A blast from the (GlobalGiving) past

In late 1999 when Mari and I began to think about the concept of what is now GlobalGiving, we jotted down this "manifesto," a copy of which I found in my new year's cleaning.  GlobalGiving has come a long way since then (and has a long way to go), and some of what we wrote ten years ago seems naive.  But I am also struck by how many of the main principles remain the same.

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Innovation v. Novelty

Innovation is about finding new ways of meeting consumers’ needs, including ones they did not know they had. Sometimes it comes from a laboratory scientist but, more often, the innovation that changes the business landscape comes from the imagination of a Henry Ford or Walt Disney, Steve Jobs or Sir Stelios Haji-Ioannou.

That is from John Kay, writing in the FT, who also notes:

[U]nderstanding the needs of customers is what distinguishes innovation from novelty. Quirky inventors have a place in the affections of everyone who enjoyed physics or chemistry at school. But...[p]ioneers of innovation are routinely pushed aside by competitors whose skills are in the marketplace rather than the laboratory.

Thanks to Keith Hansen for the tip.

When Small Changes Bring Big Results

Earlier I wrote about how a small change in the external environment can turn a modestly successful product into a runaway success.  The example was Evernote, a software program that allows people to store and synchronize information across their various devices.  Evernote's user base grew respectably after launch, but nothing special.  In June 2008, they had about 100,000 users.

And then the iPhone App Store launched, which turned out to the be the perfect distribution and application platform for the software.  By November 2008 they had 500,000 users.  And recently the NYT reported Evernote had surpassed 2 million users - fully half of which are iPhone users.

As usual, there may be other confounding factors that explain the growth, so this is not conclusive.  But it does reinforce the importance of persistence in entrepreneurship and the introduction of new products.

President Obama: How to Spend that Nobel Prize

Dear President Obama,  

We would like to congratulate you on your distinguished honor as the 2009 Nobel Peace Prize Laureate. We respect and admire your efforts to strengthen international diplomacy and cooperation between peoples around the world, particularly when it comes to your advocacy for achieving change from the bottom up.  

It is in this spirit that we write you to offer a recommendation for how to use your prize - one that will spark further grassroots investment in bringing peace, economic development and opportunity to individuals across the U.S. and around the world. We believe an impactful use of the $1.4 million reward would be to offer the funds as a financial incentive for others, a matching donation that would engage Americans and individuals around the world in the spirit of generosity.  

By significantly multiplying the impact of your gift, you would have the opportunity to share with the world your true commitment to bringing about transformational change from the bottom up. And what better way to use this prize than to leverage it to raise multiple millions more towards the pursuit of peace?  

Just as your Presidential campaign inspired millions of Americans to donate small amounts to bring about the change they believed in, your Nobel Peace Prize matching campaign could inspire a groundswell of global generosity to support the amazing work being done by non-profit and non-governmental organizations all over the world. 

Especially in times of economic uncertainty, when organizations working to build stronger communities are struggling, this signal of support would be a powerful call-to-action for not only the American people, but for the entire international community.  

We founded GlobalGiving.org nearly eight years ago to connect individuals to the causes they care about most here in the U.S. and around the world. As former World Bank executives we saw the impact individuals empowered with the proper resources and a commitment to bringing about change can have in their communities and beyond.  

In the years since our founding, we have been consistently inspired and awed by the altruism, spirit and dedication our donors, project leaders and supporters have in their pursuit of making the world a better place. Once armed with the knowledge that for as little as $10 you can help educate a girl in Afghanistan, offer clean drinking water to a school in Kenya, provide solar energy to low-income families right here in the U.S., or support one of the thousands of other earth changing ideas just waiting to be funded - there is no end to the energy an individual can muster in pursuit of change.  

We urge you to consider taking the honor you have received and using it as a launching pad to further your advocacy for service, generosity and commitment to others by creating a matching campaign through GlobalGiving.org. This platform will allow individuals to support the causes they care about most, whether it's microloans to help a woman start a business in Ghana, a school uniform to help educate an orphan in India, or training for a child with Autism right here in Washington, D.C.  

Your offer of a matching gift will challenge the world to give back in this time of great need. We would welcome the opportunity to work with you and your Administration in the future to build peace and opportunity from the ground up.  

Sincerely,  

Dennis Whittle co-founder and CEO of GlobalGiving.org and Mari Kuraishi, co-founder and President of GlobalGiving.org

There is way more luck involved...

But something else is going on here, says Princeton University psychologist Daniel Kahneman, who won the Nobel prize in economics in 2002. "We believe that people with certain characteristics will produce certain consequences," he says. "But we're wrong, because there is way, way more luck involved in determining success than we're prone to think."

That is from a nice article in the WSJ by Jason Zweig, who describes how we tend to attribute success and failure to leaders rather than other factors.  Boards and stockholders often treat newly recruited CEOs as saviors:

"...a company will be much more inclined to replace the CEO after a run of bad losses—and to bring him in from a firm that has been on a hot streak. That leads to an illusion: "You change the CEO," Dr. Kahneman says, "then performance reverts to the mean, and you attribute the improvement to the new guy."The problem, as this article notes, is that the effect of bringing in an excellent new CEO on the performance of a business is not much better than the "flip of a coin."

The same illusion of causality holds true for many things we observe in life.  The role of luck and external factors on our lives and on the effect of programs and policies create a paradox for us that is similar to others I have discussed in this blog.  Namely, in order to stay motivated to do good (or to achieve any goal), we must tell ourselves that our efforts are connected to the outcome.  Realizing  the effect of luck on the outcome is a hard thing psychologically: why should we keep trying so hard every day?  Yet we do.

"We tried that and it didn't work?"

"We've already tried something like that and it does not work."

One of the most difficult challenges of innovation is knowing when to discard an idea or hypothesis because "it does not work." Sometimes, a change in the external environment, such as the launch of Apple's iPhone Apps Store, can cause a piece of software suddenly become valuable.  And sometimes, the addition of what is seemingly a small tweak to a product can transform a "ho-hum"product into something revolutionary.

I was reminded of this the other night when Mari and I were touring the Terra Cotta Warriors at National Geographic.  I noticed that the horses on display, dating from 350 BC, had saddles without stirrups.  They had bridles, bits, and reins, but no stirrups.

By this time, saddles had been around for about 4,000 years, with few design changes.  Around 200 BC,  someone tweaked the saddle by adding a wood "backbone" that helped distribute weight across the horses's back and reduce fatigue.  The saddle itself was a significant but not overwhelming advantage for its users.  Finally, after about another five hundred years someone in the Jin dynasty in China decided to hang stirrups off the saddle.

This minor "tweak" to a saddle was revolutionary.  Some credit this tweak as being "one of the basic tools used to create and spread modern civilization.  Some argue that it is as important as the wheel or printing press."

This left me wondering what could be the most revolutionary minor tweak to our existing features on GlobalGiving.

Sign me up as Chief Talent Officer

The modern economy puts an increasing premium on human talent over physical resources. Well-run companies, organizations, and universities are always on the lookout for talent. I know more than one CEO who argues that if you find someone good, hire them right away, and then figure out how to best deploy them. Talent is scarce, they say, so grab it while you can.

Why doesn't the same applies to countries? With some exceptions, countries make immigration difficult - including for extraordinarily qualified people. Even the US, which arguably makes use of talent better than any other economy, puts people through years of bureaucratic paper shuffling before issuing residency visas and citizenship.

What would happen if the US and other countries had Chief Talent Officers who scoured the world for the talent their countries needed - and then invited them to become residents? What if these new "recruits" were put through a dehumanizing bureaucratic grind, but instead welcomed by real people, who told them "We value your skills - thanks for moving here"?

What if countries started competing for talent by ensuring that the returns to talent were high via domestic policy reforms, infrastructure development, and open economies that promoted a lot of opportunity?

I would love to be the Chief Talent Officer for a country in a system like this.

Anatomy of a cash-squeeze bankruptcy

I recently had a heartbreaking conversation with a small business man who started producing a new type of fruit juice a few years ago. His family business was his "dream come true," he told me. He was thriving. This past month, he had to file for bankruptcy even though he was making money. Here is how it happened.

He was doing well, growing his business by getting distribution in large supermarket chains, and even turning a profit. And then came the financial crisis. This caused the supermarkets to delay payments to him - from the normal thirty day lag after delivery (called "net-30"). The supermarkets, though profitable, were having trouble raising working capital from their banks, which were in crisis. So to conserve their own cash, the supermarkets began going to net-60 and then to net-90 with their smaller suppliers like the juice maker. He told me one supermarket even had him on net-120, which meant that he would not get paid until four months after he delivered the juice to the supermarkets.

Since the juice maker was not getting his revenue on time, he was having trouble pulling together the cash to continue producing. Unlike the supermarkets, which have a lot of power, his own suppliers will not allow him to pay on a net-60 or net-90 basis. So the juice maker turned to his local bank, explaining that he was profitably selling juice to the supermarkets, and that he just needed to borrow money for ninety days to tide him over while waiting to get paid.

His local bank was feeling the effects of the broader banking crisis and refused to extend him more credit. He tried more banks, and the answer was the same.

Finally, he could survive no longer and had to fire all his workers and close production entirely. When I spoke to him, he was winding down operations.

"You know, I didn't mind helping bail out the banks when they were in trouble last year," he said to me. "But the least they could have done was help bail me out when out when I needed help."

Effective scientists are like wandering ants

Science is basically a bunch of little steps. Many little experiments that explore cause-effect space. If you find a new example of cause and effect, the payoff is unpredictably large. Scientists don’t like thinking of themselves as wandering ants. But that’s how they are most effective. This goes against human psychology because wandering (Nassim Taleb calls it “tinkering”) is low status and lonely. The payoff is too rare and too unclear. It isn’t supported by powerful institutions, such as research universities and medical schools. Imagine an ant who says “I know where food is!” This is a way to get many ants to follow him, to feel important, to have high status, to get support from his employer. That’s why he does it. But he doesn’t know. The effect on the rest of us, the potential beneficiaries of progress, is that instead of having a thousand ants wandering everywhere, we have a thousand ants following one ant who doesn’t know what he’s doing.

That is from the iconclastic Seth Roberts, formerly a professor of psychology at Berkeley who now teaches at in Beijing at Tsinghua University. His overarching theme is that for science to advance it requires people to come up with and test novel hypotheses rather than tinkering at the margins of the currently accepted wisdom. In short, orthodoxy is often unproductive for scientists, and sometimes dangerous. His blog is full of unexpected hypotheses about how the world works, and he often tests these hypotheses on himself, enlisting his own readers as co-experimenters.

"I found it hard to give away what I had earned"

Yesterday I blogged about Karen Armstrong's Charter for Compassion, an attempt to rally both the interfaith and secular communities around a unifying concept.  Today I want to talk about an extraordinary book that builds on the same concept and  links it to generosity in action.  The book is Being Generous, by Ted Malloch.

Malloch, who comes from the Christian faith, describes how generosity has manifested through various faiths and specific people.  What makes it especially powerful is his description of his own journey from self-described narcissism to compassion: "It never came easy.  I have always had a "meritocratic" outlook.  That is...you get what you earn, what you deserve....I found it hard - often very hard - to give what I had earned away."

Being Generous weaves personal narrative with a brief description of the injunction to generosity in Christianity, Judaism, Islam, Hinduism, Buddhism, Native American and Aboriginal spiritualism, Confucianism, and secularism.

He then weaves in stories about an exceptional mosaic of givers, both big and small, well-known and obscure.  The diversity of personalities, viewpoints, and displays of generosity is arresting, and makes it clear that religion is not the sole motivator of generosity.  The vignettes range from Henry Ford, Bill Gates, Oprah Winfrey, Jeff Skoll, and John Templeton to surprising stories about figures such as Johann Sebastian Bach and Felix Mendelssohn.  Malloch also highlights many lesser known and smaller donors, including six donors to projects on GlobalGiving (to which royalties from of the book are being donated).

In the end, Malloch, despite being a strong personality with strong views, is interested in commonalities, not differences.  This is something he shares with Karen Armstrong.  This is what makes this book and the Charter for Compassion, so appealing.

Spending time with people as diverse as Ted Malloch and Karen Armstrong has been one of the great pleasures of my life since leaving the World Bank some nine years ago. I used to have much less time for people with whose political and aesthetic views I disagreed.  But when those views are connected through the shared value of compassion and generosity, the apparent contradictions become a source of creativity rather than conflict - something the world is crying out for these days.

[GlobalGiving]

Do Unto Others...

Today I attended the launch of the Charter for Compassion at the National Press Club.  Sponsored by TED and the Fetzer Institute, the Charter is being spearheaded by Karen Armstrong, a former Catholic nun.  She left the Church, initially to teach English and then went on to write some very well received books on comparative religion, including my favorite The History of God.

Armstrong argues that all religions boil down to one thing:  Do unto others as you would have them do unto you.  All holy texts, according to a religious leader she quotes approvingly, are merely commentaries on that basic injunction or belief.  It is that tenet - Do unto others as you would have them do unto you - that is at the core of the Charter for Compassion.

As Chris Anderson, Curator of TED, said in his introduction today, "This is not about kumbaya; it is about making a real difference."  I hope he is right.  The challenge is to figure out how to make the charter sing not only to the choir, but to those who don't think about the world - or their lives - in such terms.  Fortunately, many of those present have had experience with just such challenges, including overcoming apartheid in South Africa and segregation in the US.

Here is a video of Armstrong describing her dream for the Charter. One GlobalGiving donor was so inspired by this that he bought $25,000 in GlobalGiving gift cards with the inscription: "Charter for Compassion: Live compassionately, act generously. Match your gift to the need."

Luck Begets Luck

If you have ever reflected on the role of chance in life, I recommend this provocative post by James Kwak over at Baseline Scenario.  I do think a longer discussion of variance around the mean - including the role of  effort - is warranted (to be fair to Kwak, he agrees that incentives matter). This excerpt should whet your appetite:

But there are still two implications of realizing that everything — even your initial endowments — is a matter of chance, not something you deserve.

The first is that you shouldn’t look down on other people (1) because their parents weren’t as rich as yours, or (2) because they aren’t as smart as you, or even (3) because they don’t work as hard as you. I think most people agree with (1); I think you should agree with (2) and (3), too.

...I have little patience for the idea that rich people deserve what they have because they worked for it. It’s just a question of how far back you are willing to acknowledge that chance enters the equation.

Another Unexpected Guarantee

In 2007, GlobalGiving put in place what is perhaps the first philanthropic guarantee. If any donor is not satisfied with her donation for any reason, we will refund her money in the form of a voucher that can be used on any other project on the site. This guarantee is highly unusual in this sector, where donors have often been kept at arm's length.  It reflects how strongly we feel about the donor experience on GlobalGiving.

Today, The Week magazine announced it is guaranteeing to its advertisers that readers will remember their ads more than they remember ads in other magazines.  I like the Week (especially the print version) because they are innovating the presentation and trying to make the magazine enjoyable and "sticky" even while the content is serious.

Innocuous Changes vs Grand Designs in Aid Reform.

After the success of the first Development Marketplace at the World Bank in early 2000, Mari and I began sketching out additional competitions to extend the idea of creating a real marketplace for development.

One concept was to give vouchers to government officials and allow them to "shop" among various Bank teams when the officials came to Washington each year for the annual meetings. The idea was to create a small window outside the usual heavy and bureaucratic planning process by which the Bank's billions of dollars of funding were allocated each year. This new window would enable Bank teams to more directly gauge demand for their products and also to experiment with innovative new ideas that would normally not survive the formal planning process. Over time, we might even allow teams from other aid agencies to compete in this process as well to ensure that Bank teams were exposed to even more new ideas and competitive pressure.

Another concept was to create a small window allowing government officials to pitch innovative ideas to the Bank each time they came to town for the annual meetings. We would set aside maybe $50 million to fund ideas that might not normally make it through the Bank's analysis, design, and approval processes. Separately, Bill Easterly proposed that the Bank pilot a program distributing vouchers directly to beneficiaries in select countries, allowing them to choose which projects they wanted.

In the end, we decided that the Bank and other official aid agencies were not yet ready for a marketplace.  We felt we could have the most impact by leaving the Bank to create GlobalGiving, a neutral marketplace for community-led development projects around the world.  Our goal was to show it could work, and then see if the idea could get adopted more broadly - including eventually by official aid agencies. We started modestly, and decided that actions speak louder than words, so we did not write or speak much about it in the early years (though we did write a chapter on this in the book Reinventing Foreign Aid).

Over the last nine years, we have been gradually implementing the elements of a real marketplace - including open access, transparency, and feedback loops. We have been gratified to see the emergence of many similar marketplaces for development aid and philanthropy.  Some have failed to get traction, but a core group has survived and grown. Marketplaces similar to GlobalGiving include DonorsChoose (for education in the US), and Kiva (for microcredit worldwide), and GiveIndia. Important marketplace services such as Guidestar and NetworkForGood are helping create the infrastructure backbone for the market. And there are promising new entrants such as GreatNonProfits and Keystone (and many more).

Much has been written in the press about these various platforms, but few pieces discuss in depth the theory behind them.  And, during this time, official agencies have been slow to innovate in this area.  In that context, I highly recommend a new paper Beyond Planning: Markets and Networks for Better Aid by Owen Barder, a fellow at CGD.  It is an excellent theoretical discussion of the issues and challenges facing official aid agencies, which are waning in influence.

Barden argues that improvements in the official aid system are likely to be the result of evolution rather than intelligent design.  "Reform should not focus on a grand new design...but on a set of technical and apparently innocuous reforms which, over time, create strong political pressures for evolutionary improvements in the aid system."

This is a fundamental insight (which incidentally also applies to how the agencies should help stimulate reform in developing countries).  There have been a huge number of "grand design" papers written over the years about how to reform the World Bank and IMF.  But few of them have had much impact.  Barder's approach is much more likely to bear fruit.

But it does raise the question of exactly which "technical and apparently innocuous" reforms to implement.  What could we do that is most catalytic?

My own guess is that the greatest impact would come from empowering beneficiaries to have a much more direct say in what they want and how well projects are being run.  Any aid agency, local government, or project manager would be hard pressed to avoid responding to the voice of the people they are supposed to be helping.

As Owen says, "A particular challenge for aid is that there is a broken "feedback loop" connecting the intended beneficiaries and decision makers.  Recently at GlobalGiving we have started piloting a mechanism whereby beneficiaries in the field can provide feedback on project implementation, and we have demonstrated a rough prototype of a system that would allow beneficiaries to vote ex-ante on the types of projects they most need.  I believe creating this feedback loop can fundamentally change the incentives in the aid system and create strong pressure for change.









[GlobalGiving]

The human drama of learning

I highly recommend David Roodman's recent reflections on the Kiva controversy he stirred up.  Particularly unusual are the insights he reports from actually visiting the Kiva offices and talking to some of the folks there.

Development is at root about innovation and change.  Innovation and change in turn have both a technology/policy dimension and a human/organizational dimension.  We often focus on the technology/policy issues without enough attention to the human side, which can play an equal if not greater role in the success of a new approach.   Our experience at GlobalGiving is that the ability of organizations to learn and respond is a key proxy for their effectiveness over time.

Roodman's description of how Kiva arrived where they did and what Kiva's management did about it after Roodman's initial post is an important story in itself.



[GlobalGiving]

Transparency on Trial?

[Reposted from the Huffington Post, 10/22/09]

A number of commenters have asked me to weigh in on the lively debate that emerged from David Roodman's Microfinance Open Book Blog about transparency--not only on Kiva, but really about all attempts to make philanthropy more direct, starting with the pioneering efforts of Save the Children in 1940.

I've hesitated about weighing in--mostly because we have shared war stories, best practices, and worst moments with our friends at Kiva. We know that they are classy folks who know how to work constructively with feedback. And no one has written more openly than Matt Flannery has about the ups and downs of starting a new organization. So I have wondered what we could add to the debate.

Upon reflection, though, I do want to add a couple of things. It's partly because, as I reflect on this nascent space of direct philanthropy enabled by technology--including GlobalGiving, DonorsChoose, GiveIndia, and others--I think we have a collective responsibility to keep pushing the envelope on transparency and authenticity of the experience.

Let's face it: since the space is so new, we don't always know what works. So we keep trying things, based on what we think will work. Sometimes we get it right, and often we find we can improve.

Overall, we provide an enormous amount of information and transparency to our users about the organizations and projects on the site. We try to put the salient information on project home pages and provide links to more detailed information. At the beginning, we provided far too much information on the home pages. Users told us they couldn't see the forest for the trees - they felt overwhelmed and were paralyzed into inaction. Over time, we have gotten better in achieving a balance, and users tell us that they like our presentation much better now. Most of them feel we are giving them what they want.

But we can always do better.

For example, though the overwhelming majority of projects on the site are run by the equivalent of US 501(c)3 non profits, a few are run by self-help groups and community coops, which are sort of a hybrid type legal form. We even work with a handful of socially oriented for-profit companies that represent a new wave of entrepreneurs trying to leverage business principles to promote the common good. According to IRS guidelines, all of these different organizations are eligible to receive donations as long as they are carrying out a charitable purpose that is not possible under normal market conditions. Regardless of their structure, all are subject to our rigorous due diligence process. When these organizations list projects on GlobalGiving, we monitor their expenditures to make sure they are not making a profit from the donations.

We've received feedback that we should make this information more prominent on the project pages to make it clear to potential donors. That is a fair point, and we have in fact been considering making these categorizations visible, including a "for-benefit" category for these organizations that aren't equivalent to US 501(c)3s. My guess is that we will find that some donors are specifically attracted to this type of organization.

One of the positive things about the web is that we can get feedback - and respond to it - much faster than we could imagine back in the 20th century. Case in point: we recently piloted getting beneficiary feedback (via text message) in Kenya. We ended up with an incredibly rich dialogue between beneficiaries and donors that ultimately led to the beneficiaries moving on to work with another organization, and the original organization closing up shop.

We're constantly looking for more ways to get that feedback more quickly, and from more people. We even put in place what may be the first-ever philanthropic guarantee - the GlobalGiving Guarantee. This give donors a powerful way to tell us if they are unhappy in any way, and signals to them that we are serious about listening. And it gives us a chance to address the issue not only for that donor, but for all donors.

I admire how Matt and Premal have responded to the debate over at Kiva. Their response sets an admirable standard for speed and transparency. (And in that context, if you have any ideas about how we could get more feedback from more people faster, please let us know...!)

Owen Barder on "Beyond Planning"

This paper "Beyond Planning: Markets and Networks for Better Aid" by Owen Barder at CGD looks worth reading. Here is the summary:

The political economy of aid agencies is driven by incomplete information and multiple competing objectives and confounded by principal-agent and collective-action problems. Policies to improve aid rely too much on a planning paradigm that tries to ignore, rather than change, the political economy of aid. A considered combination of market mechanisms, networked collaboration, and collective regulation would be more likely to lead to significant improvements. A "collaborative market" for aid might include unbundling funding from aid management to create more explicit markets; better information gathered from the intended beneficiaries of aid; decentralized decision-making; a sharp increase in transparency and accountability of donor agencies; the publication of more information about results; pricing externalities; and new regulatory arrangements to make markets work. The aid system is in a political equilibrium, determined by deep characteristics of the aid relationship and the political economy of aid institutions. Reformers should seek to change that equilibrium rather than try to move away from it. The priority should be on reforms that put pressure on the aid system to evolve in the right direction rather than on grand designs.

[GlobalGiving]

Darwin and Development

"Growth is innovation, and you can’t know in advance how to do the innovative thing, or else it wouldn’t be an innovation. Development is BOTTOM-UP outcome of lots of unpredictable individual successes and failures."

That is from Bill Easterly's most recent post at AidWatch. He goes on to say:

"The paradox of development economics is that Development does NOT require any one person (Expert, Leader, or Aid Official) to have a comprehensive understanding of how to achieve Development (sort of like how evolution managed to happen on its own before Darwin)."

This is a tough message for many aid workers and experts, but it is true. There is no evidence of intelligent design at work in economic growth, and we still don't understand exactly how it works. The best thing to do, as Bill notes, is to create a fertile environment for experimentation, and incentives for replication of the things that succeed.


[GlobalGiving]

Crowdsourcing vs OpenSourcing

Here is a nice article by Dan Woods in Forbes about the popular concept of crowdsourcing.

In some ways he is constructing and attacking a strawman ("crowds create innovation"). But the article does clarify that the real value comes from OpenSourcing -i.e., allowing pretty much anyone to attack a problem or come up with a solution. As Dan says, it is usually a few virtuosos- obsessed individuals-- from within the crowd that do most of the work.

The key is to ensure that you don't predetermine who is eligible to address a problem, or which types of expertise are the relevant ones. Creative solutions and breakthroughs often come from outside the orthodoxy, not within it.

Crowdsourcing does have a role when you need to get feedback on a concept from potential users to see if it is is marketable, or to take the temperature of a specific population around an issue. But that is different from coming up with the breakthrough ideas.

So what closed systems, organizations, and companies have to fear is not crowdsourcing. It's OpenSourcing.


[GlobalGiving]

The Success of Development

Countries in every region of the world, from the poorest to richest...have all seen improvements in average levels of health and education over the past century.

That is from a forthcoming book by Charles Kenny.  Based on Kenny's own summary, The Success of Development is a book that you will want to pre-order.  If the book delivers, it will help get us out of the rut we are currently in - namely the "there is no evidence that development aid works" rut.

According to Kenny, there is good news and bad news. The bad news is that the divergence in incomes between the rich and poor countries has grown sharply since 1960.  Worse, we really don't understand how to increase economic growth rates in any country. But there is also really good news.  First, contrary to Malthus and Paul Ehrlich's expectations, there is not widespread starvation in the poor countries.  Even better, there have been dramatic improvements in health, education, and even political rights in most poor countries. 

The key insight of this book is that income appears to be a poor proxy for quality of life.  Fortunately, as Kenny says, many of "the best things in life are cheap....The last century has seen a dramatic decline in the cost of living."  The technologies and practices that reduce infant mortality, improve overall health, and increase literacy are relatively cheap. 

So the challenge for the development field is to create and environment that stimulate innovation and the spread of ideas that drive changes that improve the basic quality of life in different countries.   Unlike economic growth, which we have not had much luck stimulating, we have had some success in helping generate and spread these types of ideas, so there is grounds, Kenny says, for "realistic optimism."

[GlobalGiving]

Pioneers of Contagion

Recently I did a post called Could Prosperity be Contagious? Judging from a recent event I went to in Jamaica, the answer is yes.

An initiative called Pioneers for Prosperity was holding its finals competition for the Caribbean. Its goal is to celebrate some of the most dynamic entrepreneurs in the developing world and to help them become role models for their peers and the next generation.

I found the enthusiasm, skill, and grit of these finalists to be highly contagious, and I came back to Washington all charged up about my own work. The Pioneers for Prosperity group has made excellent videos of each finalist that will be showed on TV in their home countries. This type of initiative is very important to change mindsets about what is possible, which is key to making progress in any country.

You can read more here.

[GlobalGiving]

Could prosperity be contagious?

“I wouldn’t call it a competition, I’d call it a collective,” Josh Potocki, the chef and owner of 158 Pickett St. Café in South Portland, said of the city’s food scene. “We are all trying to raise the level of food in Portland to insanely high.”

There has been much written about "social contagion" over the past few years. The latest NY Times Magazine has a long article describing the social dynamics of things such as smoking, drinking, and obesity.

I have been thinking a lot about whether the dynamics of contagion could be applied to economic development.

A powerful example of contagion that I have seen (or tasted, actually) is the restaurant scene in Portland, Maine. Even though Portland is a small city, it has evolved some of the best restaurants in the US. Mari and I recently ate at a restaurant called Bresca there, and the food was spectacular - on par with anything I have had in Washington, New York, San Francisco or London.

What is the key to this? No one knows exactly how it got started, but one or two really great chefs moved to town, and others followed. The dynamics are part competition and part collective. Each chef both emulates and tries to outdo the others, but each chef also knows that the success of the others bolsters the overall market. The NY Times article about Portland is here.

(Thanks to Eli and Scott Stefanski for the pointers to the restaurant and article!)

[GlobalGiving]

Making solar simple (and and affordable)

The challenge for SunRun is to take the incredibly complicated business of solar and make it really simple to the consumer.

That is from a nice post about residential solar power by Marc Gunther. I highly recommend Marc's blog if you are interested in the intersection of environment and business. No one writes better about this than he does, and there are some very encouraging developments in the sector. The pace of innovation gives me some hope.

[GlobalGiving]

Making complexity simple (and cheap, too)

It was refreshing to see this blog post by Ken McHugh, a software architect at Cognitive Edge. Ken describes upgrading the operating system on his computer. Based on past experience, he expected the worst.

Instead, he was delighted. Even though the new system was a significant upgrade, it was cheap, installed quickly, did not crash, and even took up less space on his hard disk. The title of his post, Why Did It Work?, which speaks volumes about our expectations, and also about the value of delighting ones' users.

Feature creep on things like cameras, remote controls, software, and web sites makes many products less rather than more useful to normal users. Trying to navigate all the dials, buttons, and menus is sometimes a nightmare, when all you want to do is take a picture or write a quick note. This is starting to produce a backlash, as described by Wired in a recent article titled The Good Enough Revolution: When Cheap and Simple is Just Fine.

Ken's experience shows that adding features and complexity can be made simple - and cheap, too - if the company behind it is focused on what users really care about.

[GlobalGiving]

When at First You Don't Succeed...

It takes an average of 58 new product ideas to deliver a single successful new product. That is the core message of Getting to Plan B, a new book by John Mullins and Randy Komisar.

Since Plan A almost never works, it is critical to quickly learn from failure and move on to a successful Plan B (or C or D or E…). This book provides an exceptionally helpful framework for how to do this. Its power lies in its analytical framework combined with vivid examples from companies - including both for-profit and non-profit.

The first order of business for the authors is to dethrone the business plan. Many entrepreneurs and inexperienced investors obsess over the initial business plan. But the quality of the initial business plan is far less important than the ability of the entrepreneurs to form and test hypotheses rapidly - discarding the leaps of faith that don't pan out and doubling down on those that do.

Contrary to popular perception, most successful businesses did not strike it rich from the beginning. A company like eBay, profitable from day one, is the exception that proves the rule (and Pierre Omidyar has said that he realizes how lucky he was). Even eBay has struggled to figure out how to make money from new business lines such as Skype. Google would not be the behemoth it is today - and might even be out of business -- if it had not discovered its own Plan B, paid Adwords. Amazon burned through hundreds of millions of dollars before it hit upon the right business model that made it profitable. Today, the jury is out on whether Twitter and even Facebook will find profitable Plan Bs that sustain their early growth.

What matters most is not the quality of the initial business plan, but instead the ability of the team to iterate successive business plans as a means to finding what works. Merely flailing about from Plan A to B to C increases the chance you will run out of cash before finding the right Plan. So the trick is to experiment quickly but intelligently, and with discipline.

The authors urge entrepreneurs to assemble several analogs (features of other companies they want to emulate) and antilogs (features they want to avoid). Based on these, entrepreneurs then form a hypothesis about a product or service - essentially a leap of faith that customers will buy it at a price and quantity that generate revenues in excess of cost.

The next step is to develop a dashboard to monitor whether the hypothesis is correct. Can you get the product to market with the amount of investment you have been able to attract? Are enough customers buying? Are they willing to pay the price needed? Is the cost of production such that the company can become profitable at the appropriate scale?

The answer to one or more of the above questions is likely to be "no" for Plan A. So the next step is to repeat the process - develop new analogs and antilogs and another hypothesis or leap of faith based on those. Try it, and monitor with a dashboard. Repeat again.

The key is to pick the simplest possible dashboard that includes only the key drivers to your success. To help the reader determine these, the book provides helpful examples using real companies relating to several dimensions - the revenue, gross margin, operating cost, working capital, and investment models.

Anyone who is thinking about starting a new business should read this book. Given the pace of change in the world, even established business leaders should read it, since the constant threat of new competition often requires even existing companies to develop new Plan Bs.

More provocatively, this book helps explain why some economies grow faster than others. An economy whose institutions and other structures facilitate rapid-cycle experimentation is going to produce more successful companies and products. By contrast, economies that discourage experimentation and punish failure are going to find fewer of those one in 56 new ideas that work.

One implication of this is the need for a fundamental change in the DNA of development aid agencies. The existing aid agencies are based primarily on the idea that if a problem is studied in enough depth, then a select group of experts will be able to design a solution. As a result, a huge amount of resources go into Plan A, which results in projects with a typical life span of three to five years. And to make it worse, agencies such as the World Bank aim for a project success rate of 85% - far above the 1:56 chance of the first idea being a successful project.

For official aid projects, thorough reviews are done after several years have passed. In theory, the lessons learned are incorporated into the next project, which launches a couple of years down the road Though small course corrections are possible, it is difficult to significantly modify a project once it is underway. As part of this mentality, failure is seen as very bad - as evidence that not enough analysis and planning were done or (worse) that the experts involved were incompetent. Agencies go to great lengths to sweep failures under the rug instead of quickly embracing the lessons of failure and acting on them.

Aid agencies instead must mirror the way that successful economies operate- they must encourage rapid-cycle experimentation. They must acknowledge that even the best experts rarely get it right the first time - or even the second or third time. As counter-intuitive as it sounds, the key is to fail quickly and then move on to test new hypotheses until they find one that works, just like leaders of the most successful private companies.

I do have one major complaint with this book. As a leader of one of the organizations featured in the book, I was fortunate enough to have the counsel of Randy Komisar along the way. But it would have saved me a lot of headaches if Komisar and Mullins had written this entire book some nine years ago. When I co-founded GlobalGiving, I spent a lot of time on our initial business plan, and I was highly confident our Plan A was going to work. When Plan A failed, I spent a lot of time licking my wounds and wondering what went wrong. This book would have helped me understand that early failure is par for the course, and it would have given me a framework for getting to Plan B much earlier.

Update: Here is another review from the Financial Times.