Philanthropy and development are two subjects about which I often write. Both are difficult enterprises to maintain during economically hard times. Difficult times will pass, however, and when they do we need to be ready to push forward efforts aimed at improving the lives of those living at the bottom of the economic pyramid. In a book reviewed by Helen Waters, editor for BusinessWeek.com’s Innovation and Design Channel, Jacqueline Novogratz “explains how the most well-intentioned aid efforts often fail, and the slow and steady approach works best” [“Philanthropy and Development in Emerging Markets,” BusinessWeek, 2 March 2009]. Novogratz’ book, entitled The Blue Sweater: Bridging the Gap Between Rich and Poor in an Interconnected World, provides, according to Waters, “valuable lessons in social entrepreneurship and philanthropy.” Waters, however, also laments that Novogratz spends the last-third of the book making “a pitch for the author’s nonprofit fund.” Waters begins her review this way:
“There really is a blue sweater in Jacqueline Novogratz’s book of the same name. It was a treasured piece of clothing she wore constantly from the minute she got it in middle school until a few years later, when some classmates commented on how snugly it fit the now-adolescent Novogratz. The teenager unceremoniously stuffed the well-worn garment into the nearest recycling bin, never to be seen again. Or so she thought. Years later, Novogratz saw her blue sweater again. This time the stretched, misshapen top—with her name tag still on the inside collar—was being worn by a young boy she spotted on a street in Kigali, Rwanda.”
That sounds almost too fanciful to be true. But Novogratz insists that it actually happened. The sweater’s journey from Alexandria, VA, to Kigali would probably make fascinating reading in and of itself, but Novogratz’s book is not about the sweater’s journey it’s about how truly connected the world now is. That connectivity means that suffering at the bottom of the pyramid should matter to those at the top. Novogratz is chairman and chief executive of Acumen, a non-profit venture capital fund she founded in New York in 2001. A non-profit venture capital fund sounds like an oxymoron. Most VC firms are out to make big profits for the investors providing the capital. Novogratz would like to see the ventures Acumen backs also do well, but the profits are used to back further ventures. Before founding Acumen, Novogratz worked in the credit audit department at Chase Manhattan, then worked at the African Development Bank, and then worked at the Rockefeller Foundation. These jobs provided her with unique exposure to both the world of finance and the world of philanthropy. According BusinessWeek‘s snapshot of the company:
“Acumen Fund is a venture capital firm specializing in direct equity investments, debt, guarantees, quasi-equity, and lab investments. The firm seeks to invest in critical and affordable goods and services. It primarily invests in water, healthcare, energy, and housing. It prefers to invest in India, East and South Africa, and Pakistan. The firm typically invests between $0.3 million and $2 million in equity or debt with an exit period ranging from five to seven years. It seeks to invest in business models that can be effective in reaching the billions of poor without access to clean water, reliable health services, or formal housing options. The firm primarily invests in non-profit organizations, small and medium for-profit companies in need of capital, and larger companies that are starting specific business units to serve the poor. The firm typically holds minority stakes in equity investments and prefers a board seat in its portfolio companies. Acumen Fund was founded on April 1, 2001 and is based in New York, New York with additional offices in Hyderabad, India; Nairobi, Kenya; and Karachi, Pakistan.”
To find out more about Acumen and how you can get involved go to http://www.acumenfund.org/. Back to the book. According to Waters, the book is “a pointed critique of conventional thinking about philanthropy and economic development in emerging markets.” Novogratz “is no starry-eyed idealist,” Waters writes. “Her stories of working with some of the world’s poorest people back her case for a pragmatic, enterprise-based approach to solving poverty. And she is blunt in her analysis that the most well-intentioned aid efforts often fail.” I was drawn to the book review because Enterra Solutions’ Development-in-a-Box™ is also an “enterprise-based approach” — just not a non-profit one. However, I agree with Novogratz that such an approach is much better than traditional aid programs because enterprises create jobs and jobs create a viable middle class and a viable middle class promotes a better quality of life and more open government. Waters notes that criticizing past approaches is “a delicate issue.” And she’s right.
“After all, kind-hearted people don’t like to hear that they are perpetuating poverty, not relieving it. But too often, Novogratz writes, that’s all that happens. Instead of focusing on passing out grants and donations, she argues that charities and philanthropists should be empowering local entrepreneurs to take risks and responsibility, like Acumen does. The poor should be able to borrow what they can, make investments on their own within a market context, and succeed or fail on their own.”
The strongest message I deliver to leaders of developing countries is that they need to create the conditions that fosters entrepreneurship. There is an optimism — a hope for a better future — that spreads throughout a society when it is touched by the hands of successful entrepreneurs. “For Novogratz, success lies not in stacks of cash, but in maintaining a slow and steady approach to investment. She believes that building long-term value outweighs short-term gains.” I couldn’t agree more. The hardest part of such an approach is managing expectations. If those being helped can see the big picture and understand why success is not normally achieved overnight, then hard work and a steady hand can achieve sustainable development. Waters concludes her review this way:
“The lessons are compelling, but much of the power of The Blue Sweater comes from Novogratz herself. She’s often entertaining, recounting the tale of an impromptu dance-off with women after her car broke down in a rainstorm. At the same time, she can be a brutal self-critic, particularly as she describes stepping away from her American upbringing to learn the culture and way of life in Africa. At times, her tales are upsetting. She tells of visiting post-genocide Rwanda in 1997, looking to track down the initial supporters of one of her first ventures, a microfinancing organization called Duterimbere. Her account about trekking to a remote jail to talk with one of the women, imprisoned for helping to instigate the genocide, is matter-of-fact and yet astonishingly personal. Her confusion at meeting Agnes, a woman who had worked so hard to elevate the lives of so many women and yet had also committed inhuman acts of atrocity, is palpable and unresolved. It’s a reminder that people are complex and contradictory, and also that real people are at the heart of economic statistics. For Novogratz, that’s the most important story of all.”
Too often people think about business in terms of money, when they would be better off thinking about business in terms of people. If people are successful, then businesses will be successful. The more people who achieve success the better the business environment. Businesses create jobs and jobs provide livelihoods. Novogratz understands the personal dimension of business as well as business’ pragmatic side. Aid is still essential for meeting some needs, especially in time of crisis; but development is all about creating jobs, which means supporting promising businesses. Supporting bad businesses is like drilling dry wells. Novogratz understands that a country’s future rest in the establishment of successful businesses. That, too, is the goal of Development-in-a-Box™. At Enterra Solutions, expend a lot of thought and effort doing due diligence to find and promote businesses that have the best chance of succeeding in the circumstances in which they must operate. We also work with governments of developing nations to improve those circumstances. Done right, philanthropy and enterprise-based development are complementary, not conflicting, activities. Both have the same objective — improve the lives of those living in poverty. Without philanthropy and social programs that establish base conditions that support a healthy business environment, enterprises can’t thrive and investors can’t be attracted. In an ideal world, philanthropists and governments till the fields and plant the seeds and entrepreneurs come along to help them reap the harvests and sustain the momentum needed to improve societies.