Getting Behind Investor Expectations and Behaviors in Economic Development Organizations: What Kinds of Promises are We Really Making?

Notes from the Field:

About 15 years ago, we began seeing a strange and frustrating set of commitments playing-out in economic development organizations. One of Fairfield Index’s primary performance diagnostics allowed our firm to provide some powerful views to fiduciaries on what kind of results investors expected. Most important, it allowed clients’ senior staff and board members to understand the differences between the articulated mission and strategy of their organization, and what their fundraising and investor relations talent were actually promoting to target companies and individuals.

The differences between the board’s intent and what was said in the field could look like a chasm once we produced the results of the diagnostics. The commitments that “stuck” with the investors did not necessarily come out of the board book or strategic plan. They came from the communications and encouragements of people charged with revenue generating tasks and fundraising.

The Fairfield Index diagnostic requires a “deep dive” into current and former investors. We found the overall health and credibility of the economic development organization, relative to investor confidence, falls into three categories:

  • (Networkers) I invest because I want to network and develop business for my own enterprise

  • (Access Investors) I invest because I want to participate in critical market leadership discussions not otherwise available

  • (Stewards) I invest  because I want to play a role in the long-term success of the economy

The NETWORKER “churns” (exits investment and membership) in two to three years if their expected return on dollars is not met. They tend to be middle managers and marketers, and their supervisors expect results in terms of leads and deals for their own enterprise. The accountability for leads and deals goes to the economic development organization, and doubles-back to the employer. The organization made a promise and the investor company is counting.

The ACCESS INVESTOR “churns” in four or five years if commitments are not met. This person is usually quite senior in his/her company and expects to be present, at some point, in private meetings, confidential settings, and key briefings. They tend to invest more dollars and expect information not otherwise available to others. The accountability for being placed into confidential settings goes to the economic development organization and to the investor. At some point, the investor is called out in his/her own organization to prove that access is real. The investor’s departure, usually out of frustration, not only creates “churn” but reflects on a broken promise to a key community executive.

The STEWARD hangs in for seven to nine years. He/she tends to invest the most dollars because the leader, with a good bit of patience, wants a role in the long-term health and reputation of the community. Why does a STEWARD ultimately pull investments and depart? Usually, because the economic development organization never gets around to the long-term. They do not consider adopting big, meta goals, or minimizing the distractions of servicing of NETWORKERS’ interests. The departure of the STEWARD is usually a major reputation blow because their firm probably has a brand or social responsibility agenda to serve the long-term economic health of the community.

Three discussions result from this diagnostic:

  1. The Board learns if their vision and mission actually has anything to do with the commitments being made to investors
  2. The Board learns if the behaviors of their organization are led primarily by revenue resourcing or mission-based solutions
  3. The Board learns about the percentages of investor categories in their own organization, and are positioned to take reforming or incremental action

Here are two examples of many diagnostic results:

Example 1 – This organization is, in reality, a business networking organization or chamber, facing massive churn and additional investor frustration if ACCESS INVESTORS are not provided the special settings they were promised.

55% NETWORKERS     35% ACCESS     10% STEWARDS

55% NETWORKERS     35% ACCESS     10% STEWARDS

Example 2 – This organization has avoided the temptation to draw-in dollars by making NETWORKING promises, but fallen prey to the magnetic promise of private rooms, special briefings, and confidential settings.

5% NETWORKERS     70% ACCESS     25% STEWARDS

5% NETWORKERS     70% ACCESS     25% STEWARDS

No spectrum of results ever looks the same, but they all allow boards to confront the reality of varied investor expectations. In our opinion, the urgencies and challenges of the Great Recession exacerbated the problems associated with making promises to different kinds of investors.

The good news is that an honest view of the direct and implied promises being made to investors provides fiduciaries with the information they need to prevent churn, align staff and volunteer communications, and confront whether or not they are really serious about their vision for the community they serve.