Ecosystem Social Ventures

1. ECOSYSTEMS AS AN ORGANIZING PRINCIPLE FOR SOLVING THE SYSTEMIC PROBLEM OF FINANCING EARLY STAGE SOCIAL VENTURES An Exploration of Information Structure and Collaborative Process (DRAFT 1.0) Suresh Fernando 30 January 2010 Contents TOC o " 1-3" h z u INTRODUCTION PAGEREF _Toc252637733 h 3The Systemic Problem of Funding Early Stage Social Ventures PAGEREF _Toc252637734 h 3ON ECOSYSTEMS PAGEREF _Toc252637735 h 4What Is An Ecosystem? PAGEREF _Toc252637736 h 4Why Does It Make Sense To Have An Ecosystem Perspective? PAGEREF _Toc252637737 h 4Timing: The development of a networked world: PAGEREF _Toc252637738 h 4We Need To Work Together – The Importance of Collaboration: PAGEREF _Toc252637739 h 5Operating Within An Ecosystem: balancing autonomy and synergy PAGEREF _Toc252637740 h 6Driving Open Collaboration Within Ecosystems PAGEREF _Toc252637741 h 7The Development and Deployment of Open Collaboration Infrastructure and Processes PAGEREF _Toc252637742 h 7Ecosystem Mapping and Modeling: principles underlying the information model PAGEREF _Toc252637743 h 8Ecosystem Mapping and Modeling: example of an information model PAGEREF _Toc252637744 h 8On The Modularity Of Projects In Early Social Venture Stage Ecosystems PAGEREF _Toc252637745 h 9ECOSYSTEM COLLABORATION AND RISK MITIGATION FOR INVESTORS PAGEREF _Toc252637746 h 9Increasing the Probability of Success of Projects PAGEREF _Toc252637747 h 10Decreasing the Probability of Failure of Projects PAGEREF _Toc252637748 h 10CONCLUSION PAGEREF _Toc252637749 h 11 INTRODUCTION In the following I will argue that the development of the necessary processes and tools to effectively map and model ecosystems will contribute substantially to improving human well-being. I will not be making a generalized argument, but will be arguing that an ecosystem view of organizations and projects supports the development of an innovative model to finance early stage social ventures; projects that are committed to both self sustenance as well as delivering social value. In supporting such projects we will be creating a class of organizations that places human well being above financial return; no doubt we need more of this. The argument will suggest that one approach to increasing the available capital for early stage social entrepreneurs is to mitigate investment risk for financiers. I will argue that a collaborative model will mitigate risks, and that an effective strategy for driving collaboration amongst social ventures is to view the organizational/project landscape from an ecosystem perspective, develop information models from this perspective, and to drive collaborative activity between projects on the basis of these information models. I will argue that it is both timely, appropriate from a principled perspective, and functionally appropriate to view relations between projects as such. In making this argument I will suggest that collaboration is important (period) and that an ecosystem view of the world is timely. In virtue of their relation to each other a focus on both is both important and timely! Let’s begin by introducing the problem that needs to be solved: The Systemic Problem of Funding Early Stage Social VenturesOne of the systemic challenges that we face if we want to develop a class of organizations that delivers both financial and social return (social ventures) is ways of funding early stage social entrepreneurs. The reason that this is a systemic problem is that there is a very good reason that it is hard to finance these sorts of projects; they are high risk and they provide little financial return. They are typically high risk because these projects are immature; the models are evolving, they have few customers, the technologies are still under development etc. They provide little return because making money is not their sole motivation.So how do we resolve this problem? There are three possible strategies that we can employ to solve this problem: reduce investment risk, increase financial return and/or change the mindset of investors. I believe that social ventures must maintain a focus on their social mission and should not focus excessively on delivering financial return, and hence will not develop a strategy around increasing financial returns. Although changing the mindset of the investment community remains a part of the longer term strategy, my focus in the short term will on mitigating risk for investors through the development of a collaborative model. What I will suggest is that if early stage social venture projects collaborate, their prospects for success will increase and the possibility of their failure will decrease, thereby reducing risk for investors. Although the argument that collaboration mitigates risk is independent from the argument that an ecosystem view will foster collaboration, the sense in which projects will come together to collaborate will be clearer after we examine the details of what it means to view the relationship between projects as a part of an ecosystem. So let’s begin by talking about ecosystems. ON ECOSYSTEMS What Is An Ecosystem? In general terms, an ecosystem can be understood as a natural set of relationships that exist between projects that makes it possible that they collaborate. Hence projects that are a part of an ecosystem interact with each other, the leaders know each other, and the projects are mutually interdependent in some way. In more specific terms, an ecosystem can consist of projects that share the same larger goals, that share common team members, share common customers or markets, that are a part of the same value chain (partners, suppliers etc.), share a common technology infrastructure etc. There is no theoretical limit to what is constitutive of an ecosystem and this will be determined in practice by talking to projects that might form a part of an ecosystem. This is what we are doing as we map out the Open Manufacturing Ecosystem, and as we proceed I will be closely referencing the activity in this project. There are two important points that need to be emphasized, and the rationale for these points will become clearer as we proceed. Relational/Holistic Paradigm: an ecosystem perspective views the world as a system of interdependent relations, and models the world with that as the starting point. It views projects and our activity as a part of a larger picture. Cross Boundary Paradigm: a related notion is that in viewing the world relationally or holistically, we must give credence to how we are related to other projects; those that are distinct from us but that are related to us in some way. The ecosystem models attempts to provide some formality to this idea. Why Does It Make Sense To Have An Ecosystem Perspective? There are two reasons that I want to highlight: Timing: The development of a networked world: We all know that the following is true: <ul><li>Internet connectivity penetration rates are increasing

2. Bandwith limitations are being reduced

3. The cost of communication is dropping (thank you Skype!)

4. Interoperability protocols, applications etc. are evolving

5. Social networking platforms (Facebook...) are changing the culture of communication

6. Processing power is being pushed to the edge of the network (Smartphones etc.)

7. The real time infrastructure is evolving (Twitter)</li></ul>All of these, and other, socio-technological forces lead to an environment and culture of interaction where : <ul><li>Information flows freely across organizational boundaries

8. Geographic constraints are less meaningful

9. Structural limitations on information management don’t constrain participation (thousands of people can work on projects!)

10. Meetings can be run virtually

11. Projects can be scaled to involve many people with minimal incremental cost

12. The communications infrastructure can be scaled to include many people with minimal incremental cost</li></ul>These forces lead to a world where we are connected across boundaries. This makes the notion of boundaries less relevant at all levels; between people, organizations, nation states etc. This is leading to many well studied phenomena such as the increase in distributed workforces, global mass media, globally distributed teams etc. Hence, advances in the communications infrastructure now make it possible for us to organize ourselves from the perspective of ecosystems. So, why should we do so? We Need To Work Together – The Importance of Collaboration: We are at an inflection point in the course of human history where we are presented both with unprecedented challenge and opportunity. The climate change problem has highlighted both the need for coordinating global activity as well the associated challenges. It is necessary that better processes be developed that make cooperation across the globe a possibility. Furthermore, these processes need not only to be accountable to, but must also engage, all citizens. Antiquated political systems and structures are failing us and it is time to explore new possibilities. Fortunately, an infrastructure that makes possible seamless communication across the world provides us with a lot of opportunity. Furthermore, the consciousness that change is required is not restricted to the province of intellectuals, leaders, thought leaders and the self appointed social elite. There is a consciousness afoot that ‘times, they are a changing!’.... There is a feeling in the air... We can thank the unfettered greed and intrinsically self serving and acquisitive nature of western capitalism for providing a catalyst for change. The collapse of western financial institutions has made it apparent that what we assumed was sacred, and must be the case, is false. We had simply assumed that capitalism had won and that its most basic assumption that human welfare = economic growth must be true. We have now come to realize that this is false and that a new paradigm is necessary! Now is not the time to address the relationship between collaborative models and redefined economic systems. I will leave the reader with an intuition as to the new sorts of models that are possible if we include mass collaboration platforms, citizen voting platforms etc. What I am suggesting is that collaboration is essential if we want to get to know our neighbours on the other side of the world. We will need to speak to them on Skype, view their pictures on Facebook, collaborate on projects on the OpenKollab platform (to be developed!) etc. The astute reader might ask what the relationship between the ecosystem view and collaboration is. To understand this better, we need to explore, in less abstract terms, what it means to be a functioning project in an ecosystem. Operating Within An Ecosystem: balancing autonomy and synergy As a project that is a part of an ecosystem, project leaders must be acutely aware both of their own objectives as well as the activities of others within the ecosystem in which they are participating. This leads to an interaction paradigm where ecosystem members must balance their own autonomy with finding synergy in their work with others. They are autonomous in the sense that they: <ul><li>Are autonomous legal entities

13. Have an independent brand

14. Have independent missions, goals etc.

15. Have separate teams (although overlap is a possibility)</li></ul>They act synergistically in the sense that they: <ul><li>Share sub-projects

16. Share some goals

17. Share some technology infrastructure (possibly)</li></ul>I will suggest that finding this balance is precisely the cross boundary collaboration challenge. This is to say that to function effectively within an ecosystem precisely means that you are effectively collaborating with ecosystem partners. If this is so, we are immediately faced with the question as to how to drive collaboration between projects within an ecosystem. I will suggest that this requires: <ul><li>The Development and Deployment of Open Collaboration Infrastructure and Processes

18. Ecosystem Mapping and Modeling

19. ‘Modularizing’ Projects: creating a collaborative culture in the social venture ecosystem</li></ul>Point 3, identifies some dynamics that are specific to the ecosystem that comprises those that are interested in bringing about positive social change; social venture projects. Driving Open Collaboration Within Ecosystems The Development and Deployment of Open Collaboration Infrastructure and Processes The significance of open collaboration processes is a well studied phenomenon so I won’t provide any detail here. I will just highlight the following: Technology Infrastructure: An essential element in an open collaboration environment is the technology infrastructure that supports the collaborative activity. Hence, in developing an open collaboration process, there must be sensitivity to the technology infrastructure and processes that allow for scalable open collaboration. Engaging with the Broader Community: In bringing all of the above about, we will utilize principles of open collaboration. The information models will be open. This means that projects must get used to being open about their information. It also means that it becomes possible to crowdsource participation on all aspects of the project. We anticipate that when the technology platform is developed and attempts are made to make our process increasingly more visible, resources will become more available from the broader community. Developing A Commitment To Collaborate: Most important is that the groups that we work with are a part of a collaborative process, and therefore develop the skills and the processes that are necessary to actually collaborate. Entrepreneurs, by nature, tend to be self reliant and to have a strong belief in their particular perspective. Developing collaborative processes will, therefore, not necessarily be easy. An easy way to stimulate collaborative activity is by: Co-Generating Content. We believe that in working together to develop the Ecosystem Map and the documents necessary for funding, the group will learn to effectively work together. Shared Real Time Interaction Spaces: Furthermore, the creation of interaction spaces that allow group members to interact with each other, explore ideas together etc. should serve to stimulate a group dynamic. As the process unfolds, the specific tools and the processes that are necessary to make this work will become increasingly more apparent. Ecosystem Mapping and Modeling: principles underlying the information model I am arguing that an ecosystem view of the world has functional utility; that it is a view that supports the creation of infrastructure and processes that can bring about systemic change in the financing of early stage social ventures. The reason that this is so is that it provides a context for defining a system of relations between ecosystem members. For value to be derived from this system of relations, it becomes necessary to first formalize the system of relations; to define a paradigm that allows us to systematically establish relations in a way that can provide value to others. There are two ways that information models can be developed. The traditional method can be referred to as ‘top-down’ or hierarchical. The alternative method which can be understood as ‘bottom-up’ is represented by the ‘tagging’ paradigm. For our purposes, we will consider what is essential to the bottom up method to be the fact that it is the user community (the community for whom the information is most relevant, or that the information describes) that defines the information structure. That this is the method that is most appropriate in a networked world is well argued for by Clay Shirky. It is not necessary to address the nuances of the Shirky’s argument, but in my view, his argument applies only in the case where the function of the information model is to support information search and retrieval. If, as is the case with the mapping of ecosystems, what is necessary is to make precise the relation between objects in your domain of inquiry then a hierarchical approach is necessary. Given this, OpenKollab is developing a hybrid approach to information modeling that will involve the initial positing of a meta-data set that we anticipate will serve to establish relations between projects that can give rise to collaborative opportunities. We will gather this initial data while simultaneously working with projects that have self identified as being interested in collaborating with each other. In self identifying that they want to work with each other, it doesn’t follow that projects have any awareness of what meta-data describes these relations. Whether we can abstract specific meta-data from these self identified relations remains to be seen and is a work in progress. Ecosystem Mapping and Modeling: example of an information model Although this initiative remains a work in progress, we can describe the information model as it currently stands. The model consists of the following: Aligning Missions and Goals: Projects provide information on what their mission and goals are. The idea is to get projects to make this as precise as possible. In many cases early stage projects will not have developed this information with precision and will need support in doing so. Collaborative Relationships: Those relationships that have been identified by members of an ecosystem as giving rise to the possibility of collaboration. Hence, projects identify other projects that they see a potential fit with. If there is a mutual recognition that the possibility for collaboration exists, then dialogue should ensue. Project Summaries: We have standardized an input structure to gather information on projects. This includes; business model, target markets, marketing strategy, financial models etc. In establishing a defined structure for the information model, we can standardize the way that projects both think about their activity and the way that they represent themselves. This should make it easier to identify potential matches. On The Modularity Of Projects In Early Social Venture Stage Ecosystems Another way to think about our approach is to get projects to think about their role in their ecosystem as being modular; to realize as they shape their enterprises that they are a part of a system of relations. The way that this is accomplished is by getting projects to participate in the formation of the information models. This forces the projects to think about their initiatives in this way; to look at their activity from a third party perspective. There are two specific reasons why this model is appropriate when thinking about early stage social ventures. The Potential For Mission Alignment: In contrast to organizations whose primary focus is maximizing their own profits, social venture organizations, at least in principle, should be driven by larger objectives; solving climate change for example. This allows those that have aligned missions to explore potential areas of synergy, and to develop ways in which they can collaborate. Genesis Stage of Development: Furthermore, projects that are early stage, by definition, have less defined processes, less formal organizational structures, are more open to exploring different opportunities etc. In short, early stage social ventures can be flexible in their approach, and should be open to opportunities that increase the possibility of their success. The combination of these two factors makes it clear that matching social venture projects that are a part of an ecosystem can improve their prospects for success. An ecosystem view of project relationships, therefore, provides the information structure that, in conjunction with the right technology infrastructure and open collaboration processes, will serve to accelerate collaboration between early stage social venture projects. ECOSYSTEM COLLABORATION AND RISK MITIGATION FOR INVESTORS Now that we have a better understanding of what it means to collaborate within an ecosystem and the factors that will lead to increased collaboration amongst social venture projects, we can examine how ecosystem collaboration mitigates financial risk for investors. The risk for investors is tied directly to the prospect of the failure of the project. Hence, this risk can be offset in two specific ways; increasing the probability of success of the specific projects and decreasing the probability of failure of projects. Increasing the Probability of Success of Projects Working within a collaborative environment will increase the probability of the success of social ventures for the following reasons: Scale: In grouping projects together, we create scale (more people, ideas, resources etc.). Projects have access to each other’s networks, can bid for projects together, can attend meetings together, can share certain costs (trade shows, for example) etc. Modularity: In viewing ones enterprise as a part of a system of relations, one can direct ones activities in a way that is aligned with ones ecosystem partners. This provides increased opportunity for sales, increased partnership opportunities etc. Social cohesion: we hope that some of what works in the Grameen Peer Lending model, works in this context as well. In support of this idea, we will be developing non-binding collaboration agreements that formalize the commitments between groups. Although we don’t expect these agreements to be binding, we do expect that commitments that are made openly will bring social forces to bear that will result in those that one is collaborating being more likely to provide support. Offsets technology risk: A constant challenge for investors is to be able to assess the value of technology and processes that have not already garnered market acceptance. In getting peers to use your technology, processes etc., (as ecosystem collaborators) the functional utility of the technology is validated by people that understand the technology. Increased Product Validation: in fitting your technology or process into a value chain of collaborators, you will solve problems and enhance the product thereby making it more market worthy. Increased Network/Channel Capacity: In working collaboratively with others, you will build networks and contacts that will open up other market opportunities. Decreasing the Probability of Failure of Projects An important feature of this model is the fact that in working collaboratively with others, one can make drastic changes in ones business model, technology etc. while remaining a part of a collaborative process that supports this transition. To understand this idea better, consider the circumstances in which early stage entrepreneurs function when operating in isolation. If there is a fundamental problem with their project that places the project at risk and where failure is imminent, there is little that one can do other than attempt to raise further capital or sell the business, if possible. In contrast, if the project is a part of an Ecosystem Collaboration, problems associated with the project might be identified at an earlier stage (offsetting the risk of ‘entpreneur myopia’, so to speak). Strategies can be collaboratively developed that might even result in completely changing project structures. One can, for example, work with partners with a view to selling ones project to a partner. By operating more openly and in a more accountable fashion, the chance of failure is reduced. CONCLUSION In summary, I have argued that an ecosystem view of the relationship between projects will support increased collaborative activity amongst early stage social ventures. In doing so, it will increase collaboration, which has positive social implications, and will reduce risk for financial investors in seed stage social ventures. In reducing risk for investors, we will address a systemic constraint that prevents the flow of financial capital into projects that are primarily focused on delivering social value. Hence in solving this problem, we will be contributing substantially to the welfare of the human species!