CDAC Spotlight
Designing for Change: Communities and Capital

In many communities today, it is increasingly difficult for individuals to start a successful business. Since the late 1970s, the rate of new-business formation has fallen in half in the U.S.Economic Innovation Group. Dynamism in Retreat: Consequences for Regions, Markets, and Workers; February 2017. https://eig.org/dynamism Most entrepreneurs (81 percent, according to the latest data from the Ewing Marion Kauffman Foundation) require some degree of alternative financing—they rely on their own savings and credit, turn to family and friends, and work to create early sales through their various relationships. Complicating the issue further is the fact that bank lending to small businesses has not reached its pre-recession levelsHow Did Bank Lending to Small Business in the United States Fare After the Financial Crisis? Rebel A. Cole, Krahenbuhl Global Consulting, Chicago, January 2018. https://www.sba.gov/sites/default/files/rs439-How-Did-Bank-Lending-to-Small-Business-Fare.pdf and there is a lack of family wealth to support traditionally underserved entrepreneurs (for every $100 that a white family has in wealth, a black family has only $5.04Whites Have Huge Wealth Edge Over Blacks (but Don’t Know It), New York Times, Sept. 18. 2017. https://www.nytimes.com/interactive/2017/09/18/upshot/black-white-wealth-gap-perceptions.html). It’s clear that creative solutions are needed to advance the efforts of these entrepreneurs and to build communities that thrive. But where do these creative solutions come from?

Understandably, when we hear statistics like these, we tend to respond in frenetic ways—we close ranks and hunker down. As investors, community advocates, entrepreneur support organizations and development groups, we work every day to figure out ways to better support businesses. In our work at Access Ventures, we have found that traditional “problem solving” tends to generate a mindset focused on problems, which can lead to a mental position of scarcity—the proverbial “glass is half empty.” Although well-intentioned, this mindset can stifle creativity and limit our responses. We might be better served to design for change.

To design for change, it’s helpful to employ appreciative inquiry, an approach that shifts focus from “what’s wrong” to “what’s strong.”The Appreciative Inquiry Commons. The Champlain College David L. Cooperrider Center for Appreciative Inquiry in partnership with Case Western Reserve University’s Weatherhead School of Management. https://appreciativeinquiry.champlain.edu It supports an abundance mentality that is the only way to truly design for change. Scarcity creates anxiety and inevitably restricts the ways we might creatively imagine a different solution. A scarcity mentality looks at problems, whereas an abundance mentality assumes opportunity. Appreciative inquiry and designing for change get beyond identification and analysis and leverage the best of one’s team to imagine and deploy innovative approaches. Over the past four years, Access Ventures has refined this approach into three steps borrowed from many great pioneers, such as the d.school at Stanford and the teams at IDEO. Below are the three steps that our team uses to guide our work:

1. Designing for change is human-centered. We do not treat the concept of “human-centered design” as merely an aspiration; we place humans at the very center of all of our work. It is what motivates us to understand context and cultures. Just like the process developed by the d.school at Stanford, ours empathizes and then develops solutions. Our starting point is to assume that nothing is universal and that every community is a complex, living organism. It is important to remind one another that we design solutions and services for humans, not humans for solutions. By focusing on the human experience, we can truly build—or rebuild—that appropriate solution.
2. Designing for change is always discovery and problem-making first before getting to solutions. We surface questions, understand the players and identify gaps. We work to apply a wider view to ensure that we don’t miss anything—but not simply for the purpose of observation. Our objective is always to come to a solution. We first redefine problems, then we imagine, design and create solutions at all levels. By challenging the status quo, we better understand the problems that most need to be solved—and solve them creatively.
3. Designing for change is about breaking the boundaries of established disciplines. To understand the complex nature of our community’s challenges, we need to combine existing, traditional disciplines and invent new ones. Access Ventures works to leverage our team and process to identify gaps and develop new approaches that require first-mover risk capital. The role this requires is one of “beta-tester”—willing to prove examples that have potential but no certainty of success. In many communities, funders want proven, seemingly off-the-shelf solutions. Yet, many of the challenges communities face demand new, untested and unverified solutions.

Stanford d.school Design Thinking Process

SOURCE: https://dschool.stanford.edu

If your organization wants to design for change and deploy new, exciting and creative strategies, you will need to embrace the first-mover risk capital position many of these challenges will require. As an example, we identified a major gap in the capital stack for small businesses in our community. During development, we discovered that very seldom did a prospective borrower get to meet with the loan committee that would approve or deny his or her loan. We also discovered that many borrowers could not secure nontraditional finance without collateral. At every turn, these business owners heard “No” or nothing at all. Over the past two years, we built and deployed a new loan product we call the Growth Loan and have lent over $600,000 to 22 businesses with a 97 percent repayment rate. None of this would have occurred without first-mover risk capital, in this case $350,000, to prove that this approach could work.

In discovery, and with every change since, we work to consider the process and loan from the vantage point of the borrower. We built a loan committee of volunteer community members to which the business owner can present. The business owner has the opportunity to answer questions, explain potential gaps in his or her financials and even provide samples of the company’s product for review. We also established a partnership with the local Small Business Development Center (SBDC) to provide critical technical assistance to these borrowers. By better understanding the needs, desires and fears of the prospective borrower, we were able to design a solution that works and to establish a model for assessing credit needs and the ability to repay that is better than a generic credit score.

Unfortunately, without the ability to design this product and the capital position to bring it to life, this shift would have never been a possibility. It’s important for more community partners and funders to step up and commit to playing this vital role for more creative and collaborative strategies to be designed and deployed. Many things must change (such as the manner in which investors source and fund solutions) for these processes to be more commonplace. No one solution works in every context and at all times. Variables in every community require adjustments in our approaches. If we want to be responsive and create lasting impact, we must design tailored solutions to respond to these changes.

CDAC Member Spotlight

Bryce Butler is managing partner at Access Ventures. Before starting Access Ventures, he was the executive director of the BlueSky Network, a venture philanthropy family office in Southern Indiana with activities around the world. He was also the executive producer of “BBoy for Life,” a documentary set in Guatemala City that premiered at the United Nations in April 2014. Previously, Butler worked in Organizational Design & Development at Samtec and served as an executive pastor at one of the 50 fastest-growing churches in the U.S. He served on active duty for four years as captain with the U.S. Army Armor Branch. He has a master’s degree in theology and a bachelor’s degree in economics. Butler teaches social enterprise as an adjunct instructor at the University of Kentucky. He serves on multiple boards, including those of Village Capital (a firm that has conducted more than 60 early stage programs around the world and has made over 90 investments to date), Greater Louisville Inc. and Marketplace One. In 2018, he was announced as a Rubinger Fellow with Local Initiatives Support Corporation (LISC). Butler is a member of the Community Development Advisory Council (CDAC) for the Federal Reserve Bank of St. Louis.

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CDAC members are experts in community and economic development and financial education. They complement the information developed through outreach by the District’s Community Development staff and suggest ways that the Bank might support local efforts. A list of current members is available at https://www.stlouisfed.org/community-development.