never bother to find out in the first place what their problem is.

The other day I was stopped cold by a great question I’ve never asked so directly (but wished I had):

“What factors are most important for you in making this decision?”

So simple, but I’d never actually paused to ask that clear, direct, transparent, non-threatening, and quite objective question.

I wouldn’t do it in every situation – this question can, if not asked in the right way, put your prospect in a “head” rather than “gut” or “heart” space in terms of her decision-making, which might not always be the right thing to do.

But if you’re in a complex, relationship-based, multi-faceted decision-making situation, asking directly how the decision is going to be made is probably going to help most of the time.

Rock out

~ Sasha ~ Leave a comment

My morning commute to work is punctuated by the Music Under New York performers.  Each day of the week a different musician with a different sound and a different vibe.

Luke Ryan has been at this for 30 years.  His shtick is to be clever and snarky, to put in your face that you’re walking by him, head down: there’s nearly as much commentary about “putting a little money in the case” as there is music, and a fixture of his guitar case is a sign that reads: “I’M A STREET MUSICIAN…TOO WEIRD TO LIVE TOO MEAN TO DIE.  GIVE ME MONEY OR I’LL PLAY MUSIC.”  Luke’s “show” is build around that gag and about making you aware that you’re walking by with your head down and your hands in your pockets.  My experience, when I put money in Luke’s case, is a bit of guilt, some awareness of separation, a sense of obligation.

On Friday mornings in that same spot, the Ebony Hillbillies rock out with their mean, jumping bluegrass music.  It is soulful.  It is uplifting.   It is joyful and ebullient and raucous.  It’s a jolt, it puts a spring in your step.  I see the performers smile, not for me, but for themselves.  My experience, when I put money in the case, is gratitude that they’ve shared their joy with me, connection, humanity, and perspective.

Yes, the Ebony Hillbillies’ case is always fuller than Luke’s.

And no, this post isn’t about street musicians.

What it takes to build dreams – Part 2

~ Sasha ~ 2 Comments

Paula Goldman, Omidyar Network’s Director of Knowledge & Advocacy and co-author of the excellent “Priming the Pump” blog series made a very helpful and clarifying comment on the last post (emphasis added):

Sasha, excellent post. I agree with you that as a field we need to get a lot smarter about the risk/social impact equation — this will make or break the field. I also agree with you that the path to scale here isn’t just about making this an asset class. Commercial markets are already incredibly good at allocating capital efficiently, including to businesses that generate positive impact and solid financial return. The risk is that by pumping up the industry in this way, there will be nothing incremental or new about investments labeled as impact investing.

I would ask you though to reconsider the use of the term ‘crummy’ economics. While the economics in many cases for impact investing are sometimes different than traditional investing, taking on additional and different types of risk doesn’t necessarily mean lowering financial returns.

This comment shines a light on exactly the distinction I’m trying to make, because, for this conversation, I’d like to take a pass on the whole discussion of what the returns are in “impact investing” (and whether or not they are “crummy”) since I don’t believe you can answer that question without better defining which segment of impact investing you have in mind.

Instead I’d like to ask whether, as I observe anecdotally, there are sectors/project outside of impact investing that attract huge amounts of capital that have “crummy economics.”

To recap the sorts of conversations I’d love to redirect:

Question 1: “What is the risk/return profile for impact investing?”

My current answer: “It really depends on what you mean by ‘impact investing.’  For some (significant) part of what could broadly be defined as impact investing, the financial returns may well compensate an investor and her LP well for the financial risk she is taking.  However, there are also big and important parts of impact investing – including those segments where the non-negotiable is impact; and those segments focused  on the poorest, hardest-to-reach populations – where the financial returns likely won’t fully compensate the investor or her LPs for the risks they are taking.”

Question 2: “But if the returns aren’t there, doesn’t that mean that the sector will never grow? Doesn’t that mean that capital will never flow in in significant ways, in which case the sector will never scale and reach its potential?”

AHA!  THIS is the question I’m aiming to dig in to, not the prior one.   This is why I said that I’d observed that “increasingly across sectors I meet more and more people who acknowledge that most of the most important (dare I say the most “impactful”?) work they do has crummy economics.”

Namely, I’m finding the discussion on “what the returns are” to be circular, because it hinges on how you define “impact investing” and what particular niche/sub-segment you are in.  The dead-end I’m trying to break through is the one that says “IF the returns aren’t there versus the risks people are taking, then capital won’t flow in.”

My hunch – and the thing I’m looking for data on – is that this statement might be empirically incorrect.  My hunch, informed by conversations with people in sectors far away from impact investing, is that the overall NET returns for huge swaths of projects that create public good (and have an underlying long-term economic logic) might be low (aka “crummy”).  But these projects and the people backing them find a way to make them happen at scale – whether by layering capital, layering risk, layering returns, bringing in philanthropy….. in such a way that lots of stakeholders and lots of stripes of money get what they want.

And so, my non-empirically-proven hunch is that the fundamental net (total project, total portfolio) return being low doesn’t inherently limit the ability of billions, even trillions of dollars, to find its way to meaningful project that have a blended return.   That’s the data I’m looking for.

One reader kindly pointed out the Kauffman Foundation’s recent report that revealed that 78% of their traditional venture capital funds “did not achieve returns sufficient to reward us for patient, expensive, long-term investing.”   And yet $22 billion a year still flows into venture capital.

Not exactly what I had in mind, but that seems to be a pretty great data point showing that failing to compensate LPs adequately for the risks they take doesn’t mean that money won’t flow in.

What it takes to build dreams

~ Sasha ~ 4 Comments

I keep on bumping into the same parallel conversations around the future of the impact investing sector.

With those in the trenches, what I hear continuously is that it is a long, hard slog.  That companies take a long time to build, that the costs of getting things right are high, that grants and really forward-looking and patient risk capital is key, and that there’s not a straight path from here to there.

And yet the reports that keep on coming out and the sectoral conversations continue to cheerlead about all the capital that is coming into the space – prevailing estimates for total potential market size by 2020 are in the $500 billion (Monitor Group) to $1 trillion (JP Morgan) range – and to get there, we’re told, impact investing has to become an “asset class.”  Part of getting from here to there, it’s implied, might mean sweeping under the rug the significant segments of impact investing where the economics don’t seem to fully work and where the financial risks are too big relative to the expected financial returns.

An investor I recently met at a roundtable on understanding and quantifying impact put it simply to me: “anyone who is looking at less than a ‘market’ rate of return is mispricing risk.”

(Whereas I think the big problem in the world is that we’re mispricing returns by equating returns with what we can see in a discounted cash flow analysis, thereby demoting “impact” to a fuzzy, non-quantifiable something for which it’s not worth taking actual, real risk.)

Without getting dragged into what is clearly a definitional conversation – namely, until we agree on what we mean by “impact” we can never have a serious conversation about the economics of “impact investing” – I have an observation that keeps on nagging at me: increasingly across sectors I meet more and more people who acknowledge that most of the most important (dare I say the most “impactful”?) work they do has crummy economics.  Getting these projects/endeavors/businesses to happen requires the dogged determination to get many different stripes and flavors of capital to come together, lots of irregular stakeholders to develop a shared vision of the future, and, usually, a healthy dose of subsidy or public funding because there’s a clear public good being created when you succeed.

And yet in the impact investing sector we often hear that if investors aren’t fully financially compensated for the risks they take, capital will never flow in any serious way.

If that’s right, how do we explain away the fact that we have managed to create trillions of dollars’ worth of parks or mixed-use developments or hospitals or museums or great schools, most of which don’t make full economic sense but all of which are integral to a vital, vibrant society?  The truth is that markets don’t fully work all the time, and yet huge amounts of capital are regularly mobilized to create things that are worth creating.

What I’m struggling to do is to better explain, by looking outside our sector, my feeling that the conversation we’re having in the impact investing sector is far too narrow and binary.  When I identify the underpinnings of what makes vibrant, successful societies – you know, all those things that disappeared for a little while when Hurricane Sandy hit – and if I think about all of the incredible pure market plays that have been built on top of the existing infrastructure that was provided by the public sector….well it becomes clear that the “markets” / “not markets” conversation we’re having is far too simple.

And yet I don’t know specifically which data to look for to help tell this story.   I need more examples across sectors and history, more evidence that helps explain clearly and succinctly what I know to be true: that solving big, intractable problems for disadvantaged communities by and large doesn’t pay (nor should it pay) handsome financial rewards.  And the fact that it doesn’t isn’t some sort of failure of a prevailing orthodoxy, it is in fact a vindication of a rich history of bringing public, private and third sector players together – to bring the best of what each has to offer, including skills and preferences and the right kind of capital – to solve big problems.

I’ll be talking about some of these questions next month at the Global Philanthropy Forum, and I’d love your great ideas on how to prepare for this talk.

So, help, please! What are the best examples out there from other sectors (housing, roads, infrastructure, parks, museums, schools, biotechnology, the Internet, telecommunications…) that will bust open this “market return” mindset that is hobbling our thinking about how to create real and lasting change through impact investing?

Deep and abiding respect for…

~ Sasha ~ Leave a comment

…the philanthropists who, along with you, make it all possible.

The philanthropists who dare to dream of a different, better world.

The philanthropist who decides, when she doesn’t have to, to do something, not just to talk about it.

The easy thing to do is to badmouth fundraising, to slight it in some way, to say that you’re above it or say that you respect it but you don’t know how to do it and you don’t really want to do it. It’s easy to say that it’s someone else’s job – because how important, how strategic, is it really?

It’s easy to, quietly and behind closed doors, gripe about how hard fundraising is…and then to chuckle about how difficult some donors themselves are…and then to slide down the slippery slope all the way down to a lack of real, deep, abiding respect.

Without that respect, you’re a terrible fundraiser. Without that respect, change doesn’t happen. Without that respect, you don’t get the chance to meet and learn from the incredible philanthropist who combines exceptional success and accomplishment with off-the-charts humility.

Without that respect, you don’t get to change, they don’t get to change, the world doesn’t get to change.

Your ‘ask’ is not ‘by the way’

~ Sasha ~ 6 Comments

It’s so easy to be terrified by “the ask” that you want to make – whether that’s for advice or a job or to create a partnership or for funding.  It’s as if there’s this sense of shame and embarrassment that you would actually want something to come out of the meeting.

Why?

Your meeting has a purpose.  There’s something you are trying to create in the world and some role that you hope the person across the table from you might play in making that creation happen.

Yes, you must explore, you must understand one another….and it’s fabulous to dream together.  There’s no way to properly ask for something before understanding who the other person is, what they are trying to accomplish in the world, and whether the thing you’re hoping to do is something that connects with who they are, where they are in their lives, and their dreams.

But if the moment you come to that thing, that “ask”, if you find that you’re muttering quickly under your breath; or, just as bad, if what you really are hoping will happen comes across as just one in a list of things that you rattle off all too quickly in the last five minutes of the meeting – if that happens you have to ask yourself why you had the meeting in the first place.

A great test: ask yourself afterwards whether there’s a chance, any chance at all, that the person you met with doesn’t actually know the most important thing you were hoping would happen.

And then, think which mistake you’d rather make: getting turned down, or having the person walk out the door not really understanding what you hoped to accomplish in the first place?

 

Multi-purpose spoon

~ Sasha ~ Leave a comment

Multi-purpose spoon

Your job isn’t to take the same thing that everyone else offers and pretend it’s something different.

You job is to create something that actually is different and then let people in on the secret that you’ve made something remarkable.

New wine, new bottles.

Dan Pallotta at TED

~ Sasha ~ 4 Comments

I had the privilege of attending the TED conference last week – a bounty of new ideas, optimistic predictions, and insightful reflections on the world today and the world as it could be tomorrow.

The most challenging and exciting talk for the nonprofit sector was by Dan Pallotta, author of Uncharitable and Charity Case.  Dan made a name for himself creating the then-ubiquitous AIDS and breast cancer walks and rides – these events raised $108 million and $194 million for charity, respectively, according to Dan’s numbers.  Dan’s pitch, which he has been making for years but never as clearly or effectively as he did last Friday, is that we are never going to solve the world’s toughest problems if allow the prevailing orthodoxy to rule in the nonprofit sector and in the minds of the philanthropists who fund them.

Dan Pallotta at TED
Dan Pallotta speaking at TED (Photo: James Duncan Davidson)

Dan has been a lightning rod in the nonprofit sector for more than a decade because he has been such a vocal, unabashed voice for change.  He was fully transparent about this, starting his talk explaining how challenging and frustrating it was when his company was shut down because of the backlash that came when it became clear that putting on the rides/walks used up a big portion of the funds that people raised – despite the nearly $300 million net raised for these charities.

The two most controversial points Dan made in the talk were about nonprofit pay and fundraising.  On nonprofit pay, the line I found most memorable was, “You can make $50 million in a year selling violent video games to kids and they put you on the cover of Wired magazine; but if you make $500,000 as a nonprofit executive director working on solving some of the world’s toughest problems they will run you out of town.”  Indeed.

On fundraising, Dan’s big point is that if you can take a philanthropic dollar and turn it into $10 or $100, then it is absurd not to do so and even more absurd for a philanthropist to feel like you are wasting her money when you spend it in this way.

What I love about Dan’s talk is the conversations it forces us to have, ones that get to the heart of what philanthropy is, why people give, and what it will take to make real change in the world.

To me the conversation starts with a basic question: do you think that the people who work for nonprofits are adding value; or, put more technically, is the amount of good they create – in terms of the problem you’d like them to solve – greater than they amount that they are paid.  (Ironically, it’s easiest to figure out this question when you analyze a person on the fundraising because you can easily quantify the funds she raises against how much she costs the organization.) If you don’t feel like nonprofit organizations/their staff add value, then it’s easy to conclude that the organization itself should take up as few resources as possible.

Philosophically, one wants as much ______ (money, water, chickens, anti-malarial bednets) to land in the hands of the needy recipients as is humanly possible, and so one wants a nonprofit sector whose only role is to do the minimum possible to make those ________ (things) end up in others’ hands, and to eat up as little as possible of each donated dollar to make that happen along the way.

At the other end of the spectrum, if you believe that there’s a thorny set of problems that haven’t yet been solved in the world, then we need the most highly capable, intelligent, hard-working, long-lasting people on the planet to solve those problems.  So making sure one has the tools to get and keep the best people becomes vital and, more importantly, one quickly understands the limitations of a worldview that says that those people are “overhead” (a.k.a. something to be minimized.)

Of course the world does not exist in black and whites.  Development professionals who live in gated communities in multi-million dollar homes, separated by barbed wire fences and Range Rovers from the people they ostensibly are in the business of serving – well that’s obviously hugely problematic.  So the message isn’t “more pay is better.”  We need some basic checks in the system or it’s never going to work.  At the same time we need to ask ourselves whether the system we have today is oriented towards “efficiency” (which itself is elusive) at the expense of effectiveness: I could easily waste very little of your money but never actually manage to solve the problem you ultimately hope to solve, by shoveling 90 cents out of every dollar into direct aid but never change the system that created the need for aid and charity in the first place.

While we know there are no easy answers we cannot pass on asking the tough questions, on having an out-loud conversation about whether this system we have built is actually working. Because many think it is.  A philanthropist I spoke with after Dan’s talk told me that he found the talk to be very troubling: Dan, he said, does not understand the mindset of the philanthropists at all and he completely missed the mark.  “If I find a startup that I believe in,” this philanthropist said (I’m paraphrasing), “I’m happy to put up some risk capital in the knowledge that it might succeed or it might fail.  But when I dip into my philanthropic pocket, I want the charity to treat that capital as precious, to spend it wisely, and to make sure as much of it as possible goes to those in need.”

“….treat that capital as precious…” is the key phrase there.  Guard it, protect it, mete it out carefully and cautiously and be sure you don’t make any mistakes as a steward of that capital.

“So,” I asked, “I absolutely can understand that you want nonprofits to careful with your money.  But where do they go for risk capital?  Or investment capital?”

Unfortunately we couldn’t finish that conversation, but I feel better equipped to have it thanks to Dan’s talk, thanks to seeing Dan’s outrage at how backwards the system we created is, thanks to statistics like the one Dan shared that, since 1970, while only 144 nonprofits have grown to more than $50 million in annual revenues, more than 46,000 for-profits have crossed that threshold. Put another way, a new non-profit is less than 1/300th as likely than a new for-profit to grow big enough to have enough scale to really matter, to have enough scale to figure out what they are doing and have some heft to actually solve a problem.

That doesn’t feel right.

What it feels like, what Dan is saying is that we’re asking nonprofits to take on the toughest problems in the world, problems that the private and the public sector still haven’t managed to solve, and to do it with one hand (“you can’t spend money to make more money”) and one leg (“you can’t use my donation as risk capital”) tied behind our collective back.

Dan’s talk isn’t online yet but you can see a more detailed summary of it on the TED blog.