Succeeding with Innovation

How can Jewish innovation be sustained? Part of the answer, from the experience of entrepreneurs outside Jewish life, is to be more rigorous in scrutinizing the competitive environment and the resource needs of each startup, and especially to have a definite plan for financing it in the long term.

Harvard Business School professor Howard Stevenson, who retired at the end of the last academic year, virtually created the school’s curriculum on entrepreneurship. He has distilled his long experience into four key “ingredients” necessary for success:

1. A careful definition of available opportunities
Is there a demand out there that’s not being recognized or addressed, and what product or service can I offer that meets it?
2. The motivation to pursue those opportunities to achieve some desired future state
Do I have the long-term will and endurance necessary to stick with it, until that product or service is fully implemented and available?
3. An understanding of the resource requirements for achievement of that desired future state
Do I fully comprehend what human, financial, material, and other assets I will need? Is it feasible for me to launch, and succeed with, that product or service?
4. A skill in negotiating for access to the required resources
Even if I don’t possess all the assets I need, can I get other people to believe in and contribute to the opportunity to the extent that success can be achieved?

Source: Harvard Business School Alumni Bulletin

In the Jewish context the last question is a particular sticking point – and that’s not new. More than two years ago Shawn Landres and Joshua Avedon, the founders of Jumpstart and the leading chroniclers of Jewish innovation, sounded a warning about the financial fragility of startups. Of the ten key findings in their 2008 survey of new Jewish organizations, five spoke to resource issues, including the need for “sustainable models for financial management” and the fact that the great majority of startups “do not yet have stable revenue streams.”

That is still true today, both in terms of earned income and donated funds. Earned income is underdeveloped as a revenue stream at most startups, and there is no reason to expect a massive shift of grant funds to innovators, despite the partial rebound in philanthropy over the past two years. It’s easy to say that more philanthropists ought to step in, but Prof. Stevenson puts the responsibility on the shoulders of the entrepreneurs. They need to ask themselves, “can I get other people to believe in and contribute to the opportunity to the extent that success can be achieved?” The answer to that question for most startups is “no.”

Jewish innovators do show a deep commitment and unflagging dedication to making their ideas a reality – the “long-term will and endurance” that Howard Stevenson talks about. But some may not have given enough attention to whether it is economically feasible to succeed with their project, and they may not have looked closely enough at whether there is sufficient demand for what they want to offer. A tougher, more dispassionate reckoning with those criteria might result in fewer startups being launched, but a greater proportion that last.

The advocates of innovation have done the sector no favors by repeatedly saying that funders “must” invest in innovation generally. Canny financiers invest in particular people and specific business plans, not labels or generalities. What’s more, exalting the model of independent startups ignores the inconvenient truth that it’s much easier to raise money within institutions with big fundraising operations and numerous existing donors than at a new entity with no track record.

Venture philanthropists say startups now need “mezzanine” investments to get to the next level. In the venture-capital world, mezzanine financing is a way for an investor to earn a very high return in a short time on a loan, or else gain an ownership stake which will balloon in value in a leveraged buyout. Venture philanthropy tacitly assumes a similar payout, at least in the metaphorical form of a sustainable nonprofit that benefits a large public. The problem is that such outcomes for startups have been very rare. And without that kind of payoff, mezzanine financing is a bridge to nowhere.

In a field as diverse as Jewish startups, generic solutions to sustainability don’t apply, and appeals to support an “ecosystem” are misplaced because ecosystems don’t inspire deep loyalty. Committed individuals, compelling missions, and solid business plans do, whether as stand-alone ventures or within a larger entity. There is no shortcut around assessing needs, devising solutions, and persuading individual donors to believe in those solutions. The sooner innovators refocus on those basics, the more their work will thrive.

Bob Goldfarb is the president of the Center for Jewish Culture and Creativity, the fiscal sponsor for more than 20 innovative Jewish projects. He earned his MBA at Harvard Business School.