Friday, December 30, 2011

2011

By J. Mac Holladay, Market Street founder and CEO.

Well, it is over. What a ride it was. There is one word that typifies the economy – uncertainty. As Thomas Freidman predicted in February of 2009, this recession would be like none other we have ever experienced. While many parts of the country, including the South, are still struggling with high unemployment and lower per capita incomes, there are few signs of progress ahead. Perhaps the most notable is the rise of the Consumer Confidence Index of 10 points reported earlier this week. That index reflects how people feel and how they see their own prospects. While it remains well below its peak, this is the biggest positive jump in several years. 

Our project work in 2011 has taken us from coast to coast. The differences are dramatic from the solid economic performance of Des Moines to the major difficulties facing Birmingham. Our home town of Atlanta has suffered over 200,000 net job losses and the outlook is very weak going forward. Each place has its own story to tell. After all these years and working in over 150 communities in 30 states, I can tell you one thing for sure. Every place is different. Even the county or city next door may have a different culture and economic basis. There are no quick fixes or cookie cutter answers. Each place requires its own strategy and focus.

Market Street has had another fine year because of our quality staff that works extremely hard. This is the best team of people, all 12 of them, that we have ever had. My three partners in the firm, Ellen Cutter, our Director of Research, Alex Pearlstein, our Director of Projects, and Kathy Young, our Director of Operations, have all stepped up as owners and taken on more responsibility. Our book of business in 2012 is very strong, and we look forward to working together for years to come. 

There were many milestones in 2011. One of the losses we all suffered was the death of Steve Jobs. He was a gifted and difficult man who impacted everyone in business and in life. He had many human faults, but had a genius that few can even imagine. I have purchased (but not read as yet) his biography written by Walter Issacson. The long time Fortune writer Brent Schender, who wrote about Jobs for 20 + years, ended his article with these words; “Yes, he was larger than life, but life deserted him. In other words, he was as human as they come.” We will not see another like him.

2012 is almost here. We have to face it and know that it will be different. That is the challenge and the opportunity. I look forward to it.

Thursday, December 22, 2011

Social Entrepreneurship as Economic Development

By Evan D. Robertson, Project Associate. 

The holidays can be a very stressful time for everyone involved. Anxious moments are usually centered around: what presents to get your loved one(s), fighting for said presents in the huge Black Friday crowd (apparently it is socially acceptable to throw an elbow or two), travel arrangements and resulting debacles, festivity planning, and, my most dreaded, how much do I give the Salvation Army Santa? Do I give more than once if I am making multiple trips? What if he eyes me while I am leaving the mall? The anxiety is solely due to the profound knowledge that whatever I give while helpful is nowhere near enough. The Great Recession has placed many, in the United States and abroad, in need of the most basic necessities. When the economy does recover many more mouths will go unfed, more heads will go unroofed, and more bodies will go unclothed than ever before. The challenges facing us are both humbling and deceptively surmountable. There is a growing segment of individuals are out prove these challenges can be overcome and audacious enough to leverage the power of capitalism to do good while doing well. 

Social entrepreneurship operates in a newly discovered gray area between profit-centric business models and social causes. The Ashoka Foundation describes social entrepreneurs as “change agents for society, seizing opportunities others miss and improving systems, inventing new approaches, and creating solutions to change society for the better.” The social entrepreneur engages in a high risk venture where profit margins are razor thin, where failure is always knocking on the door. As my co-worker, Jonathan Miller, recently discussed in his December 12th blog Legally Beneficial, these ventures are established on a wide spectrum of business models, ranging from the traditional non-profit, to thenewly emergent B Corporation, to a straight for-profit model.

Aravind Eye Care System is one such for-profit social venture founded by Dr. G. Venkataswamy who saw a critical need to address preventable blindness among India’s underserved. The eye care system has grown from a small hospital (11 beds in total) that preformed cataract surgery to both India’s wealthy and poor to a hospital system serving 2.6 million people. Aravind operates as a for-profit business with one important twist. Customers are charged based on their ability to pay, those in need pay substantially less than those who can more than afford the eye surgery. Thus, the wealthy subsidize those individuals who would have been otherwise unable to pay market rate. Along with the price discrimination, Aravind is able to stay profitable because of two other important innovations: it is able to supply its own low-cost lenses, significantly lowering the cost of doing business, and it is able to turn over patients at a high rate. Eye surgeries at Aravind take minutes, not hours, with the operating room housing two simultaneous eye surgeries being performed in unison. The operating model allowed Aravind to perform 300,000 surgeries between March 2010 and March 2011, all while operating as a going concern. 

Aravind provides a solid case study of how entrepreneurs are adapting to a world in greater need, and speaks to social entrepreneurs’ efforts in business model innovation. Who would have thought the answer to blindness in India was price differentiation, high patient throughput, and research and development investment into low cost eye lenses.

Social ventures, in whatever form, are a valuable piece of the local economy especially given that issues preventing economic development transcend job creation. If you subscribe to the belief that economic development is about raising standards of living and improving quality of life in your community, than social entrepreneurship and fostering social ventures in the local economy is a likely process for forging new paths of discovery to cure problems where both the public, private, and non-profit communities have been unable to provide for those most in need. With public service, social entrepreneurs will dare to imagine and rethink proven business models, turning them on their head, and making them work to serve their purpose, breathing new life into old. Who knows what spillovers may ensue.

Monday, December 12, 2011

Legally Beneficial

By Jonathan Miller, Project Associate. 

In a November 12 opinion piece in the New York Times, William Deresiewicz, argues that my generation, the “Millenials” (a term that resonates very little with me) are “polite, pleasant, moderate, earnest, friendly,” unlike generations such as the beatniks, punks, and “slackers of the late ’80s and early ’90s.” While I believe there were, in all likelihood, pleasant beatniks and friendly slackers, Mr. Deresiewicz says that such an attitude has made my generation apt to be salesmen (and saleswomen), the product of wanting to please others, while combining ambition, autonomy, and imagination. He dubs us Generation Sell.

One of the trends that Mr. Deresiewicz picks up on is that to us “what’s really hip is social entrepreneurship — companies that try to make money responsibly, then give it all away.” I think his observation is dead-on. One of the evolutions in entrepreneurship, one that can be seen as a bridge between Generation Sell and social entrepreneurship, is the formation of new corporate structures that are specifically designed to reflect a social purpose, while retaining the ability to raise capital and scale the company.

What little I know about starting a business primarily comes from LegalZoom.com commercials (my lawyer-to-be fiancĂ© is giving me the “really?!” look right now). However, I do know that to start a business you must choose to structure as either a non-profit or for-profit entity. Entrepreneurs wishing to raise capital and grow their businesses have traditionally been limited to either a corporation or a limited liability company. The attractiveness of such structures to social entrepreneurs are limited by fiduciary duties (tradeoffs between social investment and foregone profits can be dicey) in the former, and a lack of confidence by capital markets in LLCs (stemming from tax burden issues) in the latter. To address such inadequacies, states across the nation have adopted new business forms and now offer social entrepreneurs new models for doing business.

The following three structures are indicative of the new wave of thinking about corporations and the overall purpose. The structure descriptions can be found in a December 11, 2011 Wall Street Journal guest column by Kyle Westaway entitled “New Legal Structures for 'Social Entrepreneurs'.”

Low Profit Limited Liability Company (L3C)


Available in VT, MI, WY, UT, NC, LA, ME, and coming soon to RI

The primary purpose of an L3C is charitable in nature, followed by profit. With the same liability and “pass through taxation as an LLC” this structure allows for entrepreneurs to raise both traditional capital and debt and equity capital called Program Related Investments (capital from foundations or regular companies that is intended to further the charitable purpose, and while the loan will be repaid, it is not a means of generating income). Also, profits may be distributed to owners.

Benefit Corporation

Available in MD, VT, VA, NJ, HI, CA, and soon CA

Benefit corporations must operate for the general public benefit, which is a “material positive impact on society and the environment.” Such impact must create value for shareholders, the community, the environment, employees, and suppliers. Further, every Benefit Corporation must use an independent third-part assessment tool to publicly chronicle its operating benefits. High transparency and increased accountability standards are key aspects of the benefit corporation.

Flexible Purpose Corporation

Available in CA

Very similar to a combination of an L3C and a Benefit Corporation, the Flexible-Purpose Corporation aims to balance a designated special purpose, such as promoting awareness of poverty or minimizing effects of pollution, and profit. The special purpose is written into the articles of incorporation. Accountability standards are not as rigorous as those of a Benefit Corporation, but annual public disclosure of the special purpose, metrics used to gauge success, resources devoted to the special purpose and whether goals and objectives have been met, is required. According to the California Working Group for New Corporate Forms, “the Special Purpose requirement is designed to put shareholders and potential shareholders on notice that the corporation will pursue agreed interests that may (or may not) align with profit maximization.”

While Generation Sell is certainly not the only generation backing these new forms of business, it is clear that the traditional roles of for-profit and non-profit that have developed through many generations are changing. Perhaps Mr. Deresiewicz could add a few more adjectives to describe our generation…I would be fine with “social,” “innovative,” and “aware.” 


More information can be found here:

http://businessforgood.blogspot.com/2011/03/frequently-asked-questions-proposed.html

http://www.bcorporation.net/

http://online.wsj.com/article/SB10001424052970203413304577088604063391944.html

Thursday, December 8, 2011

Migrate to this Website for some Thursday Afternoon Procrastination

By Ellen Cutter, Director of Research.

Last month, Forbes rolled out an interactive map allowing users to visualize in-bound and out-bound migration patterns for every county in the United States over the last five years. The data powering the map are from the IRS, which uses tax filer zip codes and the number of exemptions to approximate migration and migrant income between counties. And, let me say this: it is awesome!

Of course, I have spent the last half hour (ok…maybe even a bit longer) obsessively clicking on various counties – places I’ve lived, places I’ve traveled to, Market Street client communities, and places that have been in the news in recent years due to natural disasters, housing market slumps, or other significant economic changes. I won’t spoil all of the fun, but a few interesting places to click on include the following. 

  • Orleans Parish, LA (New Orleans): The map bleeds red in 2006 red due to dramatic out-migration from Hurricanes Katrina and Rita, but the wave of residents back to New Orleans in subsequent years is promising.
  • Polk County, IA (Des Moines): As people told us in community input in our work with the Greater Des Moines Partnership, there are concerns about the region’s long-term talent pipeline because out-migration from other areas of Iowa have predominately fueled workforce growth in Des Moines. 
  • Clark County, NV (Las Vegas): Migration flows from 2005 reflect the booming housing and job market in metro Las Vegas, drawing workers from almost every county in California and many in the eastern seaboard.
  • Queens, Bronx, Kings, and New York County, NY (New York): The core counties of the New York City metro area are losing domestic migrants (one of three keys to population growth with the others being natural change (births minus deaths) and international immigration). With the long-term livability constraints of the region, including factors like housing prices and commute times, this isn’t too surprising.
  • Wayne County, MI (Detroit): Clicking through the years, the spread of geographies which out-migrants are leaving Detroit in favor of grows wider and wider and wider.

Now, if you’ve clicked on a community you’ve moved to or from in this five-year window and don’t see a migration flow for your move: don’t be alarmed. Since there are aggregate gross income figures associated with each migration pattern, IRS and Forbes have only disclosed migration flows that include a total of ten tax filers to protect the privacy of individual movers and households. And, if you are wondering about international migration you should know that is not captured by this map, but the IRS data do estimate aggregate foreign flows and can be accessed here. 

Happy procrastinating!

Tuesday, December 6, 2011

Lessons in Economic Development During my Vacation

By Ranada Robinson, Senior Project Associate. 

For my birthday, I traveled to Buenos Aires, Argentina, with my mom and three dear friends for a week of relaxation and adventure. Not too long after I got there, however, I experienced firsthand what we see in many surveys and hear in many focus groups about why it’s important to feel welcome in a community. In the first restaurant we tried after arriving, our waiter ignored us. Luckily, we were with a tour guide, who wasn’t a black woman (like each of us are), who was able to get a little more attention and he ordered for us all. The waiter wouldn’t split our checks, even though the party at the table beside us did. It wasn’t until after we gave him a $5 tip (over 20 pesos) that he actually was attentive, but of course, by then we were leaving. We still hadn’t attributed that experience to our color, however. It was obvious that we weren’t the norm there—rarely did we see anyone our shade over the week, but still, no worries! Then we hopped on the subway, and I’ve never been so stared at in my life. I thought I was paranoid so I didn’t say anything. On day 3, we were walking through our neighborhood San Telmo and a guy started screaming at us in Spanish and laughing the way dirty old men laugh after telling inappropriate jokes. That’s when we all fully realized that we were not being paranoid. We pulled out the trusty iPads and electronic devices and started googling some history—and sure enough, there’s some murky stories having to do with black people in Buenos Aires. 

Once we knew that, we felt better prepared, and the rest of the trip was a cinch. The stares didn’t bother us so much; we weren’t so surprised if we got a below par waiter (and for the record—we have a couple of really awesome waiters and almost all of our taxi drivers were the nicest people ever!); and thankfully, no one else screamed at us. It all points back to the ongoing difficult conversation that many communities must have about diversity and ensuring a welcoming environment for people of all kinds of backgrounds. As Mac loves to say—every visitor is a potential new resident, employer, or employee so each visit is very important. Sure, overall, we had an awesome time, and I celebrated another birthday with an incredible bang, but I did wonder a couple of times if we should have taken our money to some other country’s economy. 

Another thing to remember here is that the diversity conversation cannot just be a high-level conversation between a few people in an office—changing the perception of community takes the entire community. It takes listening to community members, educating the masses, and really communicating what the goal is and why that goal is so important. We’ve had clients who have done much to tackle negative perception issues dealing with all types of issues, from race to religion to gender to class. Being a welcoming community isn’t just slapping up a sign up that says “All are welcome.” It’s ensuring that there are opportunities for all that want them. It’s having community roundtables that foster focused dialogue between various stakeholder groups. It’s hosting diversity summits to bring people together and let them know what the community, especially its business community, has to share. It’s thinking ofinnovative ways to expose children in underrepresented groups to future career options. It’s bringing everyone to the decision-making table. There are great examples from communities all over, some of which were featured in a Chamber Executive article.

Developing cooperative, inclusive communities isn’t an easy task, but it isn’t an impossible one. The first step is acknowledging the issues and not allowing people to think that they’re simply paranoid when they look around and feel unwelcomed. The second step is remembering that people are every community’s greatest asset and without them, it’s pretty hard to employ effective economic development initiatives.