INITIATIVE FOR A COMPETITIVE PROSPECTUS
INNER CITY:
The mission of the Initiative for a Competitive Inner City is to foster healthy economies in America's inner cities that create jobs and economic opportunity for local residents.
BACKGROUND The Initiative for a Competitive Inner City is a national, nonprofit corporation founded in June 1994, after several years of research on the economic distress of America's inner cities. Harvard Business School Professor Michael E. Porter became convinced that the current approaches were not working, and that a fresh look at inner-city economic development using some of his ideas on strategy and competitiveness might prove fruitful. Utilizing the forces of the marketplace and the resources of the private sector, he believed there had to be a way to restore the economic health of our inner cities and create jobs and economic opportunity for residents. Just as important was the need to develop the perception of America's inner cities as places of economic opportunity and vitality. The negative perception today divides us as a nation, impedes the growth of inner-city communities, and severely limits the opportunities for the most disadvantaged among us to become self-sufficient. The inner city has been overlooked as a place with genuine economic opportunities. Extensive research has been conducted on this issue, examining the economies of nine inner cities, including Atlanta, Baltimore, Boston, Chicago, Los Angeles, New York City, Newark, Oakland, and Washington, D.C. This research led to a new model for thinking about inner-city economic development, summarized in the Harvard Business Review article "The Competitive Advantages of the Inner City." The vast majority of past and current efforts to revitalize inner cities take a social perspective, focused on areas such as housing, health care, crime and education. However, an economic strategy is also a necessity if jobs
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accessible to inner-city residents are to be created that will allow the social investments to pay off. The desire to reform welfare only raises the sense of urgency. A sustainable economic model for inner cities must be based on genuine profit, not artificial subsidies and mandates. It must focus on the position of the inner-city economy in the regional economy rather than treat inner cities as separate. Instead of starting with the premise that inner cities are devoid of business and cannot compete, the new model starts with the premise that inner cities must compete. Otherwise, economic activity there will not be sustainable. The research suggests that inner cities can compete, drawing on potential competitive advantages of inner cities such as a prime location for logistically sensitive businesses and the presence of large, unmet local demand. Economic development efforts should build on these advantages, and concentrate on improving the inner city as a place to do business. There are numerous government and business policy implications that flow from this overall framework. The research suggests, however, that simply changing government policy will not be sufficient. Professor Porter came to believe that it would also be necessary to engage the private sector in new approaches to addressing the inner city. The notion that government and non-profits can, or should, drive economic development in inner cities is, in our view, open to serious question. Sustained economic development in our country has always come from the private sector driven by the pursuit of profit. There is no evidence that this should be different for America's inner cities. The IC1C model represents a significant new approach to inner-city business development. The ICIC model has generated significant response from both the private and public sectors and is rapidly being disseminated throughout the country. This way of framing the problem seems to have hit a responsive chord, and there is increasing evidence that it can reshape the national debate and help transform the approach in dealing with the distressed areas of this country. We believe that this model, which is driven by the forces of the private marketplace, can be applied in all of America's inner cities. T H E I N I T I A T I V E F O R A C O M P E T I T I V E I N N E R CITY The Initiative was founded, first, to continue the research and communication process on inner-city business development. Its focus on innercity economies and inner-city businesses remains, and there is much
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more to be learned about inner-city businesses, and much knowledge and best practices to be disseminated. For example, the Initiative has developed a methodology for studying a city, understanding its economic potential, and developing action recommendations. This methodology is being continually enhanced and disseminated. More importantly, however, we believed that the formation of an organization with strong credentials in the business community was needed to develop and participate in the implementation of a series of privatesector initiatives focused on inner cities around the country. A central concept of the Initiative is to connect the inner-city economy with the surrounding economy in order to upgrade the quality and capability of inner-city based companies. This occurs through the creation and strengthening of business-to-business relationships within the inner city, involving not only companies but leading business schools, professional service firms, and financial service providers. Through our research, we have discovered that there are hundreds and even thousands of existing companies of some scale in inner cities ($1 million or more in annual revenues and fifteen or more employees, the majority of whom must be inner-city residents). Many of these companies have significant growth potential. There are also many other potential n e w businesses of scale, in areas such as retailing and rapid-response service delivery, that could benefit from an inner-city location. The Initiative's initial goal is to mobilize the private sector in business-to-business efforts to enhance the growth of the existing companies; these existing companies are the Initiative's core clients, because they offer the greatest potential for near-term job creation. Over time, we also hope to stimulate new business formation through partnerships with franchisers and other means. Other programs with similar aims, such as they exist, focus primarily on microenterprises and small neighborhood retailers. The Initiative addresses the economic distress of America's inner cities with a two-pronged strategy: 1) research and communication to extend our ideas and recommendations on inner-city business development and disseminate them widely to the important constituencies; and 2) programs that put ICIC's ideas into practice via the private sector. RESEARCH AND C O M M U N I C A T I O N Providing information and inspiration to others is perhaps the Initiative's most leveraged activity, Lasting change will happen only as new ways of
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thinking are adopted by many individuals and organizations from every relevant sector on a national basis. Research and communication will continue as one of the Initiative's most important functions in order to reshape the debate about inner-city economic development, transform the approach that cities are taking to address their distressed communities, and change behavior in the private sector. The Initiative's research has led to wide-ranging recommendations about business practice as well as inner-city economic development efforts. We are developing a standard template of how to study the economy of an inner city and develop action recommendations. This template will be made available to cities across the country. ICIC is unique in its research focus on inner-city development; we know of no other organization devoting primary attention to this critical issue. The Initiative's research will be shared with businesses, policymakers, scholars and leaders of programs and institutions affecting innercity economic development across the country. The Initiative's learning will be shared through articles, editorials, speeches, seminars and events. Finally, the Initiative plans to establish a training and educational component, offering courses in inner-city economic development. These training programs would be made available to inner-city entrepreneurs, businesses interested in doing business there, community organizers, public officials, academics, foundations and community leaders. Training and education can potentially provide a source of ongoing fee income to the Initiative. P R O G R A M S : PUTTING THE NEW M O D E L INTO P R A C T I C E To achieve its mission, the Initiative has developed four programs: Inner City Advisors, the National Business School Network, the Corporate Partners Network and the Equity Capital Network. Each program can stand alone, but the four programs are mutually reinforcing. Each of these programs is aimed at bringing the resources together with entrepreneurs in inner cities for the purpose of business expansion. Each of the programs involves a set of unique relationships which have never been made available to America's inner cities. We believe that bringing new resources to inner-city businesses, and bringing new businesses to inner cities, can transform the economics there as well as change attitudes about the inner city as a viable place to live, work and do business. This potential to change perceptions is among the most powerful benefits of the Initiative.
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Inner City Advisors Inner City Advisors is a small management advisory organization established in each participating city, staffed with a few highly sophisticated, experienced managers called managing directors. The strategy of the program is to bring private sector resources to inner-city businesses. The managing directors provide some management assistance directly, but their principal role is to act as a market maker. Inner City Advisors coordinate access to the Initiative's other programs including the National Business School Network, the Corporate Partners Network and (eventually) the Equity Capital Network. Managing directors are responsible for identifying, qualifying and prioritizing inner city-based companies with the greatest promise, and building relationships with them. They then connect inner-city entrepreneurs with field study teams from local business schools (Business School Network), access assistance and resources from regional companies (Corporate Partners Network) and assist in approaching capital providers (The Equity Capital Network). Requests from cities to bring the Advisors model to their communities far exceeded our ability to respond. To date we have established pilot Inner City Advisors programs in Boston, Oakland and Baltimore. Our initial part-time efforts in Boston, with about fifteen clients, have yielded heartening results. We have recently hired full-time managing directors in each of these three cities and have begun developmental and research efforts in Atlanta and Kansas City that will likely lead to the establishment of a formal program within the year. Interest has also been expressed from such cities as Newark, New York, Chicago, Philadelphia, Pittsburgh and Dallas, just to name a few. A strategy for expansion to these cities, including the raising of the resources required, is under development. National Business School Network The National Business School Network aims to motivate and assist graduate business schools around the country to develop field-based courses to work with inner-city companies. Such courses provide analytical resources to companies and help draw them into corporate networks, while dramatically changing the perceptions of the inner city among faculty and students who will be tomorrow's corporate leaders. There were almost no such efforts three years ago, but today there are established or emerging programs at such schools as Harvard, Babson,
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MIT, Yale, Columbia, Vanderbilt, and numerous others. The Initiative champions such programs and provides assistance in designing and launching them. We hope that with greater resources the Initiative can also operate an ongoing network among the schools which would involve, among other things, an annual conference, assistance with fundraising, computer-based information sharing, and other services. As with Inner City Advisors, the demand for our services far exceeds our ability to deliver. A recent grant from Bankers Trust will enable us to expand this program.
Corporate Partners Network The private sector can provide crucial resources to inner-city economies, while the inner city represents a major unmet business opportunity for the private sector. The Corporate Partners Network establishes a framework for business-to-business partnerships between regional corporations and inner-city businesses. Corporate Partners come from regional companies, financial institutions, and accounting, consulting and law firms. Inner City Advisor managing directors identify the needs of inner-city clients and match them with Partners, who bring skills, technology, training, capital, purchasing relationships and other benefits to assist business expansion and job creation. The Initiative creates a new model of corporate philanthropy that goes well beyond donating money to social services. It takes advantage of corporations giving what they do best, which is their business knowledge, contacts and an ongoing business relationship. Through Corporate Partners, inner-city companies gain expertise in improving their strategic plans, improving operating practices, upgrading management, accessing capital, improving information systems, and professionalizing financial management and organizational structure. Corporate Partners also provide links between inner-city companies to trade groups and industry associations. While inner-city companies benefit from this relationship, Corporate Partners also can create and expand business activity for themselves through opportunities for franchising and retailing, treating the inner city as a distinct market, tailoring their operating practices and developing strong ties with the local communities. They can establish new relationships with the inner-city companies as supplier, preferred customer and partner in new ventures. They can also develop new inner-city borrowers. Participation in the Corporate Partners Network represents a market-
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ing opportunity with an underserved community as well as locally and nationally. There is also value to the Corporate Partners in expanding business relationships with other members of the Network. The Corporate Partners Network is being formalized and expanded. Results from the pilot effort in Boston have been very encouraging. The Vault, a group of the most senior private sector leaders in Boston, has agreed to embrace the Initiative as a flagship program and become our partner. An expanding group of partners is providing services. Goodwin, Procter & Hoar has provided legal expertise enabling two inner-city clients to finalize expansion and renovation plans, Lotus Development Corporation has offered access to its management training programs to our clients and Coopers & Lybrand has offered financial and management expertise to our Boston clients. The Boston Consulting Group has recently completed a significant study of the inner-city economy that will be shared with Boston's leadership, and J. Robert Scott, the Bostonbased international executive search firm, is conducting several searches. Several Corporate Partners have begun working with inner-city clients in Oakland and Baltimore. While Corporate Partners have so far been involved in a single city, several have the potential to become involved in a number of cities or even nationally. The Initiative will pursue vigorously the expansion of the Corporate Partners Network, consisting of both single city and national Partners. We believe this new type of corporate philanthropy will set an example that has the potential to expand far beyond the Initiative itself.
The Equity Capital Network The Equity Capital Network is still in development. The aim is to design and capitalize one or more for-profit equity capital vehicles focused exclusively on funding inner-city based companies around the country. We have found the greatest constraint in inner cities is equity capital, not debt, and that existing venture capital sources overlook the inner city and are not well structured for the types of businesses most likely to be located there. We have been working on the design of three prototypes-a targeted Equity Fund, a tailored Angel Network, and a Business Development Competition which would be highly publicized and aimed at increasing the supply of entrepreneurial inner-city companies. There is one private equity fund in the Midwest that has successfully funded inner-city companies, and we are working with its principals as
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well as with many other sophisticated investors to develop our model. One of our convictions is that our ability to leverage the presence of Inner City Advisors, Corporate Partners and Business Schools to assist portfolio companies will set a new fund apart from others.
Organization The Initiative is currently a nonprofit organization that aims to migrate toward self-sufficiency through establishing fee relationships with capital providers, providing training to public, nonprofit and community leaders, and generating other sources of fee income. Currently the senior management of the Initiative consists of two full-time executive directors, who are MBA graduates, and a director of development. The team all have significant work experience and possess strong leadership capabilities. A small support staff is also in place. Three of the four currently budgeted managing directors of the Advisors have been hired, and we are interviewing for the fourth position. These positions are financed locally in Boston, Baltimore and Oakland. In addition, the Initiative has been fortunate to benefit from many individuals and organizations who have worked part-time on various parts of our agenda as well as numerous students and volunteers involved in projects. This small organization is overwhelmed for encouraging reasons. There is enormous interest and demand for information about our research and our programs, and an insatiable appetite for speeches, interviews, advice and assistance in bringing our programs to new cities. Such cities as Atlanta, Cleveland, Philadelphia, Denver and Miami have been gearing up, and local champions are anxious to establish the ICIC model in their community. Many more cities have called, but we have lacked time to develop them. At this stage, the Initiative needs an infusion of patient capital, new staff, board leadership, and outside partners to allow us to develop the national organization to meet these demands. We are searching for a fulltime director of research and communication, and ultimately a research associate, to coordinate the writing of more articles and position papers and to deal with the press and the many interested groups across the country. We are also searching for a full-time director of the National Business School Network to do missionary work in top business schools and enhance the value we can deliver to already participating schools. We also need to hire and develop one or more senior people, who could take responsibility for initiating and supervising the Initiative's programs
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in additional cities. Finally, we need senior CEO-level leadership, who could act as chairs to complement Professor Porter's personal efforts. (Professor Porter is spending more than 20 percent of his time on the Initiative.) It is our intention to keep the central organization small because of the huge leverage we can get by enlisting volunteers, getting corporate participation and stimulating self-financing efforts. The Initiative is aggressively expanding its Board of Directors. Since its inception the Initiative has been governed by a small Board, but recognizes the necessity of enhancing and formalizing the role of the Board. National leaders are being invited to join the Board from corporations, professional service firms, foundations, academia and organizations involved in inner-city development. This Board will ensure the mission of the Initiative is achieved by assisting in establishing policies and programs, providing management oversight and providing assistance in fundraising. The Board will also help communicate the ICIC model to business and community leaders across the country. Local advisory boards are established in each participating city and will be comprised of local leaders who represent similar constituencies. These local boards will also include clients of the Initiative and public sector representatives.
Funding To date, the Initiative has raised about $1 million at the national and local levels. Raising money for city-dedicated efforts has proven easier than financing the national organization. Yet the national organization is what codifies and disseminates the ideas, designs and manages the programs and mobilizes organizations and communities. Funding for the central organization has come from Professor Porter, a cadre of CEOs, and a few pioneering companies, such as Textron, Lotus, Bankers Trust and Citicorp, and recently, our first large grant from a major foundation, the Kauffman Foundation. What we need at this stage is a more substantial, organized, and longer-term effort to raise $500,000 to $750,000 per year for the next two or three years to allow us to scale up the effort. It is critical to respond to the interests from the many cities in a timely fashion before the opportunity is lost. With time, we are confident that support from major foundations will be forthcoming, as will fee income. In addition to funding the Initiative itself, we will be seeking capital for the Equity Capital Network vehicles as they are developed. The
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Business Development Competition will require only $150,000-200,000 annually for expenses and prizes. An Equity Fund would require from a few million to tens of millions of dollars, depending on the number of cities in which it will operate.
Summary The Initiative for a Competitive Inner City has made considerable progress during the past two years in disseminating a new model of inner-city competitive advantages and opportunities. It has also implemented several programs and established pilot rollouts in three cities, while reaching the advanced stages of adding two additional cities. The Initiative is at a critical stage of development, because the demands for its services from many cities, corporations and business schools are far greater than can be currently met. Over the next five years the Initiative plans to expand its research and communication efforts and bring its model of inner-city economic development to many more cities. This will require significant fundraising and a growing organizational sophistication and maturity. It will also require ongoing analysis and review of ICIC's approach to ensure it is achieving its mission to foster healthy economies in America's inner cities that create jobs and economic opportunity for local residents. During the next five years, we are certain to learn much more about ways to improve the economic health of inner cities. This learning will undoubtedly result in new approaches, programs and partnerships. The underlying mission of the Initiative for a Competitive Inner City, however, will remain constant.
