By Rich Tafel
The popular reality TV show “Shark Tank
” highlights innovative start-ups pitching to investors. This past year, Michigan piloted a real-life version of this show, but instead of making profit, the idea was to demonstrate an innovative way to address poverty.
In 2013, Michigan created a competition to attract more than $1 million in new financial commitments to fund unknown change agents—people with innovative solutions to addressing joblessness, environmental problems, urban vacancy, and other issues.
Suddenly, everyone seems to care about poverty: Pope Francis pontificated,
President Obama named it as his top priority
and former GOP Vice Presidential candidate Rep. Paul Ryan (R-WI) unveiled his own plan
. Everyone can also agree that America’s efforts to end poverty aren’t working. Last year, the United States spent close to a trillion dollars on poverty programs
, and individuals donated around $100 billion of their own money
to the poor. Despite this, poverty actually ticked up to 16 percent
—a new high—after stubbornly hovering around 12-15 percent for the past 50 years.
Meanwhile, global abject poverty has actually been reduced by half over the last twenty years; countries like China and India with top-down, centralized governments allowed for bottom-up, free market innovation that moved millions of people out of poverty. America needs to learn from this global trend by getting beyond dualistic thinking that pits capitalism against the poor. Instead, we must combine the best of capitalism’s innovation, ownership, and financial reward with the best of the social sector’s compassion—and that’s exactly what Michigan is doing.
As the nation focused on Detroit’s failure last year, it missed Michigan’s new strategy for actually moving the needle on poverty. Here’s what happened.
In a 2012 speech, Governor Snyder charged the Michigan Economic Development Corporation andMichigan Corps,
a local nonprofit under the leadership of Elizabeth Garlow, to develop the nation’s first statewide social entrepreneurship competition. The competition aimed to “bring together the best innovative minds to design sustainable solutions to address unemployment.”
The first task was to define social entrepreneurship
—no easy task. Elizabeth Garlow and I ultimately came up with a simple five-point checklist:
1. The entrepreneur is a tenacious leader with a pragmatic vision.
2. The solution addresses a clear social problem.
3. The solution changes systems, not just symptoms of the problem.
4. The model prioritizes social impact over financial gain.
5. The model generates a sustainable funding stream.
We first shared this checklist in the Stanford Social Innovation Review
article, “The Power of Simple and Clear Definition
Using the state’s existing annual entrepreneurship contest as a foundation, Michigan Corps set out to launch Michigan’s Social Entrepreneurship Challenge. The hope was that they would receive 30 or so business plan submissions, but the response was overwhelming. Grassroots Michiganders came out in droves to the first training webinar, which racked up over 100 participants. By the time the competition chose winners, nearly 300 people had registered for the competition and 150 business plans had been submitted.
As Michigan piloted the nation’s first, statewide social entrepreneur competition, partners and funders were initially skeptical it would generate any meaningful outcomes. “We were told it would be impressive to get 50 entries to the competition,” remembered Garlow. ”Michigan, it turns out, is full of civic-minded social entrepreneurs who have been waiting a lifetime to share their ideas.” In fact, so many participants asked for coaching on their business ideas that Michigan Corps had to hold a solid week of half-hour coaching clinics to meet demand. By May, the competition team chose 10local change agents as winners
After the winners received their checks they engaged in a process to prepare them for investment. Phillip Fisher, stepped in to fund follow-on coaching to prepare winners for approaching investors. Fisher is one of the state’s most famous philanthropists and investors; and in recent years, he hired Jamie Shea out of the University of Michigan’s Ross School of Business to help create the state’s first social impact investment fund, Mission Throttle
. Fisher saw the value of providing winners with the training and development they needed to get real investment—investment that would turn their innovative ideas into world-changing realities.
For the four months following the competition, coaches helped the winners identify gaps in their business models and prepared them to pitch their ideas at a “meet the investor” event. And in October, a group of social impact investors met these social entrepreneurs at a pitch event held in Detroit—a “shark tank” for social good, where winners had to articulate both a measurable social impact and financial return. Scott Brickman,
one of the nation’s leading socially responsible business leaders, flew from Washington DC to Detroit to hear the investment pitches. “What excited me about this competition was that unlike traditional charity, the models these entrepreneurs are developing have the chance to be sustainable and provide a return for investors who can then reinvest in new models,” he observed.
Today, 8 of the 10 winners have commitments for investment underway—more than $1 million in commitments, with a good portion of the investment from out of state. For Michigan’s social sector, this is big money.
This effort—affectionately called the Michigan Model—showed that it’s possible to harness capitalism to address chronic social problems, thereby laying the groundwork for a model that transforms business and charity. These 10 winners could become pioneers of the future of American business, combining the best our nation’s entrepreneurial innovation with the compassion to do good.
This Michigan Model is catching on. This year, Orange County, California, is piloting a version of this model in a consortium of education, business and community organizations led by Saddleback College. Three others states and regions have also expressed interest in adopting a similar competition for their areas. Dr. Tod Burnett, President of Saddleback College
, explains his interest, “we need to break through the false choice that students must choose between careers that make good money or careers that do good for the community. You can do well by doing good. It’s time that our colleges take the lead in helping students become successful social entrepreneurs.”
The Michigan model moves beyond partisan debate, failed strategies of the past, and old rhetoric toward real solutions to address poverty. Everyone wins. The community takes on homegrown solutions. Social entrepreneurs get to match their great ideas with expertise and investment. Sponsors gain research and development from competition participants that they can use toward solutions in their industry or target region. Colleges have a new way to teach students that doing good and making money don’t need to be mutually exclusive. And society improves because we’re all working together for good.
There were four big surprises in the Michigan Model:
Participants in traditional state entrepreneurship competitions were primarily male and white; this contest drew many female candidates and contestants from communities of color.
Many thought this would be a Millennial-centric contest, with most applicants under 30, but with the average age of contestants was around 40. We might conclude that serious plans to solve chronic social problems often require years of life experience.
2. Investment Readiness
Helping social entrepreneurs understand their own finances and explaining the role an investor might play in their work were harder than we expected. For most of us in the social sector, we often are ill prepared to talk ROI or equity shares. The next generation of social entrepreneurs needs to learn the business side.
3. Unlikely Investors
Social impact investors from outside the state were often more interested in investing in Michigan’s social entrepreneurs than in-state investors. One leading social impact investor flew in from Washington D.C. just to attend the pitch event. A fascinating development was the decision of a local group of business leaders to shift their annual charitable giving to T3 their own social impact investment fund instead; it’s likely that 400 investors will collectively seed a $5 million fund over the next five years.
Romy Gingras, who runs Gingras Global Groups
, the state’s leading social entrepreneur investment fund administration company found the contest groundbreaking as well. “The fact that a group of individuals at the local level have pooled their own resources to create a new social impact fund shows that the impact investment field is innovating as fast as the entrepreneurs.”
Meanwhile, the Michigan foundation world was a big disappointment. Foundations seemed small “c” conservative and wedded to old forms of philanthropy—“you beg, we decide.” While they rushed in to reactively save Detroit’s museums after the bankruptcy, they did not support their state’s social entrepreneurs during the first year of the competition.
4. Breaking Down Barriers
Probably the most amazing part of the competition was its cross-sector nature. Republicans joined with Democrats, Progressives with Conservatives, entrepreneurs with investors, blacks with whites, upstate MI with “downstaters,” government and business, nonprofits and for-profits, colleges and faith-based groups all joined forces to make the competition work.
There are few examples of real collaborative impact, but this is one. Much of Michigan’s culture operates under the siloed ethos of a General Motors mentality, making this cooperation around innovation all the more impressive. The success of the model is transforming traditional entrepreneur contests as well. The state’s long-standing statewide entrepreneur contest announced that for 2014, they will emulate the investor training and pitch process pioneered by Michigan Corps in 2013.
What happened in Michigan last year represents a new way to achieve both social impact and a financial return. More importantly, it points to a new way for Americans to really begin to solve social problems, with everyone and every sector playing an important role and working together. As the investment in the Michigan’s Social Entrepreneurship Challenge winners grows and they make a return for their investees as they solve social problems, we can expect nothing less than a much-needed transformation of capitalism. This win-win-win model might accomplish what nothing else has an end to poverty in America.
Rich Tafel is the Founder of Public Squared, which provided the strategy coaching and training for the Michigan competitions.
To view the full article, please visit: http://www.forbes.com/sites/realspin/2014/03/26/shark-tank-for-social-good-michigans-innovative-plan-to-end-poverty/2/