Affordable Housing Innovations 08: Part 2, For Mission Entrepreneurial Entities

By David A. Smith

May 23, 2013

Last month's Affordable Housing Innovations explored affordable housing strategy from one of its two critical perspectives – the government. This month we look at the Mission Entrepreneurial Entities (Mee's) government needs to create economic and social impact.

Mee's are by definition independent operational and financial bodies, so they must generate cash revenue to cover all their cash costs. They are impelled to follow the money, as it were, and that forces their strategy to be necessarily responsive, changing whenever the resource ecosystem is altered by the shifting political will. Thus their imperatives are circumscribed, and their strategy must keep their autonomy and economic viability firmly in mind.

Elements of strategy for a Mission Entrepreneurial Entity

All elements of a Mee's strategy must be evidence-based and action-oriented, and that means they include a baker's dozen of elements:

1. Theory of impact: how the world is a better place because of what we do. Historically, purely profit-oriented businesses didn't need a theory of impact – sales or profits were proof enough – but for a Mee, which works in two domains (economic and social), the products and services a Mee creates and sells must better people's lives, create better housing or more affordable housing, or improve cities.

2. Business model is a strategy for securing recurring revenue that meets or exceeds the Mee's ongoing expenditures. Though business models come in all shapes and sizes (grant-based, fee-based, capital-based, even risk-based such as insurance), they all have in common a repeatable process or operation that the Mee believes will yield revenue greater than marginal cost.

"Here's how we turn money into homes and impact." (SPARC co-operative development, Mumbai, India)

3. Place in the value chain. As referenced last month, housing has value chains on the supply side (whose output is homes) and demand side (whose output is structured money like loans), each with eight links. A Mee needs to know whether it is supply-side or demand-side (a few straddle both, but that is risky) and operate in at least one role.

4. Core competency. The ability to do extremely well something ordinary people want to have done for them but find difficult, possibly extremely difficult, or potentially impossible. It motivates others to seek out the Mee, and to recognize the Mee's value when found. In impact-oriented businesses like affordable housing, the core competency must be effective on both sides of the double bottom line: economic discipline and observable social benefit.

5. Core business. Every stable business has a core activity that is Product 1 or Service 1 – something the Mee can always do, always succeed at, and make net revenue by delivering. For grant-dependent non-profit Mee's, the core business must lead to additional grants either directly (in response to expressed donor desires) or indirectly (because it inspires people to donate).

6. PED resources. Short for Proprietary, Enduring, and Disclosable, these (a) belong to the Mee and to few if any others, (b) can be used over and over without depletion, and (c) can be described publicly while retaining their PED value. In the for-profit world, intellectual property (protected by copyright, patent, or secrecy) is often a powerful PED resource, but the impact-oriented world embraces open-source intellectual infrastructure, so the Mee's intellectual property needs to be non-transferable (as in brand) and non-copyable (say, in personal or entity loyalties).

7. Value proposition. A statement about ourselves that, if believed to be true, leads inescapably to the conclusion, do business with us. Normally a claim of capacity ("We can do this …") buttressed by a comparative ("… better or more or cheaper than others …") and a listing of PED resources ("… we have this-and-that or know thus-and-such"). Preferably short; preferably memorable; preferably fully true.

8. Sequence of strategic objectives. For a business, tactics are day-to-day; strategy is about tomorrow and beyond: how we strengthen existing business lines or create new ones, via action that yields new or improved PED resources for the firm. Our strategic milestones must be observable results that cumulatively equal substantial improvement in capacity, volume, or entity economic viability.

9. Boundaries of our business. None of us can do it all, so there are activities that, while conceptually within our theory of impact or place in the value chain, are beyond our current capabilities and configuration. However tempting the opportunity or urgent the need, if we cannot do them well or others can do them better, we must pass them up or hand them off.

10. Natural symbiotic private entities. Just as no man is an island, no business operates as a purely self-contained entity – everyone has counterparties. While any Mee has competitors, it also has natural symbiotes – entities that have things we lack, do things we don't, or take our outputs as their inputs (or vice versa). Some are customers, some are teaming partners, some are collaborative allies in the ecosystem. Whatever they are and whatever they do, it's useful to know who they are, so our natural competitive instincts do not kick in.

11. Natural government or donor counterparties. Government or donor counterparties have a special relationship to housing Mee's; they offer laws and money to those, like us, that turn raw materials into successful double-bottom-line outcomes. Government counterparties validate our theory of impact and want to see our impact expand.

12. Funding resources. Evergreen or readily available money (or monetizable non-cash resources) that can close the cost-value gap between the most affordable homes or loans in the marketplace, and the affordability for the target population government wants to reach. To survive in a funding desert, one needs to know where the wells are, and how much one can drink from them.

13. Source of R&D. Mee's anticipate the future and pre-evolve to succeed in that new future. Political environments and hence resource environments can change abruptly and dramatically, so the Mee must always be learning about the changing universe and how it will create new products and services, or adapt existing ones, consistent with its theory of impact and business model.

Conclusion

In a natural ecosystem, creatures react to their biological environment; in a financial ecosystem, Mee's react to their economic resource environment. The private sector is wonderfully efficient at turning government rules into government-funded outputs; for government bodies, the challenge lies in writing rules that pay private Mee's well if and only if they produce the desired policy outputs, outcomes, and impacts.