Ed Kania, Venture Capitalist
Interview with Edwin Kania, Board Chair of Common Impact and Managing Partner and Chairman at Flagship Ventures
1) Through your work in the venture capital industry you spend a lot of time focusing on investing in new businesses. What are some of the differences or similarities you see between the world of venture capital and not for profit organizations?
As a venture capitalist focused on early stage companies, I try to spend most of my time immersed in the flows of the three foundation elements of successful ventures: great people, novel and powerful ideas, and important unsolved problems / opportunities. These very same things are at the core of entrepreneurism in the not-for-profit sector. Although there are real and important differences as one moves from one sector to the other, the extent of the similarities outweighs the differences. The fundamental challenge for an entrepreneur and leader is the same: how do you transform dreams into reality and thoughts into action by creating something where nothing existed before? This is incredibly difficult, and there is enormous friction and inertia that impedes the building of momentum in any small organization. The entrepreneurial leaders that I see in the not-for-profit world have drive, vision, passion, domain knowledge, and a capacity to attract people and financial support that is commensurate with the best that I see everyday as a venture capitalist.
Other important areas of common challenge include the necessity of developing and maintaining a non-superficial understanding of the real needs of your customer(s), learning how to deliver with consistency a service or product that addresses those needs, hiring and motivating the best people, establishing a culture of continuous learning and improvement, maintaining strong fiscal disciplines, balancing the virtues of strategic focus vs. opportunist advance, and managing periods of rapid growth and change.
The differences between the sectors mostly represent added challenges for the not-for-profit sector. Metrics of accomplishment are tougher to identify (versus classic for-profit metrics such as growing revenues, profits, and market share), and some of the traditionally-cited not-for-profit ones can be somewhat misleading. Dollars spent and size of team are perhaps better measures of effort than accomplishment. Likewise, minimizing administrative overhead (so that donated funds go largely to direct services) is an effective strategy only to a point, and it is often overdone. From an organizational perspective, it is even harder in the not-for-profit world to hire outstanding people and to motivate and retain them because of the salary scales involved and the not uncommon perception that this must somehow impact what can be expected in terms of talent and time.
Finally, the money-raising challenges of not-for-profits are uniquely daunting and ever-present. The noise and “competitive” confusion within the various donor communities seems to increase every year. While there are some approaches and strategies that can build stability into an organization’s funding base, this requires at least as much unrelenting energy, discipline, and creativity as it does to create a profitable, self-funding company. There is also the added effort and complexity of managing relationships with multiple grant-making organizations and large and small individual donors, each with different purposes and needs.
2) How has your venture capital work affected the way that you think about Common Impact's goals?
I tend to evaluate and support Common Impact much as I would any of the emerging ventures with which I work. For example, I expect of the Common Impact organization that we have a cogent and inspiring statement of whom we are, what we are doing, and why it matters. Unless these points can be detailed in a PowerPoint presentation or other written media, I get suspicious of whether or not we actually are able to be crisp and clear.
In most early stage ventures, as a result of the pace of change, there are long stretches of time where such clarity does not exist. This is fine as long as a management team understands that this is the case and continues to push hard to achieve renewed clarity of vision and direction. This orientation toward always being able to deliver an “elevator speech” that describes the enterprise and energizes a listener is very much a venture capital concept.
I also expect of Common Impact a clearly defined set of goals along with the operational and organizational plans and metrics through which we can achieve and evaluate them. Annually, the board spends a great deal of time reviewing the organization’s goals and working with the management team to set the bar of achievement at an appropriately high level. In my view, the objectives need to represent a stretch and should be inspiring to those involved, but they must not allow a team to get ahead of itself in the challenges it takes on. An organization needs to learn to crawl, before it walks, before it runs.
3) As Board Chair, you took part in discussions about making Common Impact into a national model. What were some of your reservations about this idea?
As Board Chair, I have been fortunate in having dedicated and savvy fellow-directors as well as an incredibly talented CEO. Common Impact is not national yet, but it is moving incrementally and rather inexorably in that direction. The question is one of timing. Actually, the first question we considered when evaluating this issue two years ago concerned the rationale for national expansion. The desire for a bigger footprint by an entrepreneur is very understandable. Growth is a symbol of success. Without growth and new challenges it can be hard to maintain excitement among key team members and major donors. The needs/opportunities that most not-for-profits address are not confined to a single geography. However, in evaluating whether or not to pursue a national model, a board must also consider other factors. For example, unless there are genuine advantages to operating at a larger scale, expansion could well result in a lower quality service being delivered at a higher cost by an overstretched organization that ultimately loses its edge in securing funding.
Competitive forces operate in the not-for-profit world just as in the for-profit, and many services are best delivered locally by locally founded and funded organizations. In the case of Common Impact, there are some interesting forces and factors that make national expansion an important strategy to consider. Once we had agreed upon this, the board focused on assessing our operational and organizational readiness.
Two years ago, our conclusion was that we were not ready for the type of increase in challenges that significant geographic expansion represents. Today, based on our improved ability to reliably deliver effective service including a system for monitoring and measuring our quality, and based on some key additions to our management team, we are much better positioned.
4) What are some of the questions that a Board member should ask a program in discussing the idea of how and when to go to scale?
It is often easier in the for-profit sector than in the not-for-profit sector to evaluate issues regarding how, when, and whether to go to scale. In the not-for-profit world, there is always the implicit awareness that if we could only raise more, then we could do more. This is certainly true, but the specific question of whether or not one can actually fund a further scaling of operations without jeopardizing the current operation is typically among the most important questions.
The money-raising issue alone, when reviewed in a tough-minded way, can represent an insoluble challenge. It is important to focus explicitly on the purported business-model benefits and competitive advantages to scale. Sometimes there are none. And what exactly are the attributes that are believed to define optimal scale and why is this so. Such an analysis of business-model benefits requires both internal (i.e. operational) and external (i.e. customer and competitor) review. Included must be a qualitative assessment of whether core skills and expenditures can be effectively spread over a larger audience.It can also be revealing to compare a summary financial projection of the full cost of added operations to an estimate of the resulting increase in capacity to deliver service. Further insight can often be gained through the preparation and examination of a detailed implementation plan.
Beyond the “what” and “when”, it is crucial to look at the question of “who” and whether that specific individual has the capability and capacity to succeed in the expanded role. While a program can choose to take on different commitment/investment/risk levels based on differing strategies for scaling, there are always nontrivial human resource challenges presented by growth and expansion. In general, discussions on scaling must be conducted by a Board with appropriate sensitivity.
5) For newer organizations where there is a need to strengthen their mission and also a need to grow, how do you balance the two?
Due to its developmental stage, an emerging company faces the simultaneous necessities of building momentum/growing even as it is struggling to define itself. There is no simple answer as to how to do this. Achieving the appropriate balance is perhaps the single most important challenge for any newer organization. In fact, many of those organizations that do go on to achieve the greatest success seem to attain their “balance” not through some middle road approach, but rather by lurching at appropriate intervals from one sort of behavior to its complementary opposite mode. There is a time to over-emphasize strengthening while not totally forgetting about the need to grow; and then a time to over-emphasize growing while not totally forgetting about the necessity of clarity of vision and effectiveness of operations. There is a time for appropriate caution and reactivity; and then a time for greater risk-taking and aggressive action. There is a time for incrementalism; and then a time for discontinuous strategic leaps. Like watching a young child learn to walk, watching a young organization grow can be quite alarming at times. To keep the balance that is necessary to avoid toppling over, a CEO and Board must work closely together, each taking heed of the other’s instincts about the current status of the enterprise and the near-term imperatives.