No Better Place, No Better Time

Last week, a letter in the Wall Street Journal claimed that Americans would be foolish to start a business today because the government has been destroying the incentive to build a successful company. We have heard this refrain in casual conversation and in the context of electioneering.

How odd. We are at a loss to think of a time and place in human history in which there was greater freedom or a better time to start a business, almost any business.

It is important to clarify what is needed to start and grow a business and to be clear where government has the ability to interfere.

Ideas
Entrepreneurs must identify a service or product that is new or distinctive or is to be delivered in a new or distinctive way. Thanks to globalization and the internet, American’s can think and invent across sectors, industries, regions, and delivery modalities in ways that our parents and grandparents could not, regardless of their intelligence. In America, the government cannot and does not limit one’s ideas, though we can do it to ourselves pretty easily.

Work Ethic
To start and build a company requires tremendous determination, the ability to move through adversity, the willingness to invest time and energy and then more of both. Ownership requires a sense of ownership. No government policy can give one a strong work ethic. The hardest working people we know are driven more by intrinsic than extrinsic motivation. (Yes, that recognition represents a key part of the origins of “Syntrinsic.” If we embraced external motivation, our name would be quite different.)

Knowledge
In order to implement one’s idea, it often is necessary to acquire new knowledge about technical or management aspects of the business. America’s education system gets a lot of criticism and much of it deserved; however, at least America as a country does not prevent people from learning what they want or need to know. Someone passively waiting to be given knowledge may struggle, but those who actively seek to learn can take advantage of a social system full of free and low-cost educational opportunities. For generations, the best way to acquire knowledge was through apprenticeship, not in school; that ability to glean on-the-job training from experienced mentors is as robust as ever if one is appropriately motivated.

Good Colleagues
No business succeeds in a vacuum. Partners, employees, vendors, customers, strategic partners, and other stakeholders share in the work via creativity, insight, or simple sweat equity. In America, entrepreneurs can seek out and find the people they need from around the globe, and in America people can take the risk of joining something new or innovative or both. We are not constrained by government in who we can hire nor are those who seek work constrained by government in seeking employment. America does not force children to choose professions in early adolescence as many developed countries do. We have the opportunity to invent and reinvent ourselves many times over.

Rule of Law
Volumes have been written about the critical role that that the rule of law plays in creating a healthy climate for constructive capitalism (see: The Mystery of Capital, Hernando De Soto, Basic Books, 2000). While we do not all agree on specific laws or even how many laws there should be, we do live in a country governed by law and with largely disinterested courts and other intermediaries to help officiate the application of law.

Access to Capital
While it has been difficult to borrow money from traditional banks over the past 2+ years, there remain many individuals and organizations that possess capital and are willing to invest in those with compelling business plans. Government may not go out of its way to make it easy for an entrepreneur to secure funds for an idea, but nor does government step in the way to prevent access. If you want to borrow against your credit card or home you can, provided the lender on the other side is interested. If you want to borrow from private or institutional investors the government will not prevent you from doing so. That may seem simple but it means the world.


Many other factors contribute to entrepreneurial opportunity, including civil society, transportation infrastructure, accessible telecommunications, absence of corruption, and healthy demographic trends. No combinations of factors ensure success of an individual entrepreneur, but taken together, they do create a climate where society-wide entrepreneurial success is highly likely.

The challenge of course, is that these factors must be protected vigilantly. Success can easily breed complacency. Just because America has been a richly innovative society since before its founding does not mean that it must remain so.

At a policy level, government can take many steps that simply make it harder to start a business:

· Diminish some of the incentive for working hard by making the work too onerous (e.g. regulatory overkill) or reducing the potential rewards of success (e.g. onerous tax policy).

· Make it scary or difficult to hire people by: mandating salary and benefits (including employment taxes) that are beyond what employers are able/willing to pay; mandating whom one can hire by gender, nationality, race, or other socio-political factors; making it easy not to work; or by making it difficult to remove people from employment.

· Demonize businesspeople.

· Threaten the Rule of Law by creating uncertainty about the application of laws already on the books. Recent examples include displacement of secured bond holders (Chrysler), interference with foreclosures, and protection of certain failed institutions (while allowing others in the same industry to crash). When one earns a reputation for changing the rules in the middle of the game, one makes it harder to get people to play again.

· Mandate allocations of capital. All capital controlled by the government was private capital first. Thus, any time that the government requires that a government agency allocate capital in a way that does not make economic sense or any time that the government mandates private corporations or individuals to allocate capital in a certain way, the risk is run that capital will not be available for otherwise meritorious ideas

That said, we do not think that government is the main problem today. That’s a highly unpopular thing to say in this political environment, but stay with us for a moment.

Ultimately, American government reflects American culture, and we’re more concerned with the latter than the former. We are not so sure American culture understands or is excited about entrepreneurship in the manner necessary to go forward effectively. The factors most necessary to start a business today—great ideas, work ethic, innovation, courage, leadership, collaboration—these are not controlled or materially limited by the government. These factors are our responsibility as individuals, as citizens.

It is easy to bash government from all sides of the aisles, and there is a place for it perhaps. More importantly however, our economy will only thrive—and our society prosper—so long as there are people with good ideas who possess the work ethic, skill, and tenacity to bring those ideas to life.

There’s been no finer place to start a business than America. If not now, when?

American Parent

We often wonder what it might be like to be a parent in different locations or points in time. Take Gaza for example. Set aside any political or religious differences as best you can. Imagine for a moment being a mother or father (or other caregiver) trying to raise a family in Gaza City, striving to be thoughtful, dutiful, and loving. Imagine trying to get access to a home in a safe neighborhood. Imagine trying to secure a job where you can do something meaningful that enables you to support your family. Imagine your daughter heading out in the evening in search of clean water. Imagine your son negotiating the life or death choices between Fatah and Hamas.

Now step away from Gaza. Imagine being a parent in Darfur or Congo where roving gangs can destroy everything precious in a few random moments. How about raising a family in the slums of Mumbai or Nairobi, where a type of poverty thrives of which it is difficult for modern Americans to even conceive? What steps would you take if you lived in Iran or North Korea and wanted to create a better future for your friends, neighbors and descendants? Would you protest and thus risk a grisly prison term or midnight execution? Would you keep your head down and stay out of trouble? Picture yourself in Guatemala or Oaxaca, knowing that there is no way you can feed your family through subsistence farming and no way to change that except by leaving.

As American children begin to learn of abject poverty and injustice around the world, they reasonably ask, “Why don’t they just move?” as if that response was so obvious. When an adult American steps into the shoes of a person struggling against deeply engrained economic despair, political abuse, or cultural and religious intolerance, it is natural in many cases to think of how we might fight back; yet, in so many situations the best response for a reasonable person would be to leave and seek a better life elsewhere.

Those whose ancestors came to America by choice came here in search of better conditions, whether they came from the potato farms of Ireland, the shtetls of the Ukraine, or the rice paddies of Cambodia. Political, economic, and religious freedom have driven people to our shores since long before we crafted a Constitution or used it to justify the creation of the US Bureau of Citizenship and Immigration.

That sense of mobility also has driven Americans internally ever since Roger Williams left Massachusetts Colony for the relative religious freedom of Rhode Island and Providence Plantations. Gold-seekers and fur trappers pressed the boundaries of America westward. Okies streamed west in droves from their repossessed and soil-depleted Dust Bowl farms, fleeing one way of life and creating another. Black Americans who were free but disenfranchised streamed north to Chicago, Detroit, Philadelphia; more recently, many have moved back south to Charlotte, Atlanta, Houston and points in between.

While the pressures on families in America and around the world remain intense, human mobility is complicated by two trends that often arise in times dominated by fear and uncertainty.

1. Immigration
The developed world—which on a relative basis remains far wealthier and healthier per capita than developing or undeveloped societies—has increased its aversion to those seeking opportunity in their countries. Sure, some desired changes in immigration policy and its enforcement are based on a firm belief in law enforcement for its own sake, but one has to wonder if that is truly the motive across the board. Roma being kicked out of France, North Africans refused entry into Italy, Zimbabweans rounded up in South Africa, and potential immigrants from Mexico and places south being told that they are no longer welcome here because their immigrant culture undermines what makes America America, a common refrain used in other times of economic crisis to keep out the Scots, Irish, French, Italians, Poles, Jews, Cubans, Haitians, Russians, Iraqis and Afghanis, as well as many other families from around the globe.

2. Housing
It has become much harder for Americans to move internally to seek a better life. With 25% of Americans in homes that carry loans greater than the home’s current market value, the math of moving is not compelling or even possible for many. With suddenly risk-averse banks curtailing their lending activity, who is there to financially support the risk inherent in leaving one place and going to another even when a new job is in the offing? If Americans cannot create sufficient opportunity where they are because of oppressive social conditions and they can no longer move in search of opportunity, then what have we become? It’s not just about housing.


Political debate around the immigration and housing crises would be better informed if more of the actors in those discussions possessed empathy for those impacted most personally by these situations, if they had developed a better sense of the true personal and social ramifications of the ideas that they espouse. For us to remain human in the true sense of the word, we must possess the ability to stand in another person’s shoes—whether a refugee mother in Darfur or an unemployed dad in Detroit.

Imagining life as a parent from somewhere else will not make solving humanity’s problems any easier (indeed, it may make them more difficult because we will know more), but it will help us keep those problems human-scale. It is hard to get people inspired about raising GDP; it is easier to motivate them to seek to provide a better life for the people they care about most.

Somewhere in the world right now, there is an adult in a small village without clean water, without a school, without police who serve and protect, and that adult is wondering, perhaps wistfully, “What would it be like to be a parent in America, that land of wealth and promise and opportunity?”

Let’s hope that America long remains the type of place that people dream about, and let’s make the hard decisions necessary to keep America worthy of their dreams.

On the Cattle Trail

In Colorado, a conversation with a stranger can quickly turn into a nostalgic journey, particularly when speaking with someone whose family has been in the area for at least three generations. If so, then there is a good likelihood that you’ll end up discussing cattle—stockyards, cattle trading, ranching, slaughter houses, packing houses and the like. For whether their family came here to escape the politics of colonial Mexico, tuberculosis on the east coast, or pogroms in eastern Europe, whether they were drawn by the opportunity of a vast new state or simply got sidetracked on their way to California, there’s a good likelihood that they ended up participating in or otherwise experiencing the cattle business.

In most cases, that cattle-driven conversation would be a nostalgic one set in places that don’t exist anymore, or certainly not in the same way. It would describe ranches once owned by families that were set on the windswept high plains of eastern Colorado, in the stunning San Luis Valley that is in so many ways closer to New Mexico than to metropolitan Denver, and scattered across the Western Slope around Delta and Montrose. Many of these ranches still exist and some still function as such. But many are now barren, or have been sold to a major agricultural conglomerate, or have even become retirement communities complete with golf courses and shopping centers.

The remembrances would be set in the years prior to the early 1980s, in Commerce City or Greeley or Longmont where smallish family owned businesses raised cattle, traded them, slaughtered them, butchered the sides and packaged them into filets, tenderloins, rib-eye, skirts, and even bacon and sausage, and transported them by truck, rail, and ship across the country and around the world.

Those small family owned businesses are few and far between now. Some were forced to close due to volatility in cattle prices and union demands, others were snatched up by regional corporations, then national and multinational powerhouses. A handful still operate in a modest form but are sustained financially by other professions or businesses with steadier, more significant income. Those that remain in operation most effectively tend to be far from the urban centers of the Front Range

Clues to the former trade abound, but you have to be looking. The drive along I-70 into downtown Denver from our International Airport takes one past the former stockyards, though plenty of people drive that route every day without noticing the history whizzing past the windows or even knowing to look. It would be hard now to envision the area formerly teeming with thousands of heads of cattle coming and going on the many train tracks that connect Denver to Omaha, Kansas City, Oklahoma City, and Chicago.

A few blocks to the east of the stockyards, former slaughter houses and packing houses congregate along Washington Street, quiet now. No bellowing from the cattle being unloaded from trucks, no banter in the parking lots between hard-working men in white coats red with blood. Some buildings have fallen down, others remain empty, still others have become offices, warehouses, and at least one laser tag facility.

While every January thousands of people still travel from across the plains to participate in the National Western Stock Show, one can—and most do—remain ensconced in the urban core and suburban neighborhoods and never be touched by what likely appears to many to be a relic of the past or a quaint tribute to rural life. Even though beef is on nearly every menu in town and in every grocery store, it is hard for many to believe that there are still families—real people living real lives—who get up every morning to raise cattle, breed them, care for them, and bring them to market, albeit a market that is now much farther from where most people live and work.

And while some remain deeply connected to the cattle business, most of the children, grandchildren, and great grandchildren of those who once built and lead this dynamic, rich, and vital part of our culture live largely in a different world. They are consultants and investment advisers, real estate agents and nonprofit leaders. They are in manufacturing and energy and technology. While a fortunate few maintain some connection to this former world, most people know it mostly as a story, one often collecting dust on the shelves because it has not been recently told.

America’s bookshelves are populated with stories such as this. The Western Pennsylvania story of steel mills lining the Allegheny, Monongahela, and Ohio Rivers, drawing immigrants from across Europe and helping build America’s bridges, cars and skyscrapers. The Oregon story of wood lots and timber mills producing the lumber that houses families across America and even a few in Japan. The family dairies of Wisconsin that were financially viable for generations until the world changed and the economics shifted and so many were forced to close and create a new life.

America was born by people seeking to change their lives. It is and always has been a tumultuous country. One generation comes here because it is possible to build a life here, to start an industry, a company and to pass it along to future generations. Yet that same vitality has a destructive quality as well. For the very forces that enable one to start a packing house, a steel mill, a timber mill, a dairy farm, make it challenging for others to sustain it over time. All of the stories referenced above—Colorado, Oregon, Pennsylvania, Wisconsin—reached their denouements in the early 1980s. These are not journeys into ancient history, nor are they exceptions.

As difficult as many find this time in history—whether one calls it the Great Recession or the Great Deleveraging or simply shrugs and looks worn out—America has been here before many times. It is a time of reinvention, a time where elements of life that we thought were timeless (e.g. housing appreciates at 10-20% per year) have proven not to be.

So long as we believe that new stories can be written and so long as we maintain policies that enable them to be written, then we should be all right. If, however, we no longer believe that we have the power to create new stories, if the personal and social will to create are gone, it does not matter who we elect or what they do in office.

Better that we look forward to creating the stories our grandchildren will tell than lament the passing of those that already have been told.

Guiding Principles for Effective Stewards

The libertarian in us would like to believe that all industries—including the nonprofit sector—can reliably self-regulate. In our regard for individual responsibility, we expect that organizations should have the insightful leadership, altruistic ideals, and financial security necessary to control behaviors which most deem to be unethical. Our freedom loving selves believe that organizations can and will conduct themselves in a manner which betters society through the pursuit of enlightened organizational self-interest.

The federalist in us would like to believe that the US government—through its statues, regulations, and agencies—provides for-profit and nonprofit organizations with a mature, thoughtful guiding hand. We expect that government crafts a legal framework in which competent agents of the state clearly define and reward appropriate behavior, thereby effectively balancing the tension between social good and individual freedoms.

However, neither our libertarian nor our federalist extremes live in the real world where the nonprofit sector and investment industry meet. Both nonprofits and investment professionals struggle mightily to define appropriate behavior and best practices in the absence of clear, definitive legal or cultural guidance. One can reference the Uniform Prudent Management of Institutional Funds Act (UPMIFA) but it does not define how to be a responsible steward. The SEC, FINRA, and other investment regulatory bodies issue many regulations yet leave an extensive gray area where definitions of “ethical,” “suitable,” and “appropriate,” vary considerably.

Even though the intersection where the nonprofit sector and investment industries meet is clear, too many nonprofit organizations perceive their finances as isolated from their mission and program. This perceived division between social and financial is common in the nonprofit world, yet false. Sustainable change requires prudent stewardship. For nonprofit organizations, programmatic mission and finance are interdependent, not mutually exclusive.

In our experience, the separation stems from those nonprofit leaders who see money as a necessary evil rather than as a necessary good. They did not get in the nonprofit business because they cared about money and so approach it reluctantly and perhaps even with animosity. If they see capitalism as a source of poverty rather than as a source of potential enrichment, then the situation is all the more difficult. This difference in perspective is profound and explains in part why so many nonprofits with inspiring missions and phenomenal programs do a poor job of managing the financial resources in which they have been entrusted. Ultimately, they are forced to constrain their programming and limit their long-term impact.

With this in mind, Syntrinsic has crafted the following seven Guiding Principles for Effective Stewards. Our hope is that the Boards and staffs of more and more nonprofit organizations will embrace these Principles and improve the practice of nonprofit stewardship.

Guiding Principles for Effective Stewards of Nonprofit Financial Resources:

1. We strive to make the most effective use of the financial resources to which we have been entrusted by the broader community.

2. We conduct financial affairs in a manner that is transparent and that avoids taking any action which may be perceived as self-dealing or otherwise conflicted.

3. We demand that our financial advisors also conduct their business in a manner consistent with our Guiding Principles.

4. We dedicate the time and energy necessary to develop, implement, and monitor the strategy for prudently managing our organization’s finances.

5. We ensure that our board members, committee members and senior staff understand and fulfill their responsibilities as they relate to financial management and oversight.

6. We integrate our financial management into our overall strategic planning so that our mission and our stewardship are aligned.

7. We promote effective stewardship throughout our organization and amongst our stakeholders, vendors, and other strategic partners.


Those who have spent considerable time in the nonprofit sector know that many organizations would have difficulty enacting these Principles in a meaningful way. Those who are steeped in the investment industry know that some of these principles directly conflict with common industry practices (e.g. transparency, conflicted relationships, etc.).

We are not naïve. Posting these Principles will not cause radical change to sweep through the nonprofit community making prudent stewardship a primary driving force in nonprofit decision making. Nor are we jaded. There are phenomenal professionals and volunteers who already shepherd nonprofit resources in an exemplary manner.

At the end of the day, our hope is that those who serve and support nonprofit organizations will set the highest standards of fiscal stewardship regardless of the decisions of nonprofit and financial market regulators. In so doing, these organizations will better be able to feed, shelter, educate, protect, guide, and empower those most in need. That would be something both libertarians and federalists could celebrate.