Childhood Hunger

Bill Shore’s Letters

Letter From a Community Wealth Collaborative

October 2003

Dear Friend,

If we are to become as good as we need to be to succeed in bringing community wealth to scale, we'll always be learning as much from our client engagements as our clients do. The second session of the Massachusetts Community Wealth Collaborative (our group consulting model), held on Thursday at Springfield Technical Community College, provided one such opportunity and underscored what a rich learning lab the Collaborative can be, and the value it will create for our firm and those we serve.

The guest speaker was long-time CWV board member George Gendron who for 20 years was the editor-in-chief of Inc. Magazine, and has also served with me on the board of City Year. Under George's direction, the magazine identified many of the world's leading entrepreneurial ventures when they were still in their infancy, companies like Oracle, Microsoft, Timberland, Charles Schwab, and many others. George combines a long track record in entrepreneurship with a passion for the nonprofit sector, making him one of the best-positioned teachers and advocates in the country when it comes to encouraging community wealth enterprises.

George's real forte however is using research to dispel and deconstruct the myths about business that have become so much a part of the conventional wisdom that they go all but unchallenged as gospel. George lives to slay myths the way fabled knights lived to slay dragons. He does so in a way that offers hope and guidance to any one aspiring to launch a business venture. Every time another myth falls, another client of ours will see even more opportunity in social enterprise than they saw before. While realistic about the challenges of starting and growing businesses, George wants his audience to know that the barriers to entry are nowhere near as high as they've been led to believe.

Here are a few of the key points that George tried to get across:

• There are seven million small businesses in the U.S. as defined by the Small Business Administration meaning they have fewer than 500 employees and more than one. According to George, the single greatest characteristic describing such businesses is "churn." 1 million of the businesses go missing in action each year. They don't go bankrupt, they simply cease to exist and can't be found. There are approximately one million start-ups each year that take their place. Contrary to the popular and widely accepted myth that 90 percent of all small businesses fail, actually 60 percent of all start-ups will be in business five years from now. So the odds of success are much better than the conventional wisdom suggests.
• 60 percent translates into about 600,000 new businesses that are surviving. But 500,000 of them don't grow at all. Their revenues are steady state, perhaps keeping up with inflation. 100,000 such businesses do grow, and the question George wanted to examine was how? The myth is that a hot idea + a business plan + venture capital will lead to an IPO and rapid, profitable growth. But even in a good year, no more than 2000 growth businesses out of 100,000 will get venture capital. Forty percent of the businesses that made the Inc. 500 list of fastest growing private companies were started with $10,000 or less. And one-third were started with less $1000! Virtually every prospective or current CWV client I've ever met has been pre-occupied with where they will get the capital to launch the business they ultimately devise. But the Inc. 500 suggests this may not be a relevant concern. "Most bootstrap their company," explains George, "The key to their success is superior execution. Management is the only source of sustained competitive advantage."
• Entrepreneurs are not great risk takers. They are great risk minimizers. They don't focus on having great precision in their business plans or feasibility studies. They focus on stripping risk from the deal.
• Finally, Gendron counsels paying attention to unexpected successes. Most business meetings are devoted to reviewing negative variances from the plan. George quoted one of his mentors, Peter Drucker, as advocating that "you should use one-half of every meeting to talk about positive variances from your plan -- no matter how trivial" because they may suggest unanticipated opportunities for growth. (20% of Inc. 500 businesses were started with an idea than their founder had offered to his or her employer before they left.)

George makes a compelling case that the key to success in starting a new business has almost nothing to do with a business plan (85% of the Inc. 500 never had a written plan), and almost everything to do with the entrepreneur's capacity to adapt even if all of the assumptions of the plan are wrong.

Friends of Share Our Strength would certainly recognize this critical success factor in the career of our supporter and board member, Danny Meyer. Danny frequently gets credit and praise for how thoughtfully he conceives and plans each new restaurant, but while well-deserved, this is not atypical in the restaurant industry. What distinguishes Danny from his colleagues is his agility after a restaurant opens, and the degree to which he integrates information he receives from customers into changes in menu, service, décor, etc.

Danny once explained to me that the trajectory of every one of his restaurants was nearly the same: high expectations, a good but imperfect launch, followed by critical reviews, and then a re-tooling that results in great reviews, high demand, delighted customers. Having seen this cycle played out thousands of times, George Gendron put it this way: "Every start-up is a test. People don't want to hear that, given how much work they've done. But it's true. A start-up is a test and no more than that. A test of viability, a test of market. Until you start you just don't know."

There are many in Danny's business that react defensively when they hear criticism, and try to prove the critics wrong. Danny takes a different tack. Reflecting the philosophy expressed by Jim Collins in "Built To Last" that core values always remain the same, but everything else is up for grabs, this is the stage in which Danny is at his best, changing, revising and adapting, with every bit as much energy and passion as he dedicated to planning in the first place. For Danny there are no sacred cows except for listening to what the market tells him.

Community Wealth Ventures itself is no different. We have survived because we have adapted and we will thrive for the same reason. The design and development of the Community Wealth Collaborative and the growing enthusiasm for it in Boston, Baltimore, and soon several other cities is one of many indicators that we are on the right track. Congrats to Evan, Alfred, and everyone at CWV for getting us to this place.

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