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Rothschild, retired executive and civic entrepreneur
Civic Caucus, 8301
Creekside Circle #920, Bloomington, MN 55437
February 5, 2010
Verne Johnson (Chair); Janice Clay, Paul Gilje, Jim Hetland (phone), Jan
Hively, Dan Loritz (phone), Bob MacGregor, Joe Mansky, Tim McDonald, Jim
Olson (phone), Bob White
Context of the meeting—
Steve Rothschild has built a very successful organization in Twin Cities
RISE! (TCR!), helping to bring people out of poverty. The program operates
on two principles, training essential life and professional skills to
people in poverty, and empowering clients through courses and a culture
that changes their perspective on life.
Today’s visit by Steve
to the Civic Caucus will not be about the program, particularly. Instead
Rothschild will it the as an example to argue for the need of objective,
reasoned approaches to solving public problems and improving of public
services. Because of this approach Rothschild contends, correctly, that he
has been able to succeed where many fail.
His talk today
includes principles for the operation of programs, and policy
recommendations that are pertinent to the Caucus’ focus on redesigning
Welcome and introductions—
Steve Rothschild is a former executive of General Mills and board member
of its charitable foundation. He was born in London and immigrated to the
United States at an early age. Steve has been a leader in business and
civic affairs for Minnesota, and was elected an Ashoka Fellow in 2002—a
national fellowship for social innovation.
Rothschild had a civic
interest that developed as part of the philanthropic arm of the
corporation, and through his chairmanship of the board of Altcare, an
effort to provide care to the elderly and aging who need services, but do
not require acute care. Retiring early at age 46, Rothschild decided he
wanted to head a company. He started to search; deciding instead to go
into social entrepreneurship, founding TCR! in 1994.
Comments and discussion—During
Rothschild’s visit with the Caucus, the following points were raised:
effectiveness of services is affected by how they are designed.
“I’m not a researcher,
and not a scholar,” Rothschild began, saying that his remarks “are based
on experience in business, with the government, and in the philanthropic
sector,” including the United Way.
“Lyndon Johnson began
his War on Poverty when the poverty rate was at 20 percent. It was very
effective in the first decade, driving poverty down to 11 percent. But
since the mid-70’s the rate has stayed stubborn at 11-14 percent. It is
worse for minorities.
“Why hasn’t it gotten
better? The problem has to do with how the government, foundations, and
non-profits serve” those in poverty. Not all programs and services are
Designers and administrators of services need to properly understand the
problem they seek to solve.
Rothschild said, are premised on misconceptions. A big one is the belief
that if you get people off welfare you are moving them out of poverty.
“Anti-welfare is not the same as anti-poverty. Getting off welfare is not
the same as getting out of poverty.
“Most of the programs designed to get people off welfare get them onto the
first rung of the employment ladder. But they have no underlying skills,
so a hiccup comes along and they fall off.
“People in generational poverty have a different belief system—they think
the best days are behind them.” Family, money, and hope are all seen as an
exercise in futility. “These people need an entirely separate type of
service” than those in situational poverty, that need a safety net for a
He started TCR!,
Rothschild said, because he did not see programs that targeted
poverty—particularly for men of color—but instead supported a broken
lifestyle. “I knew that we had to first pull up the men, and others will
follow. Most private and public welfare focuses on custodial parents
Measure programs by their outcomes, not the inputs and outputs.
“We tend to measure
success by inputs and outputs,” Rothschild pointed out, “not outcomes.” An
example of inputs would be how many served, or how much money spent.
Outputs might be how many graduated a program, or how many got jobs.
involve how many people got and held living wage jobs.” How
many people stayed stable despite the challenges that come?
Policy makers, and
foundation and non-profit executives need to ask themselves, “Do we
measure outcomes, or outputs? It would be like us at General Mills
reporting to the board how much wheat we bought, how many boxes of
Wheaties we made—but not how many boxes we sold.”
Five principles of a successful service operation.
a purpose, and do not just chase money.
“You’ve got hundreds of thousands of non-profits that fail to meet scale,”
he said. “If you have a fuzzy purpose you measure the wrong stuff; don’t
have the transparency or accountability. Don’t have standardized
measurements.” A service must always have a way to measure return on
investment, for their own good, and for the integrity of the resources.
market-driven—know who your customer is and respond accordingly.
The customer is the employer. Most people don’t get that. They see their
funder as the employer. And rightly so, as the most operate funding now.
Develop relationships of mutual responsibility—between individuals,
programs, and the state/foundations that fund them—paying for outcomes,
Rothschild told a
story, about their funding. “Art Rolnick at the Federal Reserve Bank in
Minneapolis ran a study in 1995 and found that every time we take someone
off poverty, taking them from an income of $10,000 to $20,000/yr we save
the state thousands in would-be costs.
“So we went to the
state, and said we don’t want grants—we don’t believe in getting paid for
trying. But if we can demonstrate that we took someone from point A to
point B, and if you, the state, can expect to save $X, then award us a
grant for some portion of that amount.”
Policy makers agreed,
and since then the state has paid Twin Cities RISE! $4 million, reaping
$16 million in savings. “That’s a 400 percent return.”
Responsibility leads to independence.
“When new guys come into the program, we sign a contract that says they
will stay in, or pay back the costs of our services.” They almost never
make someone pay, he said, but the effect is tangible. “Folks figure, be
entitled, be a victim, and be powerless because that pays out.” They push
back directly against that.
“We teach people how
to get dressed, look people in the eye, shake hands—but that lasts about
two weeks. Then something happens. Something throws them off the wagon. So
we also need to change behavior permanently, dealing with beliefs, which
affect thoughts, which affect behavior. The men in our program need to be
empowered to control their emotions.
for poverty need to dig deeper and change beliefs. This holds for any work
of government or non-profits that provide services. Get to the roots of
learning-driven, as an organization, to always improve.
“You may have an idea, and make a plan, but must know that the plan will
change even before the ink is dry. Organizations need to be able to
respond. Need continual feedback and intelligence. If you don’t have
continual innovation you will not have high performance.”
Recommendations for state policy
for outcomes, not outputs.
Right now there is no
incentive in policy, Rothschild said, to work with more difficult
populations. Service agencies and organizations are worried about their
outputs. Incentives need to make people want to serve the lowest groups.
They have got the greatest potential, making a value-added funding
strategy appealing. Align payments by product, not process—by outcomes,
A member asked why
there has been so little innovation in government, in this area. “The ones
in control are ologopolists, and don’t want to lose control,” he said.
pay for performance with the process of raising capital.
For example, building
roads with tolls. Or, paying organizations based on the savings reaped for
government. Set this scheme firm, with assessments for return on
investment. “Then the government could float bonds on anticipated returns.
We do this with physical capital, but not human capital.”
increase funding for services until they can demonstrate value in
outcomes, not outputs.
“The answer may be
more money, but not yet. We need to do things differently. Many of the
people in places of power don’t actually want to do things differently.
Tying funding to performance can change this dynamic.
Support programs for the long-term.
“People often provide startup funding to a pilot, but once an organization
proves successful they move on to find the next big thing, leaving the
As the meeting came to
a close, a member asked Rothschild about his plans for growth of TCR!.
“Over the short-term, we are weathering the economy,” he said. They have
built up cash reserves and are underwriting paid internships for their
clients who are having a difficult time finding jobs right now.
“Over the long term,
our strategy is national—but not to replicate ourselves—instead bringing
people in and teaching them our technology…” about how they have aligned
their funding based on expected savings to the state. “We want to do it
this way because not only are all politics local, but all philanthropy is
local, too. We don’t want to move in somewhere where others are already
well established, and can deliver a program just as well.”
Through the United Way
Rothschild is working with the state on establishing a return on
investment model for jobs programs.
The chair thanked
Rothschild for his service for Minnesota, and noted that he serves as an
example of strong leaders that find ways to continue contributing through
Thanks all around.