(Book Note) Social Startup Success

Buy Now: Amazon ($18.36)| Kinokuniya (MY) (RM 137.21)

A book by philanthropy expert Kathleen Kelly Janus which bases her research on the best practices of America’s most successful nonprofits. And she derives her compelling sections on ideas testing and experimenting from the funding models of innovators in the tech sector.

She also offers counsel for small nonprofits that struggle to grow past their stage of initial seed funding. Throughout the book, she details the aspirations of the social entrepreneurs she covers,  recounting their passion and dedication to spearheading change. Her accounts of how nonprofit leaders transform lives in their neighborhoods and around the world will inspire readers interested in nonprofits and social service.

Reading Notes Points

  • Avoiding costly mistakes: test your ideas first!
  • Practice transparency and accountability. Share the lessons you learn from failure. This remind me of Ray Dalio’s principles.
  • Correlate your vision with the use of “theory of change” model with its program activities which you can track.
  • Develop a funding model that incorporates donations and earned income.
  • When collaborating, try to offer complementary services.
  • Empower your staff.
  • Craft compelling stories to reinforce institutional memory and connect with donors.
  • Beneficiaries can be great ambassadors, but be ethical in using their stories.

Human-Centered Design

Nonprofits don’t have access to angel investors unlike private businesses. Their stakeholders include governments, other organizations, nonprofits doing similar work, researchers, activists and beneficiaries.

Therefore, in order to grow, nonprofits must maximize funding using “human-centered design” which is a cost-effective, responsive cycle of research, brainstorming and prototyping.

New nonprofits should keep costs low when developing their prototypes. 

For example, Aspire Public Schools, a nonprofit delivering preschool education to low-income neighborhoods, made a prototype for its Preschool Bus Project using a carpet and some tape, and then furnished it with cheap IKEA furniture. So, they might healthily run their operation at lowest possible Capital Expense and Operation Expense.

Lessons Learned Actually Learned

Any innovation involves trial, error and, often, failure and trying again. No great leap in any industry has been done without significant amount of failing and not giving up. This is the main ingredient on which success is build.

Unsuccessful nonprofits hurt beneficiaries which make ability to learn from mistakes and failing crucial. Therefore, when nonprofit organization can’t admit their failure, their organization will suffer. Since this rob them of the opportunity to actually learn the from their mistakes. And if the culture does not change, the organization will suffer in the long run.

Silicon Valley offer a model for embracing failure in term of its innovators need tolerance for risk. The only way to know if your service is successful is to test it in the field. In addition, change of perspective on how success looks like might also need to change since success might come in stages, and failures have lessons to teach.

For example, GiveWell shares its failures on its website so other nonprofits might learn from its mistakes. Share missteps within your organization; discuss expectations versus real results and problems.

“Keep the focus squarely on solving the problem, as opposed to falling in love with a particular solution.”

Outputs Versus Outcomes

I used to think that outputs and outcomes are synonyms. I was wrong.

Here is an example to illustrate the difference,

Instead of focusing on “outputs,” such as how many people attended a training program, rely on “outcomes,” such as how many attendees go on to get better-paying jobs, or the like.

In order to measure our ‘output’ and ‘outcome’, we need a great deal of sound data, relevant metrics and qualitative analysis. All the fun good stuff. The “theory of change” model sets a goal and defines metrics to track progress over time on a dashboard. So, lets focus more on ‘outcomes’ rather than ‘outputs’. ‘Outputs’ usually just make us look busy with minimal impact.

Earned Income

Self-sustainability is very important. Therefore, the biggest barrier to scaling up is attracting funding. Which involves developing an earned-income strategy, where your organization sells products or services, can help. With subsequent growth, earnings can make up an average of 30% of the budget.

Funders can’t expect nonprofits to follow business models. The Sierra Club, for example, has found that charging membership fees is the funding method best suited to its needs. 

The strongest sectors for testing earned-income strategies are education, global development and youth development. Nonprofits in human rights, criminal justice and environmental protection have less access to earned income for ethical reasons.

Tell Compelling Stories 

As my studies on social media marketing goes, our ability to compellingly tell a story would define how well we do or lack of it. So, needless to say, we need to learn how to be a storyteller.

Inspiring stories abound in the nonprofit world. Your organization should always be the protagonist working against the problem it seeks to solve. The problem is the antagonist. Tell a story that incorporates universal themes, such as the journey of discovery or shared personal challenges.

Think about a ‘hook’.

Ask yourself what your audience wants to hear, what entrenched ideas you’d like to challenge and what you’d like the audience to learn. Connect to your community’s cultural narrative by scanning the media for stories that link to your organization’s mission.

Tell stories that speak to the head and the heart. Beneficiaries’ personal stories have power, but for ethical reasons, do not exploit them. To create “institutional memory,” have employees share stories at meetings.

Again, if you’re into nonprofit organization, this is the book for you.

Buy Now: Amazon ($18.36)| Kinokuniya (MY) (RM 137.21)

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If you’re interested in starting to make money online or even starting a blog. Please read How to start a Blog.

“Start testing immediately. A little bit of something is better than a whole lot of nothing.”

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The ‘Big Bang Theory’

‘The expansion of the universe was one of the most important intellectual discoveries of the 20th century, or of any century.’

Surah An-Nisa, verse 122 (4:122)

(4:122) …, [which is] truth, and who is more truthful than Allah in statement.

The universe is enormous, and rightly so have been the object of curiosity since time immemorial. Greek philosophers, including Aristotle, believed that the Universe had always existed and would continue to do so eternally. This was also the mainstream view in scientific circles at the beginning of
the 20th century, aptly known as the ‘steady state theory’. An eternal state of the universe meant that there was no inherent need for a Creator for what does not have a beginning does not necessitate a need for a cause. However, advancements in science would shatter this view and fundamentally prove that the Universe had a beginning.

In 1922, physicist Alexander Friedmann, produced computations showing that the structure of the universe was not static and that even a tiny impulse might be sufficient to cause the whole structure to expand or contract according to Einstein’s ‘Theory of General Relativity’.

George Lemaitre was the first to recognize the implications of what Friedmann concluded. Lemaitre formulated that the universe had begun in a cataclysmic explosion of a small, primeval atom. He also proposed that the amount of cosmic radiation are the leftover remnants of the initial “explosion.”

The theoretical musings of these two scientists did not attract much attention and probably would have gone ignored except for new observational evidence that rocked the scientific world in 1929. That year, American astronomer Edwin Hubble, made one of the most important discoveries in the history of astronomy. He discovered that galaxies were moving away from us at speeds directly relative to their distance from us and from each other. A universe where everything constantly moves away from everything else implied a constantly expanding universe.

Stephen Hawking writes,

‘The expansion of the universe was one of the most important intellectual discoveries of the 20th century, or of any century.’

Since the universe is constantly expanding, were we to rewind a film [of its history], then necessarily we would find the entire universe was in a joint state, referred to by some as the ‘Primordial Atom’.

Many scientists and philosophers resisted the idea of a beginning to the universe because of the many questions that it raised which primarily on what or who caused it. However, with Penzias and Wilson’s discovery of microwave radiation emanating from all directions, possessing the same physical characteristics namely petrified light which came from a huge explosion during the first seconds after the birth of the universe has left little doubt about the fact that the universe had a beginning.

For fourteen hundred years, since the revelation of the Qur’an, skeptics had trouble understanding the verse,

Surah An-Anbiya (The Prophets) Verse 30 (21:30)

‘…the heavens and the earth were a joined entity and We separated them…’ [21:30].

However, with the assistance of scientific advancements, we can now understand these verses in a new light which help us piece together the cosmological puzzle. The miraculous nature of the Qur’an lies in the knowledge it contains. Its verification of scientific facts shows that its message is as applicable to the scientist in his laboratory today as it was to the Bedouin in the desert.

Ref: Scientific Truths in the Quran

The Language of Money

Language is a tool of communication in all areas of life. And in order to make a meaningful conversation especially in our working life, we need to know the industry specific lingo or inside language. It saves time and lessen the probability for miscommunication.

The practitioners in various professions generally use their inside language for the sake of accuracy and efficiency. Or some might refer to it as the industrial lingo.

For instance…

Most people do not need or want to know why a plumber chooses one tool over another to fix a leaky faucet. But people can also use jargon, or specialized terms, intentionally to exclude outsiders from conversations. Sometimes experts in certain industries want to protect their status by using their own lingo. But words and phrases also can entrench a particular worldview.

For instance …

They can organize society according to economic beliefs, such as “wealth trickles down.” Trusting in experts makes life easier for most people, until disaster strikes. If a widespread sewer failure occurred, everyone would need to learn plumbing terms.

The 2008 financial crisis rained calamity on the general public. Now, those who learn the language of money can help protect themselves in the future by participating in dialogues and forming their own opinions. People need greater knowledge about the economy and the financial system to “make informed democratic decisions” and better choices about managing their money.

The world of economics, business and money has developed its own vocabulary that includes words with particular meanings, special terms for complex concepts, and idioms or figures of speech. For a parallel, consider wine experts, who use a specific vocabulary to describe the taste characteristics of different grape varieties. Proficiency with a particular language, like the language of wine, necessarily excludes people who can’t detect the distinctions that are clear to insiders. But people can learn specialized languages when they participate in related experiences with expert guides or teachers.

In most cases, the language in a field permits participants to share in informed discussions without value judgments, even when they disagree on interpretations.

“Economics is about tools. And the most important of these tools, the one without which the others won’t work, is language.”

At the same time, we need the knowledge and the words to express and convey it in order to give validity to your value judgments. Although most vocabulary in the world of money is value-neutral, the terminology arguably can help lead people astray in some areas.

Economics began as a branch of moral philosophy. But as it developed as a discipline, it has sought to follow the hard sciences, such as physics, into the realm of mathematical absolutes and scientific laws.

In some cases, however, institutionalized thinking by economists who share a certainty even if unrealistic about their mechanistic assumptions has led to potentially dangerous, out-of-touch perceptions of “how markets and societies must function.”

Those views are moral judgments.

“If plumbing became a…national emergency…then, although we could all remember happier times when we didn’t have to speak plumbing, we would now have a reason to learn.”

Even so, economist Anatole Kaletsky wrote on April 4, 2013 in The London Times, “all the main questions in economics remain open.” That is still true. The conversation is ongoing, but to join in, you need to understand the language. These keywords and phrases will give you a start:

“During the credit crunch, there was a strong feeling that a lot of the terms for the products involved were deliberately obscure and confusing.”

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Capitalism’s Toxic Assumption (Book Review)

My book review on Eve Poole’s Capitalism’s Toxic Assumption, redefining next generation economics.

Classical assumptions on competition, pricing mechanism, and other elements of capitalism find little support among modern theories of market economics. For example, game theory emphasized the importance of cooperation and undermines the old theory that competition is always the best business strategy.

The Shaky Foundations of Classical Economic Theory

Scottish philosopher Adam Smith’s influential Inquiry into the Nature and Causes of the Wealth of Nations, written from 1766 to 1776, serves as the literary foundation of capitalism.

Some regarded it as the bible of modern capitalism. But today, the capitalist orthodox in The Wealth of Nations could turn out to be a deterrent to the advances of market economies. Since the book’s publication, seven “toxic assumptions” about capitalism have gained a strong foothold and now threaten the economic system’s evolution.

The 7 toxic assumptions are as follows

  1. The Assumption of Competition
  2. The Assumption of the Invisible Hand
  3. The Assumption of Utility
  4. The Assumption of Agency Theory
  5. The Assumption That Market Pricing Is Just
  6. The Assumption of the Supremacy of the Shareholder
  7. The Assumption of the Legitimacy of the Limited Liability Model

Capitalist’s 7 toxic assumptions invite challenge. Efforts are under way to foster more worthy alternatives, but, to date, such efforts have had limited impact on mainstream thinking.

Obstacles to greater business cooperation include the need for complex changes in the regulation of competition. The dominance of men in business leadership also preserves the current capitalist model. And that could change over time as more women ascend to the top of management jobs.

Meanwhile, alternative business models could helps to spur progress. Employee ownership, for example, could prevent limited liabilities companies from adopting the bad habits associated with shareholder ownership. These changes must be implemented to fix the US economy.

Main reading points from the book

  • 7 toxic assumptions about capitalism makes the reality of market economies much more dubious.
  • First, competition theory, which holds that competing rather than cooperating yields the best results, is erroneous. Game theory in turn has dispelled this myth.
  • Biology drives men to compete and not to cooperate when they perceive threats.
  • Second, contrary to Adam Smith’s concept of the invisible hand, self-interested people will not necessarily produce the best overall outcomes.
  • Third, the utility theory which says that life’s purpose is personal contentment or utility which overemphasizes selfish pragmatism and ignores people often irrational motives.
  • Fourth, agency theory, wrongly holds that principal’s and agent’s interests don’t align.
  • Fifth, market pricing erroneously states that supply and demand are independent.
  • Sixth, modern trading technology makes shareholder supremacy out of date.
  • Its limited shareholder liability has attracted investors to corporations since the mid-1800s. Since then, firms have cut costs and increased dividends
  • And seventh, limited liability hopes to protect shareholders from risk. However, public policy should encourage alternatives to the limited liability structure.

The Assumption of the Legitimacy of the Limited Liability Model

Rather than trying to fix the limited liability model, pragmatism suggests a public-sector nudge that is, the use of changes in the tax laws and new regulations to encourage a diversity of business models.

It was until the 1980s that limited liability in business ownership was rare. A firm’s owners shared profits and liability for losses. But in the 1800s, new laws in England led to legal creation of shareholders. Their investment in shares is the limit of their risk. The Limited Liability Act of 1855 granted the limited liability designation to any English firm with more than 25 shareholders.

Limited liability for shareholders has added momentum to the enterprise boom since the mid-1800s. It has also produced a moral problem, because limited liability shares reduce investor’s downside risk. Shareholders become more concerned with company profits than with losses, because their individual losses can’t exceed their investment in shares. This contradicts the idea that shareholders assume all the risks in a company.

This misconception helps sustain the notion of the supremacy of the shareholders.

Rather than trying to fix the limited liability model, pragmatism suggests a public-sector nudge that is, the use of changes in the tax laws and new regulations to encourage a diversity of business models.

The United Kingdom has seen new models of business ownership emerge amid widespread limited liability corporate ownership. These new forms include the ‘community interest company’, whose structure encourages re-investment of profits.

The Assumption of the Supremacy of the Shareholder

Nobel laureate and economist Milton Friedman of the Chicago School of Economics argued that business leaders ‘biggest responsibility is to enrich their shareholders.’ “The business of business is business,” he proclaimed.

Eugene Fama of the University of Chicago and Michael Jensen of the University of Rochester support thinking. They assert that business leaders who focused on creating the highest stock value actually produce the best results.

And the far-reaching adoption of shareholder values as a corporation’s primary goal results from the popular acceptance of the agency theory. Making shareholder value a company’s top priority positions its shareholders as principals and its executives and other employees as agents, though it claims to bring their interest into closer alignment.

The strategic emphasis on shareholder value gained support from the administrations of US president Ronald Reagen and UK prime minister Margaret Thatcher in the 1980s.

During this period, a major change in corporate culture unfolded, setting aside the ‘retain and reinvest’ style in favor of a ‘downsize and distribute’ style. And by using such method, management earns higher return on equity by cutting costs and, often, jobs, while distributing the savings to shareholders.

Between 1969 and 1991, employment at the 50 largerst American Industrial Companies fell from 6.4 millions to 5.2 millions as they distributed a larger portion of their profits as dividends. The corporations’ payout ratio of dividend to after-tax profit was 37.2% in 1996 and has been 50% since the 1980s.

The meaning of the word ‘shareholder’ is in flux as high frequency, electronic trading now accounts for a majority of stock-market transactions. Buyers today hold a stock share for an average of 30 seconds or even less.

The Assumption of Agency Theory

As a result of getting stock bonuses, executives treat their firms’ share prices as the main measurement of performance. However, instead of managing their firms, CEOs inevitably try ‘managing the market.’

Have you heard a story on Marissa Mayer, the CEO of Yahoo, whom ignited an explosion of public commentary when she veto’ed and ended the practice of allowing some Yahoo employees to work remotely from their homes. Her decision seemed like old-fashioned.

Many critics suggested Mayer didn’t trust Yahoo employees to do their jobs without on-site supervision. The idea that employees need to close oversight exemplifies the economic concept of agency theory or the ‘principal-agent problem.’

So, what’s agency theory?

Agency theory assumes that if a principal (in this case, the employer) hires an agent (the employee), the agent’s interest won’t align with those of the principal. This assumption however is toxic because its pessimist premise holds that people require coercion to make them do their jobs.

However, Gallup poll data shows that employees want stretch assignments that offers growth and prefer self-governance and meaningful tasks. Those drivers benefit employers and lead to better job performance, which exceeds normal requirements.

Agency theory justifies giving CEOs stock-based compensation on the premise that they must get equity awards so their interests align with their stockholders’ interests.

As a result of getting stock bonuses, executives treat their firms’ share prices as the main measurement of performance. However, instead of managing their firms, CEOs inevitably try ‘managing the market.’