Development failures, "project to enterprise" and shared value: A Q&A with Mercy Corps' new social innovations head

Social Enterprise

Development failures, "project to enterprise" and shared value: A Q&A with Mercy Corps' new social innovations head

One of Steve's first stints with Mercy Corps was in the steppe of Mongolia. Photo: Paul Dudley Hart/Mercy Corps
One of Steve's first stints with Mercy Corps was in the steppe of Mongolia. Photo: Paul Dudley Hart/Mercy Corps

This month Mercy Corps welcomes Steve Zimmerman as head of its global social innovations and financial services teams, but Steve's not a new face around the office. He's served as chief operations officer, senior vice president of programs, country director, chief of party, and most recently chief financial officer in his tenure with Mercy Corps. With over 30 years under his belt working with nonprofits like Save the Children, Catholic Relief Services, AFS, Room to Read and others, Steve has a lot of experience to share.

We sit down with Steve to hear his thoughts on development failures, shared value, converting donor money to equity stake, exit strategies versus scaling opportunities and how we can carve out important pieces of projects for individual major gift donors to fund.

GE: What are your thoughts on development "failures," particularly in the realm of large-scale social innovations?

SZ: Development organizations and our partners are far more likely to face an inability to realize full potential as opposed to a failure. The innovation must be truly institutionally-embraced rather than dependent on any one individual. Organizations also face false starts by being too supply side-driven, believing that you have the solution to a perceived problem or need without fully reality-testing our assumptions and validating the need. I think we shouldn't just put out the fluffy, life-is-always-perfect pieces. We have to be very honest about what we're learning from the things that maybe didn't reach their full potential—and we have to put it out there for everyone to learn from.

GE: What’s your take on "shared value?" One model seems to be that large NGOs can bring in initial, low-cost money from philanthropic entities, which reduces risk and lays the groundwork for the private sector to create long-term scale. Under what circumstances, or for which kind of development projects, does this work best?

SZ: Shared value success is all about the right partnerships. The private sector is very interested in emerging economies, particularly as recent economic conditions have limited growth in the U.S. and Europe. But they struggle to find their way and can be reluctant to invest significant sums in untested areas. The value of the tri-partite partnership – philanthropy, private sector and NGO, can work where there is a “win” for all by accommodating the social and economic interests of everyone involved. For example, our new AgriFin Mobile project is moving in this direction: we have funding from the Swiss Development Corporation, Mercy Corps “boots on the ground,” and the private sector in the form of banks, mobile network operators and rural advisory service providers. Eventually we’ll bring on agricultural suppliers and buyers.

Steve Zimmerman. Photo: Mercy Corps
Steve Zimmerman. Photo: Mercy Corps

GE: Can you give an example of how an NGO can create or capture an investment opportunity in some of its programs?

SZ: Take Mercy Corps' new Agri-Fin Mobile project, which is a mobile-enabled bundle of information and financial services for small-holder farmers. With our partners in Zimbabwe, we've got plans for a package that would be sold at kiosks, through agents and others that would combine a low-cost phone, a mobile wallet and agriculture advisory services. We could possibly go in as a co-investor, for example. We can put up our own money and put some skin in the game. Or we could convert donor money to an equity stake, which is also valid. We look at this through a "project to enterprise" lens.

GE: Is there a place for individual major gift donors to be involved in the projects your teams work on? What would their funding be used toward in this kind of mix, especially when we're talking about major funding from Gates or a private company?

SZ: You can carve out a piece of a program, particularly in the beginning, where you say, "Here's a project that was grant funded. We think it has legs that can extend beyond the end of the grant." Getting it investor-ready is something you can take to a major donor and they can help bring that great idea and successful project to the next stage. Developing the business plan to attract investor funding can happen during the grant phase so that the program is ready to expand when the grant funding ends.

GE: Is this an area where universities can play a role in terms of researching on-the-ground demand to help prepare the project for scale?

SZ: Possibly. We often use our own field staff or local resources on the ground, such as our work with researchers from a university in Indonesia. I could see engaging a U.S. university, academic researchers or MBA students to create an investor-ready prospectus that would be sold to U.S. investors. They would take the idea and put it together in what's known as a "private placement memorandum" that shows why this is a good, financially sustainable, mission aligned program and that would be attractive to an investor. The development community isn't very good at that yet because most of our efforts are geared around writing proposals to donors. Business plans are very, very different.

GE: How can solid financial management serve an agency's mission and contribute to social innovation?

SZ: An organization needs to generate reserves and it needs to use those precious reserves for very strategic investments. A compelling idea, the sound supporting research, the passion and commitment to see it through, and a willingness to stand up before discerning investors to sell it--essentially the return on investment. Agency investments of this type are not entitlements or budget contingencies to be allocated on an annual basis based on parity, but rather a merit-based means to fund the type of work that the organization seeks to add to its knowledge and experience, and which it believes will make transformational change.

GE: You've been involved with some of Mercy Corps' most complex financial services ventures. How do you tackle really challenging problems?

SZ: Analyze and triage. First, determine and assess the obstacles to success by type. Are the obstacles internal or external? Are they related to the program design and/or business model? Or are they related to funding, management, relationships or communications? Then rank by importance and start at the top. Focus on the forest, then the trees, then the leaves.

GE: Though the funding landscape is quickly changing, many large development agency's bread and butter aid work is largely funded by traditional donors, like USAID, which tend to focus on tried-and-true development methods. However, many people classify small tweaks to these kinds of programs as "innovations." What are your thoughts?

SZ: Innovation is often in the eye of the beholder. Sometimes the donor allows us to design our programs within certain parameters but with a significant degree of flexibility and creativity. Straight-up development grants are harder unless funded as an "innovation" often because donors more immediate and recognizable results. The idea that an organization needs to choose between incremental improvements of core, routine activities and innovation is certainly not true at Mercy Corps. Innovation is really a process rather than an outcome, and involves solid analysis, understanding of influencing factors, and applying lessons learned.

RELATED: Clinton Global Initiative: Mercy Corps commits to reaching 180,000 rural Zimbabwe farmers with agriculture information and financial services through mobile phones

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