By Carl J. Schramm
President and Chief Executive Officer, Kauffman Foundation
Private foundations are perhaps the freest of all institutions in our free society. Unlike business firms, they do not have to keep shareholders happy or please customers. Unlike governments, they do not have to answer to voters. They are subject neither to the competitive pressures of the market nor the constraints of bureaucracy, and along with this rare freedom comes a rare opportunity: the opportunity to innovate, and to lead, in ways that others cannot.
That is what foundations, at their best, have done in the past. In the early 1900s, the Rockefeller Foundation led the global campaign against yellow fever, the first attempt to literally conquer a disease and one of the first international public-service efforts of any kind. In the 1960s, the Carnegie Corporation funded a most unorthodox new television program that became, arguably, the most influential TV program ever: Sesame Street. These and other notable projects, such as the dial-911 system for emergency response, piloted by The Robert Wood Johnson Foundation, have had a common theme. Not only did they serve the public, touching the lives of many for the good, they changed how doing good was done.
The goal of the Kauffman Foundation is to do this sort of work consistently. We will not be satisfied with making an occasional great grant; rather, we aspire to stir things up year in and year out. Nor do we ever want to lapse into complacency, enjoying accolades for being a reliable pillar of society. American society is not something static that needs to be held in place by pillars. It is a work in progress, and our job is to be out at the front, always looking for the new idea, the better way. Ewing Kauffman gave us that very mandate when he said he wanted this to be the “best foundation in the United States.”
Ewing Kauffman was an entrepreneur, of course, as were other major foundation donors: Rockefeller, Carnegie, Henry Ford, Bill Gates. It is no coincidence that entrepreneurs—people who are agents of change, whose life’s work is starting and building new ventures—so often choose the private foundation as their main form of charitable bequest. Here is an organization that persists over time and yet is not confined to one kind of persisting work (as schools and hospitals are, for instance); it is ideally suited to go on being a change agent at large.
The challenge, however, is to keep the entrepreneurial spirit alive. All organizations tend to ossify as they mature. Recall how Ford Motor Company kept making the Model T for far too long, and how the giant steel companies founded by men like Carnegie drifted gradually into the rigor mortis of business as usual. Foundations are even more prone to settle into patterns of sameness. The rare freedom they enjoy includes the freedom to be mediocre, since there are no market forces that punish them for failing to modernize. Also, because so many good causes clamor for attention at any given time, there is a tendency to become a reactive grantmaker rather than an initiator—parceling out funds to a multitude of worthy programs year after year but seldom making new interventions that could alter the playing field. Some foundations follow such a path. We have chosen otherwise.
In 2002, the trustees of the Kauffman Foundation made a conscious decision to refocus and revitalize. That in itself was a courageous, uncommon step: the Foundation was then only in its tenth year; how many foundations that are still so new choose to embark on a course of self-renewal? I have had the honor (and challenge) of directing the process thus far. This process is both outwardly and inwardly directed: it involves clarifying our grant-making strategies, and also how we see ourselves and conduct our operations. The best way to explain it is by starting with our fields of interest.
Mr. Kauffman declared that the Foundation should work in two main fields: education and entrepreneurship. His choices were intriguing and strategically made. Consider entrepreneurship first: Curiously, though most major foundation donors themselves were people who had started companies, none before Mr. Kauffman specified the study and encouragement of this activity as a major field of interest. And it is a crucial activity. Starting a business is more than a means for a person to get ahead. It is a primary means of bringing innovations to market, putting them into practical use, and producing economic growth—as new companies from Western Union to Cisco Systems have done. The American economy has thrived through entrepreneurship; the future of many regions and countries depends on the ability to promote and sustain it.
The Foundation began with a wide-open opportunity before it, as the only major foundation in the field—but we are by no means the only party. Universities, various public agencies, trade and professional groups, and others are active in various ways. We thus had to find our optimum role and decided it was to become the big-picture experts and the networking hub for entrepreneurship. As to the first, the basic body of knowledge in the field has been very fragmentary. Many have studied specific aspects, such as how best to manage a new firm or the effects of venture capital, but much more must be known in order to have truly effective public policies and programs. To fill the vast gaps in the picture, we are funding seminal studies in many areas—from comparative rates of entrepreneurship in different countries (and the factors deemed important) to the personal traits and characteristics of successful entrepreneurs.
As a networking hub, we bring people together to stimulate the flow of ideas and action. We operate EntreWorld, a Web-based national network for information-sharing among entrepreneurs, and have recently begun work on a major entrepreneurship Web portal. Since today’s economy is knowledge-driven, many new companies have their start in universities. We believe this activity can be increased dramatically. Whereas most high-technology spinout companies today spring from research done by relatively few faculty and students at schools in a few regions, we are working with universities and institutions across the United States to make it happen far more often in more places—for instance, by piloting new ways to link up researchers with private-sector firms and entrepreneurs. Nor should activity be limited to the high-tech disciplines. With a group of eight universities, we are also working to promote entrepreneurship across their campuses, in all departments.
The economist Paul Romer has written that the most valuable ideas are meta-ideas, which he defines as “ideas about how to support the production and transmission of ideas.” One might say we are developing meta-ideas in the field of entrepreneurship.
Education is our other field; its importance needs no explaining. Within this immense field one must choose specialties or areas of emphasis, if one is to make a significant contribution. Our main focus is on improving the education of young people from less advantaged families and neighborhoods. But even here the Foundation found its scope broadening greatly, because so many things influence the prospects of children and teenagers. By the early 2000s, there were grant programs in areas from nutrition and family counseling to neighborhood development. We were helping to meet many needs but spreading our resources wide and thin, with little chance of driving any fundamental change. Therefore we refocused on one goal: raising academic achievement. This does not mean ignoring the personal and environmental issues that affect it. Rather, it means keeping all eyes on the prize—having young people do well in school, so they can go on to live good lives—and addressing the other issues in more specific and targeted ways, in the service of this goal.
For example: Mr. Kauffman in his own lifetime devised a program, Project Choice, that drastically reduced dropout rates at certain low-income high schools. He did it by promising that any student who stayed drug-free and out of legal trouble, and who qualified for college or post-secondary school, would have that schooling paid for. The Foundation continued Project Choice through its scheduled ending date, and we are now reviving it in an enhanced form, having learned much. The new Kauffman Scholars program starts earlier, with middle-school students, and adds support features. We expect to learn still more, including how scalable the program might be: Though the Foundation could not pay the costs for every qualifying low-income youngster in America, might others do so if it proves to be a cost-effective way to deal with a major social concern?
Offering a college education is an incentive that produces results. In general, we think incentive-based approaches are powerful, and we will make them part of our overall strategic toolkit. Other major themes in our strategic thinking:
- We are issue-oriented. Before committing to any program, we study the issue area carefully and constantly, looking for key unmet needs or untapped opportunities. Only then do we plunge—just as a good entrepreneur studies the market carefully, and often in that way arrives at a product idea or business idea that could have order-of-magnitude impact.
- We are proactive. The associates at our Foundation are very bright and in frequent touch with the brightest people in their fields. The Foundation itself is thus often an idea generator for new programs and will become more of one as we sharpen our focus and build deeper expertise. When we have an idea but are not sure how to implement it, we will issue requests for proposals—thereby bringing others into the game.
- We seek forms of leverage beyond financial leverage. Traditionally, foundations try to “leverage their dollars” by getting others to match funds they have put into a project. We are hoping to go further. We try to leverage ideas: Can an approach that worked in one program apply to others? We seek human leverage, with projects that will get people interacting and thereby widening the circle of impact. We also look for chances to leverage our programs, combining program elements or areas. For instance, entrepreneurship and education intersect naturally in many senses, and we already have several programs that combine the two.
- We try to engage in programs that will affect the lives of a great many people in some significant way for the long term. This, for example, applies to how we interpret Mr. Kauffman’s wish that a significant part of our grant making benefit our hometown of Kansas City. Rather than fund programs that are strictly or mainly local, we think of Kansas City as an innovation center, a place to start or refine the kinds of programs that could be scaled up and applied elsewhere. We favor addressing immediate needs only with programs that promise to either fix the core problem for years to come or lead to a new and much better way of dealing with it.
In our quest to be entrepreneurial and innovative, we also are adopting a new mental framework for finding key “points of intervention”—points at which we can step into an issue for maximum effect. Here is a rough explanation: Innovation in any field, be it technology or business or philanthropy, tends to occur in a repeating four-step cycle.
1. First, an idea is generated (say, a discovery is made in a lab, or someone studies one of our fields of interest and has a program idea).
2. Next, as a step toward practical application, the idea is seeded and tested (a product prototype is built, a pilot program is launched).
3. The third step is refinement and scale-up (the product is tweaked and goes into mass production and distribution, the program is expanded).
4. The fourth step is sustaining the innovation—keeping the product on the market and disseminating it, keeping the program running—and as this innovation takes hold, the world changes such that further ideas are then thinkable and the cycle begins anew.
Now, here is how the framework is used for strategic grant making. One looks at the field of interest, or a particular issue area, and asks: What would it take to get innovation moving in this area? Where in the cycle is the greatest need? If there is a need for basic knowledge and new ideas, one makes "idea grants"—as we have done in funding basic studies in entrepreneurship. If good ideas lie waiting to be piloted and tested, one can do the most good by making seed grants. If a good program exists that ought to be refined and scaled up, one makes scale grants—as we are now doing with Marian Wright Edelman’s Freedom Schools, an excellent summer program for youth that deserves to have much wider reach.
Finally, this Foundation tries to make sustaining grants to programs only as needed. And we watch, constantly, for new ideas and programs that could be spun out of these—just as many new companies are started by employees who leave existing firms, striking out on their own to nurture their ideas and become entrepreneurs.