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Capitalism for the Poor: A Rising Tide In Jersey City

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Capitalism for the Poor: A Rising Tide In Jersey City

Forbes October 11, 2016
OtherPhilanthropy

America’s “independent sector”—its civil society—is the best-funded and most robust in the world. It consistently develops new and effective approaches to some of the nation’s most serious social problems. Since 2001, the Manhattan Institute has sought to identify and recognize some of the most promising social entrepreneurs and the new non-profits they’ve founded, based on their own original ideas. The more than 50 winners of the Richard Cornuelle award, named for the writer who coined the term independent sector, have addressed challenges as diverse as teaching English to new immigrants, building facilities for charter schools, helping older Americans “age in place,” developing science and engineering curricula for high schools, and helping African-American college students continue through to graduation. Most are supported entirely by private philanthropy. In this column, I’ll profile this year’s winners of the Cornuelle award.  This week, I feature Rising Tide Capital, an organization led by two young Harvard graduates and built on the idea that starting and running a business can be the path out of poverty. 

On a Saturday morning, a small classroom at St. Peter’s College in Jersey City is crowded, but not with college students. These are mostly low-income Jersey City residents, African-American and Hispanic adults mainly in their ‘30s and ‘40s, looking to move up in the world through a time-honored American means: starting or expanding their own businesses.There is Cynthia, who has started a cleaning service and has figured out that specializing in reducing allergens and mold will give her a market advantage. Hakim has a radio-quality voice, which he’s learned can be in-demand for commercials. Hector has a small bodega and is looking for ways to increase sales, which, he feels, are too reliant on lottery tickets.Jay Savulich, the instructor, is an experienced and successful restaurant owner who’s discussing “brand and market presence”—and how to establish and maintain them. He’s peppered with questions. What should a prospective candy business owner do, a woman asks, after a business with a similar name has opened? Jay advises her to forget her investment in a website; confusion will kill her business. Pick a new name.The discussion could be about insurance or advertising or accounting. These nuts and bolts of running a business are all included in the 12-week curriculum of the Community Business Academy, the signature program of Rising Tide Capital, the 12-year old organization premised on the idea that entrepreneurialism can be the route up from poverty. The organization itself is the product of the entrepreneurial dream of Alfa Demmelash and Alex Forrester, two young Harvard graduates who joined forces and planted their flag on Martin Luther King Drive, in the poorest, most dangerous part of Jersey City.

Beginning with flyers posted around the city’s Bergen-Lafayette section (where shootings remain common today), Rising Tide has graduated 1,500 current and prospective entrepreneurs in Jersey City, Elizabeth, Orange , Union City, and Newark (most recently helping to support a similar program on Chicago’s South Side). The results go far beyond completing the course: nearly 300 of those graduates have started new businesses, while some 460 have seen expansions in businesses they already operated when they enrolled with Rising Tide.

On average, those with businesses who have completed the 12-week program have seen a 64 percent increase in sales and a 47 percent increase in income (from $38,375 to $56,412). Use of public-assistance programs by participants has declined, from 27 percent to 12 percent. Enrollees have started and expanded pre-schools, pest control, home repair, home cleaning, and auto-repair businesses.

It’s difficult to overstate how unlikely Alfa’s and Alex’s story is. She is the daughter of a refugee Ethiopian mother, resettled in Boston as a result of Ethiopia’s civil war of the 1980s; he was raised near Princeton, the son of a health care executive and a former New Jersey assistant state treasurer. Alfa, growing up in Boston’s then-blue collar Jamaica Plain section, saw first-hand the value of entrepreneurship, when her own mother, who had been supporting the household as a waitress, instead opened a tailoring and custom-clothing business.

Alfa--sent to a local Catholic grammar school and then to Boston Latin, the city’s legendary selective public high school--became a Harvard government major. She was intent, she thought, on returning to Africa to help guide postwar “truth and reconciliation” processes. Alex, for his part, was a philosophy major, seemingly on course for the ministry. It was Alex’s father who reminded them that helping the poor need not mean looking outside the U.S. That led them to begin planning their own version of a micro-finance program: lending for Jersey City’s urban poor.

But, through a chance encounter with a Jersey City ex-offender who’d started his own social-service organization, they concluded that lending alone was not enough to encourage successful entrepreneurs—and, by extension, to expand upon what they believed was an unappreciated, existing entrepreneurialism among the minority poor. “For many people,” says Alfa, “surviving from day-to-day requires entrepreneurship.”

Just as she and Alex concluded that financial capital alone would not ensure a successful business launch, so too have they been convinced that one 12-week course (one session a week, lasting three hours) was not sufficient, either. So it is with that the Rising Tide students remain linked to the organization, post-graduation. Its “business accelerator” service provides advice as business plans reach fruition and hit hurdles. Guidance is hard-headed. Says Jay Savulich, “Too often, their focus is on sales and revenue; I tell them they have to pay attention to costs or they’ll go out of business.”

Rising Tide is a quintessential social entrepreneurship organization, and not just because it provides good advice. It has combined thoughtful business practices with detailed tracking of results. Some of the lessons that Alfa and Alex have learned are right out of a business school case study. When they first opened their doors in Jersey City, they advertised their services as free--and got almost no interest. Soon after, they renamed their service as the business “academy,” warned that space was limited, and tuition was $3,000, though scholarships would be available. They were overwhelmed with interest and have been so ever since.

The $3,000 tuition was something of a fiction: foundation grants (and modest government funding) cover the core costs. But students are required to pay the cost of class materials (nearly $400), based on the belief that something offered without cost can create the wrong incentives. Rising Tide’s costs are substantial, too. If one counts only new Business Academy graduates, the annual cost could be calculated at more than $8,000 per participant. But if one looks at all program participants served to date—some 1,500, all of whom are still eligible for assistance—the annual cost falls to some $1,500.

Thanks to Rising Tide, businesses are starting and going on to flourish, in communities where business entrepreneurship has historically been in short supply. It’s impossible to know how many others are positively affected by the examples they see in those communities—success stories which would not have existed absent Rising Tide. It seems not an idle boast for Rising Tide to have chosen as its motto “transforming lives and communities.” Nor should one lose sight of the fact that two young people have rediscovered and promoted a time-honored approach to reducing poverty: capitalism.

This piece originally appeared on Forbes

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Howard Husock is the Vice President of Research and Publications at the Manhattan Institute.

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