“Better to teach a man to fish,” according to the old maxim, “than to give him a fish.” Better yet, according to the Kauffman Foundation, is teaching a man to launch his own fishing business. And still better, Kauffman would continue, is teaching the man to scale his fishing business, with a fleet of fishing boats, hundreds of well-paid employees, and thousands of fish brought to eager customers every day.
The Ewing Marion Kauffman Foundation is dedicated to entrepreneurship—catalyzing it, studying it, celebrating it, and, ultimately, practicing it. Based in Kansas City, Missouri, the foundation has an endowment of approximately $1.6 billion, placing it among the 25 largest grantmakers in the nation. Its single-minded mission: “To help individuals attain economic independence by advancing educational achievement and entrepreneurial success, consistent with the aspirations of our founder, Ewing Marion Kauffman.”
“Every time we help an entrepreneur take the risk of starting a business, we strengthen the American economy,” says Carl Schramm, president of the Kauffman Foundation. “That’s what this foundation is all about.”
Ewing Marion Kauffman
Ewing Marion Kauffman was born in 1916, on a farm near Garden City, Missouri. His upbringing was modest; he never went to college. After wartime service in the Navy, Kauffman returned to the States and took a job with Lincoln Pharmaceutical in Decatur, Illinois.
Kauffman was a natural salesman. In his second year with the firm, Kauffman’s sales were so impressive that he was poised to earn more from commissions than the firm’s CEO did in salary. His employer, however, had different ideas. Kauffman was prohibited from out-earning the CEO. “He thought that was unfair,” explains Schramm, “so he quit.” Kauffman vowed never again to work for anybody else.
With that, an entrepreneur was born.
Ewing Kauffman started his own pharmaceutical firm in 1950. He worked out of his basement, pressing calcium-supplement pills made from crushed oyster shells. He named his startup Marion Laboratories. The use of his middle name—as opposed to his first or last name—was an early strategic calculation. Kauffman didn’t want customers to think he was a one-man operation.
His first year in business, Kauffman earned $1,000 in profits on $30,000 in sales. Over the next 40 years, he built Marion Labs into a pharmaceutical powerhouse. When he eventually sold the company to Merrell Dow, Marion Laboratories enjoyed nearly $1 billion in sales revenue and employed over 3,400 people. The sale of the company transformed hundreds of loyal employees into instant millionaires. After Ewing Kauffman passed away in 1993, the fortune his entrepreneurship created was in turn used to endow the Ewing Marion Kauffman Foundation.
Kauffman’s career and calling profoundly influenced his thinking about philanthropy. He had experienced firsthand how entrepreneurship could create new wealth. He knew from personal experience how it multiplied opportunities. He was deeply aware of how it improved human lives through the provision of necessary and desirable products. And he wanted his charitable legacy to extend the benefits of entrepreneurship to future generations.
To realize its founder’s vision, the Kauffman Foundation works in four principal areas: entrepreneurship, innovation, education, and research and policy. But these program areas are not completely distinct. Instead, they are structured to complement and reinforce one another.
The Entrepreneurial Imperative
Kauffman engages directly in entrepreneurship by funding efforts to help seed, start, and scale small businesses. Against critics who believe that nonprofits should not support for-profit activity, Kauffman insists that, when it comes to catalyzing entrepreneurship, there is a distinct—and laudatory—niche for philanthropy. Its programmatic work testifies to that conviction.
Take, for instance, FastTrac. FastTrac is a Kauffman program that offers participants a comprehensive package of entrepreneurship training programs and materials. It seeks to provide aspiring entrepreneurs and small business owners with relevant insights and skills, leadership experiences, and networking and mentoring opportunities. The program operates on a franchise model, and is delivered by some 300 partnering organizations, which include chambers of commerce, business development centers, local and regional economic development councils, colleges, universities, and consulting firms. Since its inception in 1993, FastTrac has served nearly 300,000 entrepreneurs.
Kauffman also reaches out to specific populations—groups that Kauffman believes show real entrepreneurial promise. It funds a variety of programs aimed at teaching entrepreneurship to young people, for example. Kauffman sees children—with their innate curiosity, creativity, risk-taking, and unbridled enthusiasm—as budding entrepreneurs. Acting on that belief, Kauffman has worked with Disney.com to create “Hot Shot Business,” an Internet-based simulation game which gives 9- to 12-year-olds a chance to create their own business in the virtual world of Opportunity City. Kauffman has similarly funded “All Terrain Brain,” a multimedia project aimed at getting 8- to 12-year-olds to adopt entrepreneurial habits—thinking creatively, taking responsibility, embracing opportunities, solving problems, and dreaming big.
Kauffman makes special efforts to reach out to aspiring minority entrepreneurs. Minority communities, Schramm notes, represent a largely untapped resource in the American economy. “The general received notion is that in the inner city, minorities can’t start high-growth firms,” says Schramm. “But our view is that the propensity to create high-growth firms is randomly and evenly distributed across the spectrum. There should be as many millionaires and billionaires as a percentage of the minority population as there are of the majority population. So we created the Urban Entrepreneurship Partnership (UEP), a program focused on helping inner-city business owners, primarily black males, grow their businesses to scale.” UEP offers one-stop intake centers to help minority entrepreneurs determine their needs—whether training, financing, counseling, or mentoring—and refers them to appropriate service providers. So far, UEP is operating in Kansas City and in two locations in the Gulf Coast region (which were established in response to Hurricane Katrina), and a new effort is underway in Detroit.
Investing in Innovation
Kauffman is hardly alone in its desire to advance innovation. After all, research and development efforts are conducted in government, corporate, and academic laboratories. Kauffman, however, believes that there is a crucial niche for donors interested in entrepreneurship. It sees entrepreneurship as the crucial—and often overlooked—conduit between innovation and commercialization.
“We focus on finding opportunities,” says Lesa Mitchell, vice president of advancing innovation, “whether they be programmatic or research, to codify how innovations can be accelerated from the point of founding to the commercial marketplace.” Too often, Mitchell notes, universities stumble when it comes to getting useful innovations to market as maximally beneficial products or companies. Kauffman is working to make the process faster and more effective.
One Kauffman-supported program that works to find such opportunities is the iBridge Network, a program of the nonprofit Kauffman Innovation Network, which provides researchers and entrepreneurs access to university-developed innovations. It aggregates research materials, technologies, and discoveries on the iBridge Network website. Not only can entrepreneurs, investors, and other users browse research (and bookmark, take notes, tag, and smart-search material), they can also contact universities directly about available intellectual property. An eCommerce function is available, allowing users to purchase and license the I.P. directly from the website. The site is designed to allow easy integration of existing online metrics and data systems, in order to facilitate greater—and simpler—participation.
In its efforts to advance market-ready innovation, Kauffman funds a broad range of other programs: the Green Technology Entrepreneurship Academy, the Institute for Advancing Medical Innovation, the Kansas City Life Sciences Fund, Science Commons, the Translational Medicine Alliance, and the Science and Technology Agents of Revolution (STAR) Database. What they have in common, Mitchell explains, is a commitment to accelerating “collisions—and commercialization.”
“We know that about 600,000 companies get started every year in the United States,” says Bo Fishback, vice president for entrepreneurship at Kauffman. “But we also know that only a very small fraction of those companies—perhaps 1,000 or so of them—see the sort of growth that actually enlarges the capacity of the economy. And we know very little about what it takes to identify those companies and help get them going.”
To learn more about such rapid-growth, high-potential startups, the foundation launched the Kauffman Laboratories for Enterprise Creation. “At Kauffman Labs,” Fishback explains, “we’ll be creating something that looks like a school for entrepreneurs whom we think have the chance to build large-scale, high-growth firms.” Unlike university-based programs, the program envisions a curriculum that is integrated rather than fragmented, iterative rather than sequential, and networked rather than isolated. The labs intend to help participants learn how to start high-growth companies while they’re starting high-growth companies; meanwhile, they will also attempt to build a platform for codifying knowledge for application elsewhere.
To date, Kauffman Labs is running two major programs, with plans to expand in the future. The first is the Global Scholars Program. “In the Global Scholars Program,” says Fishback, “15 to 20 aspiring entrepreneurs from other countries are subsidized by their governments to come study with us. We run them through a six-month program starting with a five-week crash course on entrepreneurial basics. We then have them shadow CEOs of innovative companies that are doing things related to the student’s field of interest. This isn’t about a degree or a credential. Rather, the goal is that, after six months of training, they go home and start successful high-growth companies.”
The labs’ second program is the Kauffman Entrepreneur Postdoctoral Fellows program. Designed for newly minted Ph.D.s in engineering and science, it will provide funding, tools, networks, and mentors to its first class of 13 fellows. The goal is simple: to help them commercialize their scientific discoveries. “Instead of working through intermediaries, we identify these people directly,” notes Mitchell. “We put them through our educational programs, and then surround them with an entrepreneurial social network to help them get their technologies to market. It’s another opportunity to build out entrepreneurial ecosystems around individuals we believe hold great promise for the economy and, in parallel, enable entrepreneurial ecosystems in places like Michigan and Kentucky.”
In its work with Kauffman Labs, the foundation is focusing on the distinct role of philanthropy in fostering rapid-growth companies. “We rejected two applicants to the postdoctoral program because we knew they would be successful,” says Fishback. “Those were interesting phone calls. But we don’t plan to work with companies and individuals that we think will be fine without our help. Those companies are ripe for investors. I sometimes like to say that our niche is to help entrepreneurs find failure faster. What we can do—and markets and universities cannot—is to make sure the right people are working on the most promising projects.”
The Science of Entrepreneurship
The study of economics has traditionally had surprisingly little to say about entrepreneurship. Some economists nodded toward entrepreneurship, but there was very little in the way of systematic inquiry into the phenomenon. Kauffman is working to change that.
“Kauffman people have been almost unique in pointing to the economic importance of entrepreneurs as distinct from the importance of scientific activity,” says Edmund Phelps, the 2006 Nobel laureate in economics. Kauffman has provided major support for the work of academics and scholars in economics, to help them better understand the nature of entrepreneurship—and its place in a growing, vibrant economy.
“One of the most surprising things we have learned is the importance of social networks,” says Robert Litan, Kauffman’s vice president for research and policy. “If you ask entrepreneurs what is most important to success, 90 percent of them will say ‘money.’ But what we’ve learned is that an individual entrepreneur’s network is critical—having a partner, knowing a potential supplier, a joint venturer, knowing who to call for money, and so on. So that traditional image of the solitary guy in the garage isn’t quite accurate. Instead you need to think of guys in a hothouse, surrounded by lots of people that can help them succeed.”
Kauffman also invests in other academic disciplines. One particularly impressive recent commitment involves the study of the law. “We have moved into supporting legal scholarship,” says Litan, in order to better understand the legal order in which entrepreneurship flourishes. “We view the legal system as inextricably linked to entrepreneurial success.” Consequently, in December 2008, the Kauffman Foundation launched a five-year, $10 million program on law, innovation, and growth.
The program is modeled in part on the earlier success of another donor-led legal movement. The John M. Olin Foundation supported much of the scholarship that produced the “law and economics” movement that transformed both the legal academy and policymakers’ views on regulation. The scholarship helped support the efforts at deregulation, beginning in the 1960s and 1970s, that reformed and reinvigorated the airline, transportation, trucking, telecommunications, and other vital industries.
Litan sees Kauffman’s efforts in a similar spirit. Instead of focusing on static efficiencies, however, Kauffman wants to redirect its inquiries on the optimal legal conditions for ensuring dynamic growth. “We call it Law and Economics 2.0.”
An Entrepreneurial Foundation
Kauffman’s contributions to entrepreneurship are multiplied beyond the sum of its grantmaking. “We apply not only financial leverage,” Schramm says, “but idea leverage, by seeding concepts that are then emulated by others beyond our grantees.”
“Our leadership-through-leverage approach is much like a tugboat,” he concludes. “We are dwarfed in size by many of our partners, who range from universities and school districts to public agencies and business enterprises. But by being nimbler, we help get them moving. We provide the nudge, perhaps, that’s needed to overcome institutional inertia, point them in promising directions, stay alongside as they navigate tricky shoals and narrows, and then, once clear, watch them set sail. By leading through leverage, we hope to multiply our own impact and see ideas become bigger than we could have grown them on our own.”
Nick Schulz is DeWitt Wallace Fellow at the American Enterprise Institute (AEI) and editor-in-chief of the American, available online at American.com. Full disclosure: AEI receives funding from the Kauffman Foundation.