Free Market Fusion - Chapter One Continued

Chapter 1

Free Market Fusion
A new entrepreneurial approach

Free Market Fusion is the coming together of two or more entities, one or more of which is characterized as a for-profit enterprise and one or more of which is characterized as an institutional, nonprofit, quasi-governmental, or government entity. For purposes of illustration, we'll call them A entities (for-profit) and B entities (institutional, nonprofit, etc.). The process culminates in the fusing of some, or possibly all, of the assets of one or more A entities with some or all of the assets of one or more B entities (see Figure 1).

Figure 1 - The Free Market Fusion Process

This relationship can be further illustrated as shown in the large (fold-out) process diagram, Figure 2, appearing on page 11.

Although Free Market Fusion may result in the formation of new enterprises, typically at the outset existing organizations are the creators. Also, typically there is a background of significant common need, concern, or opportunity shared by the entities involved that generates support for resolution. At its ideal, the collaborative process inherent in Free Market Fusion can engender the tremendous release of energies that comes from looking at the world not as a miasma of intractable problems, but as an arena of challenges awaiting exploration, initiative, resolution, and reward.

How Free Market Fusion Works

In the Free Market Fusion process, each entity contributes its particular strengths to the project. For example, in a partnership between an entrepreneurial group or individual and an institution, the entrepreneur can contribute the initial innovative idea as well as technological and marketing expertise, significant risk assumption, and free market disciplines such as accountability to shareholders and competitive strategy. The institution can contribute staff resources, physical facilities, familiarity with the existing market, credibility, and stature.

Depending on the parties, some of the roles might be reversed. However, the purpose of the partnership is always to enable both parties to accomplish goals each would find difficult to attain alone -- to create a new solution where seemingly there was none. As in a fusion process, that new solution is accompanied by a burst of energy as new possibilities and opportunities open up to everyone involved in the process, both those creating the solution and those benefiting from it.

The strengths of the entrepreneur should include expertise in competitive strategies and the ability to evaluate and undertake appropriate risks. A commitment to innovative thinking, an awareness of opportunities presented by recent technological advances, strategic networking abilities, and an understanding of capital resources, also, are important strengths.

The catalyst is leadership, the "champion of the cause." While some may be quick to reach the conclusion that leadership will be provided by the "freewheeling" entrepreneur, this is not always the case. Although an entrepreneur may be accustomed to operating in the public spotlight and in a robust competitive arena, this does not necessarily mean that person will, or should, assume the leadership mantle.

Leadership encompasses much more than assuming the role of primary public spokesperson. The most critical leadership activities are planning, organizing, networking, and acting as missionary within the organizations involved -- recruiting supporters internally for a new concept. Often individuals with established credibility within an institution can do this most effectively if they are passionate about the project. The entrepreneur may assume some or most of this role, or merely advise and be an outside networker, promoting the concept to other organizations and individuals whose support is essential. This requires a special breed, an arguably new brand of entrepreneur whose motivation to make a social contribution resides on the same pedestal with making a profit and wielding influence.

Entrepreneurs and institutions provide an especially effective example of Free Market Fusion. The combination enables the entrepreneur's core strengths (creativity, risk analysis and assumption, aggressiveness, competitive discipline) and the institution's core strengths (existing facilities, expertise, reputation) to accomplish together at what neither could achieve alone.

Institutions and Philanthropy

Free Market Fusion is not philanthropy, because it usually leads to a self-sustaining market model. However, the spirit of Free Market Fusion was largely sparked by the legacy of American, British, and European philanthropists helping institutions.

Institutions are a critical part of society's infrastructure. They include schools, colleges and universities, hospitals, prisons, the military services, national charitable organizations, unions and professional organizations, nongovernmental organizations (NGOs), and such community entities as libraries, symphonies, museums, civic leagues, and innumerable religious groups. Often, they have existing physical facilities and a stable organizational structure. Successful institutions have a thorough understanding both of their constituencies and of those constituencies' special needs and concerns.

Our institutions play an important part in reaffirming and continuing a sense of community when we are deluged with an onslaught of change on such a regular basis. As connections to our past, they are familiar and comforting. Some, in the United States, have been in existence longer than the country itself, while others grew with the needs of our growing nation. For example, Harvard University was established in 1636, Yale in 1701, and the 1862 Morrill Act fueled the expansion of the public higher education system. Today, the United States has some 3,700 institutions of higher learning.

Another institution, the public library, has an equally impressive history. Early American lending libraries were founded by English clergyman Thomas Bray in colonies from Rhode Island to Carolina in the late 1600s, and thecountry's public library system was boosted nationally when Andrew Carnegie funded the construction of 1,679 community library buildings in more than 1,400 communities between 1886 and 1917. Today, communities support some 9,000 public libraries across the United States.

The Boy Scout and Girl Scout programs, which originated in the United Kingdom, serve as yet another example. The programs were introduced in the United States early in the 20th century and now involve well over 18 million children, teens, and adults. The YMCA, with 16 million members in more than 130 countries, has been a pillar of thousands of communities since its inception in London in 1844. In the United States, towns and cities across the country have relied upon community hospitals ever since Philadelphia's Pennsylvania Hospital first received its charter in 1751 through the efforts of Dr. Thomas Bond and Benjamin Franklin. The list of public initiatives and institutions spawned or nurtured by the fusion of private and public sector resources and combined management skills is indeed extensive.

Certainly our institutions have played a central role in advancing the goals of society throughout history. It is imperative, however, that they remain as vital and forward thinking as possible, if they are to continue their positive impact on society. This is no easy task: It is in the nature of institutions (and of monopolistic businesses) that stability may deteriorate to stagnation and management to mediocrity. Thomas Jefferson recognized this possibility, when he wrote:

"I am certainly not an advocate for frequent and untried change in laws and constitutions...but... laws and institutions must go hand in hand with the progress of the human mind. As that becomes more developed, more enlightened, as new discoveries are made, new truths disclosed and manners and opinions change with the change of circumstances, institutions must advance also and to keep pace with the times. We might as well require a man to wear still the coat which fitted him when a boy, as civilized society to remain ever under the regimen of their barbarous ancestors."

The tendency of institutions and large organizations to rely on solutions drawn from yesterday's realities was pointed out two decades ago by Peter Drucker in his book Management:

"...no success lasts 'forever.' Yet it is even more difficult to abandon yesterday's success than it is to reappraise a failure. A once successful project gains an air of success that outlasts the project's real usefulness and disguises its failings. In a service institution particularly, yesterday's success becomes 'policy,' 'virtue,' 'conviction,' if not holy writ. The institution must impose on itself the discipline of thinking through its mission, its objectives, and its priorities, and of building in feedback control from results and performance on policies, priorities, and action. Otherwise, it will gradually become less and less effective."

Our institutions form the infrastructure that undergirds the vitality of America's dreams, growth, and progress. We cannot afford to have our institutions represent the weakest link in our democratic republic. In these times, their quick response is especially important, given the rapidly changing requirements faced by citizens.

Risk-Taking: A Key Role

One complementary relationship that can develop between entrepreneurs and partnering institutions relates to risk-taking. Often, missteps within an institutional environment may easily spell the end of a promising career, a circumstance that has an obvious and understandable dampening effect on an institutional leader's willingness to take risks. In addition to identifying opportunities, then, another of the entrepreneur's key roles in a Free Market Fusion venture is to assume a substantial amount of the risk involved in any new undertaking. This diverts a large measure of the exposure from the institution and its leader onto the entrepreneur.

This imposes no hardship, for although risk-taking is anathema to an institution, judicious and well-informed risk-taking is second nature to the entrepreneur. An entrepreneur has the freedom to respond to opportunity with a desire for gain, rather than resisting it because of a fear of loss. Similarly, because entrepreneurs may not be part of the old guard operating environment of the institution and will have less vested interest in conforming to established ideologies, they are much freer to think outside the bounds of accepted practices and to envision radical alternatives and innovative solutions. It is something they are accustomed to doing, often with outstanding results. In fact, a 1998 major study by Massachusetts Institute of Technology business economist David Birch, found that small, entrepreneur-led businesses created two-thirds of gross new jobs and all net new jobs in America. Creating jobs is one of the most useful contributions any enterprise can make. This is not a new phenomenon, nor an anomaly. In a 1987 study of job creation, Birch found similar results.

When Thomas Jefferson said, "a little rebellion, now and then, is a good thing," he wasn't talking about bloody revolution so much as a strong effort to break away from the constricting ways of the past. Every generation, Jefferson said, should rule itself, tossing out laws and ways of doing things that had outlived their usefulness. Such revolutions would "break the congealing shapes of institutions before they petrified, and thus...leave society free to follow its natural laws of development." To Jefferson, revolution was about more than political tyranny; revolution was a way of "affirming every generation's right to be preserved from old models."

Jefferson's vision of revolution plays itself out every day in free markets. Entrepreneurs have always been society's revolutionaries, operating outside the boundaries, and creating new solutions for a changing world. Now, they have an opportunity to chart new ground once again.

Free Market Fusion can enable aspiring entrepreneurs to build on their unique strengths toward one ultimate goal: to engage all of society's resources -- human, financial, physical, and technological -- in the creation and support of a free, productive, diverse society. Free Market Fusion provides an opportunity to channel our entrepreneurial contributions in a truly significant manner.

Modeling Free Market Fusion

The major stages of a Free Market Fusion process are (see Figure 2, page 11):

Stage 1. - Mission Research and Selection: Identifying opportunities and needs through scanning and knowledge building

Stage 2. - Planning and Agreements: Evolving innovative solutions and structuring partnerships

Stage 3. - Key Actions: Carrying out the mission

Stage 4. - Outcome Assessment: Going forward or phasing out

Figure 2 - Click thumbnail to view full size chart

Stage 1 - Mission Research and Selection

The research portion of this step is critical, especially scanning and building a knowledge base to support a current project. Research will not only help the management group with its awareness of key trends and events that may begin to affect the project, but also it may set the stage for related projects. Building this knowledge base is the topic of Chapter 6, and that process permeates all the processes and steps partners go through as they lay out their objectives and pursue a mission.

Stage 2 - Planning and Agreements

Once a concept of a Free Market Fusion combination is developed, the manner in which these entities and related functions, equipment, personnel, or activities can be joined in appropriate ways must then be considered. What are the costs? Who must contribute what? Who might feel threatened? Who will manage the process? How do we keep the excitement level up? What kind of time frame will it take for Free Market Fusion to function? What are the risks involved and who will take them? Can a self-sustaining financial model be constructed? The list of potential questions to be answered is long and will vary with each project.

Scenario planning, as explained in Chapter 7, is an important step to galvanize the planning process.

Obviously, each project will have its own set of circumstances and concerns that need to be addressed and agreed upon before other steps can be taken. However, the following areas can serve as a starting point.

Goal issues. What broad opportunity or problem is addressed? What are the specific purposes and goals of this project? How will goals be measured? How and when will they be evaluated?

Inertia issues. Best-laid plans can easily be derailed by organizational inertia. How rapidly will both parties be able to respond to opportunities and/or crises? How rapidly are both parties willing to respond?

Structural and logistics issues. How will the project be undertaken? Where and how will it be located? (Centralized with one participant? Headquartered at a project site? Other?) Who will implement what aspects of the project?

Timing is critical. What is a reasonable and mutually agreeable time frame? This can become a key issue if both parties do not understand and accept how long it will take to accomplish key tasks. If the project will entail working with large institutions, government agencies, or other bureaucracies, the standing rule that everything will take twice as long as predicted might be expanded exponentially. But if the leaders fail to understand and commit to the importance of speed, including allowing for new processes and fast communications, the project may never succeed.

Long-term issues. Assuming the project is successful in meeting its goals and is profitable, what should become of it in the long-term? Should the relationship between the participants continue as is, or should it be reviewed on a specified basis? Should the project continue in its current form or be taken over by one of the participants? Should it be taken public as an established company? Should it move into other Free Market Fusion arenas?

Competition issues. How will the leaders deal with competing players? Will they work around their competitors' established programs, trying not to disturb their market share, and excite them, or will they try to displace their competitors' product with their own?

When dealing with societal concerns, much care must be taken around the issue of competition within the community. Society is rarely damaged when, in the rough-and-tumble competitive consumer market, a candy bar, laundry detergent, or software program bites the dust. On the other hand, institutional damage could have serious consequences.

Stage 3 - Key Actions

Every situation will demand different levels of time and energy in the action phase. Identifying and acting on these steps might be easy to plan. But this is the phase most likely to derail the project when management groups with different styles try to merge. However, if participants know going into an undertaking that there is a process to work through, then resources can be allocated accordingly.

If an innovative solution incorporates a fairly non-traditional concept, it will be easier to work with a partner who already is comfortable with the non-traditional concept. For example, a group of my companies combined non-traditional delivery processes (cable television, satellites, computers, and the Internet) with non-traditional teaching methods using highly adaptive and affordable software on an Internet platform. We found a university that was willing to become our partner to develop a virtual degree program with a master's in business administration program.

Another consideration is that many potential partners may be constrained by people or organizations whose vested interests might be threatened by the entity's move into a new arena or into a relationship with another autonomous entity where the vested interests have less control. A major contributor to the organization, for example, may forbid it from entering into any new relationship for fear that the contributor will lose control of the organization's goals and direction.

This is a fairly predictable response. Fear of change is a familiar reaction, especially for constituencies, such as labor unions or government bureaucracies, that have vested interests which are now vulnerable. Therefore, it becomes critical to achieve a level of friction that is acceptable, where even though fear of change may be present, it is counterbalanced by enthusiastic commitment to the opportunity at hand.

Stage 4 - Outcome Assessment

This is the step most likely to be omitted or to be replaced by a "mission accomplished" celebration. It is a step that is vital for every project, whether a success or failure. Some sage once quipped that behind every success is the sum total of the leader's failures in life. Interestingly, it is the success that is the most difficult to assess. We are so inclined to focus on everything that went right -- the sheer brilliance and good luck of the team -- that the near-disasters and the dangers lurking beyond the second fork in the road we didn't take are quickly forgotten. It is these elements that form the most important lessons we take away from a mission and that will serve us best when the next opportunity comes along.

Outcome assessment should take place in the first few weeks after a mission's objective has been attained. If the mission is to continue, then it will be a natural part of ongoing planning. If the mission group has worked itself out of a job, then schedule a meeting to do the assessment as early as possible before the team members leave for other pursuits.

The essentials of the outcome assessment are to block out a half day or a day to assemble the team, then bring in a group facilitator who knows about the project but hasn't been involved in its activities. If possible, make an audio or video tape of the session and designate the facilitator and at least one team member to write a lessons-learned report. The assessment and report will provide an important addition to the knowledge base that has been building since Stage 1 and will help bring positive closure to the involvement of team members.

New Areas for Free Market Fusion

There are many areas where Free Market Fusion approaches are currently or will soon be enabling us to make more creative and effective use of the technological tools now available. Several examples are included in case studies at the end of the book. Key areas to examine for opportunities include:

Electronic democracy. The 1990s will be known as the decade when we began to see the potential for electronic democracy.

The two entities in this case can be described as the American democratic election system and international communications and information entrepreneurs.

The catalyst for change came from the opportunities created by America's entrepreneurial electronic/telecommunications/ information companies. This composite entity comprised cable and satellite television, advanced telephone services, computers, and the Internet. Cable networks and the Internet, in particular, brought about the instant distribution of information from polling and survey organizations, plus analysis from a proliferation of pundits representing an enormous range of points of view across the political and social spectrums. Of course, television and radio have had the "instant" option available for years, but elected not to use it except on rare occasions. Such applications of technology present a very fresh perspective on the flowchart of the media/political process (see pages 20 and 21).

In this new arena of electronic campaigning, lobbying, and voting, there is a decided overlap with many facets of electronic commerce that have evolved within the Internet and TV industries as of early 1999. But the new model for making money looks more like a game of 8-ball pool than the old flow-through, top-down process of controlling information, and buying and selling licenses and program fees. "Follow the money" is a tried and true method of deciphering a successful business process, but when it comes to electronic politics and government, dropping the right ball in the pocket may require a two, three or even four cushion shot, weaving through a labyrinth of obstacles.

The small Internet consulting companies that didn't even exist in the mid-1990s might make profits immediately. There also are opportunities for cable networks and Internet marketing companies that understand how to reach niche audiences and political constituencies that are wired for the new media. These, in turn, offer the opportunity for nonprofit groups and lobbyists to join with them in "virtual" partnerships to carry out campaigns, developing fresh demographic and political data and analysis. These groups can in turn sell their new knowledge databases back to a myriad of traditional and new customers, including political parties, campaigns, and consultants, the major TV and radio networks, and other new media groups and start-ups hungry for effective ways to reach active, savvy Internet customers.

Figures 3 and 4 - Click thumbnails to view full size charts

Through the Free Market Fusion process, combining the assets of one entity (the electronic/ telecommunications/information industry) with the assets and strengths of another (the American democratic political system), a new solution can be created: an electronic democracy to address society's need for a more participative, voter-empowered democracy.

Environment. Some 30 years have passed since the first Earth Day in April 1970 called the world's attention to the deteriorating state of the global environment. Since that first tolling bell of warning, we have become increasingly familiar with the challenges that confront us, including global warming, ozone depletion, forest depletion, and water resource contamination.

Sustainable development is a goal we all must embrace. I believe market-based environmentalism offers the most effective means of transferring technological advances into the areas of greatest need, ensuring that future generations will inherit a land, not a landfill.

Education, poverty and health. The list of challenges we face is long and daunting. A quick list of social concerns might include the high dropout rate for high school minorities, poor skill levels of high school graduates, illiteracy, child poverty, drug addiction, AIDS, homelessness, overcrowded prisons and a sky-high recidivism rate, access (financial as well as logistic) to higher education, incorporating seniors' skills and experience into productive societal roles, mainstreaming the physically handicapped into society, adequate, affordable medical care for all, and providing a competent global workforce.

The world has been caught in a web of suffering that decades of goodwill, foreign aid, and well-intentioned efforts have failed to eradicate. The problems have seemed incapable of solution. Yet are they?

The Larger Arena: Tapping Entrepreneurial Talent

Where do we begin? How do we begin? We can begin with Free Market Fusion.

Why not turn to the world's entrepreneurs and allow them to participate? These are people with the special instincts and training to see the opportunities in change and the possibilities in dislocation. They have fertile imaginations. They are not afraid to play "the hunch."

If the constraints are not too severe, they will focus their energies on markets whether or not there are restrictive governmental structures and regulations. Whether or not the market is monopolistic. And whether or not there are stifling vested interests protecting sacred cows. If the reward is large enough, entrepreneurs will re-order existing resources, re-think current responses, create new solutions, take the risks, and attack.

We need to tap the creative energy and risk-taking spirit of those willing to operate in what the late information-age visionary Buckminster Fuller called the "outlaw area" of untried solutions and no guarantees.

I believe solutions are always possible. The key is for us to structure nurturing, creative circumstances so that our most innovative thinkers can design new solutions. When a society faces a problem that has continually resisted traditional means of resolution, other solutions must be invented and tried. It becomes necessary to think and create outside the structure of established assumptions and policies. We must gather our most powerful resources and engage the challenges.