Discussion on mission-and-structure

[mdan...@gmail.com]

I have received questions regarding the metrics behind Entrepreneur
Commons, so here is another look at the metrics, as the strategy is
all about metrics:

1. A few numbers
- Average 4 years survival rate for small businesses is 44%, so there
is a lot more viable businesses than the 1% (10 out of 1000) that VC
look at
- Top 5000 fastest growing from the Inc Magazine list: only 3% used VC
money, this is consistent since they pick only a few
- Median fund used to start the business is $25K
So we are playing in a field where there is still a lot of room of un-
addressed businesses where we could make a difference. Not all
businesses ignored by VCs or Angels are bad. And you can do a lot with
little money if there is a good support system around the
entrepreneurs you select.

2. Model used
For the support system, we use Microfinance (about 20 years history
now), the concept of having self help groups. They claim to have 1% to
5% default rates on the loans with that.
Because we are not in a developing country, and in order to create a
real incentive for people to work with each other, we use the Mutual
Guarantee fund model (used in Europe since 1917). Average default rate
with mutual guarantee funds is also 1% to 5%.

Because we want to start safe, we have set the mutual guarantee fund
to represent 10% of the loans. And because we want the investors to
have an incentive in contributing as well, the mutual guarantee fund
will only cover 50% of the default.
All in all it means that we can have 20% default rate and still be
sustainable. My guess is that we will do better than this.

3. Process
Not everybody gets a loan, entrepreneurs have to be approved by peers.
This is entrepreneurs in the trenches voting for or against other
entrepreneurs.
If they vote for, they will help. If they vote against, you prevent
failure. Just the feedback process helps, because it will help
entrepreneurs decide earlier rather than later whether they should go
forward or not. I have initiated a program which is very successful
now called Business Booster with the French American Chamber of
Commerce in San Francisco, and I have seen it happen.

Once this is all said, the last piece is to try to avoid influencing
the statistics too much by introducing a bias. So the goal is to NOT
try to filter people or projects out too much, so that we can have a
group that is as relevant as possible. If you try to pick too much
ahead of time, you will distort your sample and may not obtain the
results that you expect. So we will be as open as possible within the
framework defined.

Our inspiration in this area is Deming (Out of the crisis), who was
big on managing by statistics, and recommended only dealing with
issues that get you out of the standard deviation. We will do just
that.