I was half-asleep, shuffling into the kitchen in a t-shirt and shorts, trying to mix formula for my hungry baby boy. He’d been waking often—casein intolerance—and I was beyond exhausted. In the dim light, I kept fumbling the measurements. Too much water. Then not enough. Again and again, wasting water and time.
And that’s when the question hit me, clearer than the baby’s cry: Why can’t my faucet just help me measure the exact amount I need?
That moment of frustration cracked open an idea—a device that could connect water assets at the point of use. Droople was born in that haze of fatigue and fatherhood.
But what really changed wasn’t the idea. It was me.
At the time, I was head of IT audit at a major bank. It was stable. It paid the mortgage. It supported my two eldest kids’ pensions. Leaving that security for a half-formed idea? Madness.
But something inside me was stirring—a hunger for purpose. I wanted to wake up at night not just because a child cried, but because a mission called.
Still, I was scared.
I had four kids then, and I worried about investing too much in this “fifth child,” Droople. Would I fail them? Could I be a good father and a founder?
That’s when my wife, Aurélie—my everyday backup in life—gave me the reassurance I needed. She reminded me that my role as a father wasn’t defined by hours clocked, but by presence and purpose. That I didn’t have to choose between the people I love and the change I wanted to make.
And suddenly, the pieces started to align.
As a boy growing up in Constantine, Algeria, I knew what water scarcity meant. I watched my grandmother and mother fill tanks at night because the pressure couldn’t reach our 12th-floor apartment. Water was never just a utility—it was survival. Dignity. Memory.
So when Droople emerged, I wasn’t just building a company. I was closing a loop. Connecting my past to my future.
In that process, I discovered something else: I grow best in discomfort.
Choosing to leap into the unknown showed me how far my commitment could carry me. It stretched me into roles I’d never imagined—founder, yes, but also more conscious father, more present husband, more grounded human.
I remembered that I’ve always transformed in pressure: from a schoolboy who struggled to make grades into a computer science engineer at EPFL. From fisherman and cold-call salesman to teacher, plumber, banker, auditor. Every chapter taught me something.
But the biggest truth?
Whether I’m a dog or a wolf.
The dog in me likes comfort, validation, approval. But the wolf? The wolf is hungry, uncomfortable—and at peace with that. Because out there, in the wild, is where growth lives.
And now, strangely, I find myself circling another turning point.
Maybe my greatest test as a leader is yet to come—not by building, but by letting go. Maybe Droople needs someone new to take it further, someone with fresh hunger. Maybe my role is evolving.
It’s hard to admit, but I’m not afraid. Because this isn’t about clinging to control. It’s about listening deeply to what’s next. And trusting the ones I’ve built with.
So to any CEO reading this—especially the ones secretly wondering if they’re enough:
Dream big, but achieve little every day and be proud.
We founders can be brutal on ourselves. We forget to look back. But it’s not about speed. It’s not even about growth. It’s about becoming the best version of yourself—slowly, steadily, intentionally.
If you pass that test, the terms of success become yours.
I was half-asleep, shuffling into the kitchen in a t-shirt and shorts, trying to mix formula for my hungry baby boy. He’d been waking often—casein intolerance—and I was beyond exhausted. In the dim light, I kept fumbling the measurements. Too much water. Then not enough. Again and again, wasting water and time.
And that’s when the question hit me, clearer than the baby’s cry: Why can’t my faucet just help me measure the exact amount I need?
That moment of frustration cracked open an idea—a device that could connect water assets at the point of use. Droople was born in that haze of fatigue and fatherhood.
But what really changed wasn’t the idea. It was me.
At the time, I was head of IT audit at a major bank. It was stable. It paid the mortgage. It supported my two eldest kids’ pensions. Leaving that security for a half-formed idea? Madness.
But something inside me was stirring—a hunger for purpose. I wanted to wake up at night not just because a child cried, but because a mission called.
Still, I was scared.
I had four kids then, and I worried about investing too much in this “fifth child,” Droople. Would I fail them? Could I be a good father and a founder?
That’s when my wife, Aurélie—my everyday backup in life—gave me the reassurance I needed. She reminded me that my role as a father wasn’t defined by hours clocked, but by presence and purpose. That I didn’t have to choose between the people I love and the change I wanted to make.
And suddenly, the pieces started to align.
As a boy growing up in Constantine, Algeria, I knew what water scarcity meant. I watched my grandmother and mother fill tanks at night because the pressure couldn’t reach our 12th-floor apartment. Water was never just a utility—it was survival. Dignity. Memory.
So when Droople emerged, I wasn’t just building a company. I was closing a loop. Connecting my past to my future.
In that process, I discovered something else: I grow best in discomfort.
Choosing to leap into the unknown showed me how far my commitment could carry me. It stretched me into roles I’d never imagined—founder, yes, but also more conscious father, more present husband, more grounded human.
I remembered that I’ve always transformed in pressure: from a schoolboy who struggled to make grades into a computer science engineer at EPFL. From fisherman and cold-call salesman to teacher, plumber, banker, auditor. Every chapter taught me something.
But the biggest truth?
Whether I’m a dog or a wolf.
The dog in me likes comfort, validation, approval. But the wolf? The wolf is hungry, uncomfortable—and at peace with that. Because out there, in the wild, is where growth lives.
And now, strangely, I find myself circling another turning point.
Maybe my greatest test as a leader is yet to come—not by building, but by letting go. Maybe Droople needs someone new to take it further, someone with fresh hunger. Maybe my role is evolving.
It’s hard to admit, but I’m not afraid. Because this isn’t about clinging to control. It’s about listening deeply to what’s next. And trusting the ones I’ve built with.
So to any CEO reading this—especially the ones secretly wondering if they’re enough:
Dream big, but achieve little every day and be proud.
We founders can be brutal on ourselves. We forget to look back. But it’s not about speed. It’s not even about growth. It’s about becoming the best version of yourself—slowly, steadily, intentionally.
If you pass that test, the terms of success become yours.
The message below was written several years ago but still rings true today with even more relevance given that global leadership affects so many lives, so we thought it prudent to rerun.
Do you ever wonder why we choose the leaders that we do?
Successful people win leadership positions based on their track record of high performance in comparable roles. What the candidate claims they will do is meaningless compared to what the candidate has actually done in the past. Company leadership checks the candidate’s references and public records to make sure there is no trail of litigation, burned bridges, or bad credit history.
Imagine what a disaster it would be if business leaders were chosen the same way voters do. We often elect government representatives with little or no experience governing. Instead of choosing the most qualified candidate, we often vote for the best salespeople, the best campaigners, who analyze opinion polls and tell us what we want to hear. Then we allow those unqualified people to appoint even less-qualified people (often donors) to key positions throughout our government. Would anyone invest in a public company that operated that way? Would such a company ever survive long enough to go public?
We have the power to be more thoughtful about choosing our leaders. There is too much at stake to make emotional decisions about who we “like” the most. In the last 10 years, Real Leaders has interviewed hundreds of successful leaders from all over the world. We often ask what they see as the difference between a real leader and a misleader. Their answers may be helpful for all of us to consider whenever we are hiring or voting for anyone in a leadership position. It’s up to us to choose real leaders in all sectors and to send the misleaders packing. Imagine the impact farsighted leadership could have.
The message below was written several years ago but still rings true today with even more relevance given that global leadership affects so many lives, so we thought it prudent to rerun.
Do you ever wonder why we choose the leaders that we do?
Successful people win leadership positions based on their track record of high performance in comparable roles. What the candidate claims they will do is meaningless compared to what the candidate has actually done in the past. Company leadership checks the candidate’s references and public records to make sure there is no trail of litigation, burned bridges, or bad credit history.
Imagine what a disaster it would be if business leaders were chosen the same way voters do. We often elect government representatives with little or no experience governing. Instead of choosing the most qualified candidate, we often vote for the best salespeople, the best campaigners, who analyze opinion polls and tell us what we want to hear. Then we allow those unqualified people to appoint even less-qualified people (often donors) to key positions throughout our government. Would anyone invest in a public company that operated that way? Would such a company ever survive long enough to go public?
We have the power to be more thoughtful about choosing our leaders. There is too much at stake to make emotional decisions about who we “like” the most. In the last 10 years, Real Leaders has interviewed hundreds of successful leaders from all over the world. We often ask what they see as the difference between a real leader and a misleader. Their answers may be helpful for all of us to consider whenever we are hiring or voting for anyone in a leadership position. It’s up to us to choose real leaders in all sectors and to send the misleaders packing. Imagine the impact farsighted leadership could have.
Novogratz talks leading a moral revolution and helping pioneer impact investing, an industry that just might save the world.
By Kathryn Deen
If you could use a dose of hope, look to Jacqueline Novogratz. Hers is not some vague, pie-in-the-sky hope. It’s hard-edged and backed by action and results. This impact investing pioneer has been beating the drum for lifting people out of poverty for nearly 40 years, and her company, Acumen, has helped lead the way for 23 of those years.
Novogratz founded Acumen in 2001 during the early days of impact investing. Acumen invests in and supports nonprofit and for-profit companies and individuals fighting poverty and restoring dignity for long-term change. It has impacted over half a billion people and earned a spot on the 2024 Real Leaders of Impact Investing list.
She shares her well-earned lessons and most valuable insights on using money as healing in this candid conversation with Real Leaders.
Real Leaders: You helped establish impact investing as a new sector. What was it like to be at the forefront of this movement?
Jacqueline Novogratz: Nearly 50 years ago, pioneers like Muhammed Yunus, founder of the microfinance bank Grameen, and Ela Bhatt, founder of the Self-Employed Women’s Association, saw the power of using tools of business to make change. They made small amounts of credit available to very low-income women who otherwise would have had to pay usurious rates to many lenders.
I came in on this wave in 1986 when I moved to Rwanda and co-founded the nation’s first microfinance bank. That experience taught me not only that a small group of people could make a big amount of change, but that making markets work for the poor was essential to building nations. That thesis — using tools of business to solve problems of poverty and build a world of dignity — has been my life’s work.
The early days of establishing an entirely new sector can be tough. I founded Acumen in 2001 and can remember countless meetings with captains of industry who would explain with great certainty that my understanding of business was muddled. “I make money on one hand, and I give it away on the other” was their conventional wisdom. I found little curiosity among them regarding what had failed the poor and whether there might be new ways to solve problems that were more effective either than maximizing financial returns or giving charity away. Gandhi says, “First, they ignore you, then they laugh at you, then they fight you, then you win.” In 23 years our investments have impacted the lives of more than half a billion people. Patient capital and impact investment have grown into a multi-trillion-dollar market. Change is possible if you have the grit and resilience to keep working at an idea whose time has come.
RL: Tell us more about the new approach you took to solving poverty with Acumen’s patient capital model.
Novogratz: Our financial systems are constructed based on short-term thinking that no longer serves — if it ever really did. Patience is a revolution. For entrepreneurs to build business solutions serving very low-income people takes experimentation, sometimes failing and getting up to try again.
Early on we saw a growing group of entrepreneurs who had what we call moral imagination — the audacity to imagine the world that could be and the humility to interact with the world that is. They also had the resilience and grit to stick with solving a problem. We were willing to take bets on those entrepreneurs. Entrepreneurs see the possible in the impossible. They recognize opportunities in every problem. When it comes to low-income people, they see customers who want to change their own lives instead of passive recipients waiting for charity.
Acumen could bring long-term, risk-oriented patient capital as well as access to our social capital — networks, expertise, and knowledge.
When we started I thought patient capital meant seven to 10 years. I now see it as 10-20 years. That’s what it takes to build markets in places where people are very low-income, where there is very little infrastructure, where there’s often very little trust, where it’s hard to build talent pools that you can afford, and where there are often high levels of corruption.
RL: How has impact investing changed since you started?
Novogratz: When I started there was no impact investing space. So in the early years, we were one of the only games in town, and we were very defiantly focused on using philanthropy, investing it as long-term equity and debt. Accounting for the impact we made, any money that we get back gets reinvested.
There was an early set of philanthropists who had their own money and thought, “I can also do this,” but they didn’t want to give up returns. So they would set up capital pools with the same expectations — 20-23% returns — despite the fact that they were trying to solve world hunger. It took time for the industry to acknowledge that we need different pools of capital to solve different kinds of problems.
As the impact sector grew in size and sophistication, we grew in size and skill. Today we manage philanthropic-backed patient capital investments as well as a portfolio of larger for-profit impact funds. Those funds are structured for the problems they address. For instance, the Acumen Resilient Agriculture Fund is a $58-million blended fund with a first-loss component and significant technical assistance support. We’re working on a $250-million facility composed of philanthropy, debt, and equity to bring off-grid solar electricity to those considered hard to reach in 16 of the most fragile African nations. Our investment portfolios represent more than half a billion dollars in assets. Through all of it, we are committed to seeing investment as a means to solve tough problems of poverty — and not as an end in and of itself.
RL: Whom have you looked up to most in the impact investing space?
Novogratz: Ceniarth has always been willing to take outsized risk, move first, and go where others will not dare. Omidyar played a very strong role in this field. Currently the Green Climate Fund — the world’s largest climate fund funded by major governments around the world — is a brave partner with a commitment to fighting climate change. They are a real leader in structuring blended facilities so that we can reach the hardest-to-reach individuals with electricity or agriculture. IKEA Foundation also has been very innovative in supporting us to build new models in energy access, helping build green pathways out of poverty using new and inclusive business models. Without such partnerships, we would not have been successful.
RL: Is impact investing here to stay?
Novogratz: I once told a prospective philanthropist in Acumen about one of our companies, d.light, which is an off-grid solar energy company that has now reached over 160 million people with solar light and electricity. The philanthropist said, “I love the work that you do, but are you a real investor — because you still raise philanthropy and not just returnable capital?”
It really shook me. I said, “Help me understand what your definition of a real investor is.” He said, “I want at least market rates.” I said, “Help me understand what a market rate is when there hasn’t been a market and you’re the first one to create one.” And he said, “I would at least want 15-20% returns.” I said, “Here is the rub. The world continues to look at ‘real’ simply as the financial returns made to the investor. We are in a world where we have to deal with climate change and inequality, and we both believe that the private sector is a critical player in solving those problems. Yet when will we get to a point when real investors are rewarded for the good they do — the impact they create, the forests they conserve, the people they employ? To me, that’s what real investing is.”
I look forward to a day when we no longer need words like impact investing, social enterprise, and patient capital — where those modifiers are just assumptions and we don’t continue to put on pedestals players who might destroy value to the natural worlds and diminish human beings in service of shareholders alone.
RL: What metrics must the impact investing industry align on?
Novogratz: We need to have a conversation in the business and investing communities about the importance of subsidy. Look at Europe and the U.S. Both regions subsidize their agricultural and energy sectors. No nation has electrified without significant subsidy. Yet when it comes to the poor, investors often recoil at any hint of subsidy. We’ve never been more unequal. I was just in Kenya, where the nation is experiencing devastating floods due to climate change. Making rural electrification work for the poorest people will require businesses that are supported by wise policy and effective financing. That requires new ways of thinking and acting.
When it comes to building a company that serves the poor, affordability is everything. It’s right at the heart of how low-income people make decisions. Think about solving a problem like deforestation. Peter Scott was literally a tree hugger in the 1990s trying to save forests in Africa when he finally realized that the root cause of deforestation in Africa comes down to a few things, but the No. 1 reason is these little cookstoves that low-income women cook on. They cut down trees or use charcoal, which is made from trees. He realized that to save the trees, he had to build a cookstove that women can afford. That was hard to do because very poor women can’t afford a $40 unit, which is essentially the lowest cost that will reduce your fuel consumption by 50-60%. We were the first investor in his company, BURN Manufacturing. This year BURN will have sold 4 million cookstoves, saving 20 million trees, employing over 2,000 young people, and impacting over 20 million human beings whose health is changed, whose income is significantly increased, and whose footprint, which is already very small, is reduced even further.
We need more measures around the environmental impact that a company is creating, and we need to internalize those costs in the environment and for human beings.
Chocolate is a $100-billion industry built off 5 million cocoa families, 90% of whom make less than $2 a day. We will not have high-quality chocolate unless we find ways to fully integrate a supply chain so that those smallholder farmers are seen, valued, and earning a wage that allows them not to live in poverty. It shouldn’t be that difficult, yet we still measure a company’s performance in ways that make farmers price takers — whatever the global price is, here’s the price I will pay you even if it keeps you in poverty — rather than price makers valued for what they contribute. None of us wants to keep somebody in poverty every time we buy a chocolate bar.
RL: What is Acumen’s process for making investing decisions?
Novogratz: If you sat in on one of our investment meetings in the very beginning, it would look like serious investors sitting around the table.
Our manifesto is where you can begin to see why we are different. The first question we ask is, “Does this investment reach low-income people?” It starts by standing with the poor. “Is it structured in a way to give the company the best chance of succeeding in the long-term? And what is the character of the entrepreneur in whom we are investing?” At some point our tagline became, “At Acumen, we invest in character.” Why character? Because when you are trying to make significant change in these markets, you often end up operating in very corrupt environments.
We need to find those entrepreneurs who not only have the vision but also the grit, resilience, persistence, and moral imagination — who see low-income people as full human beings and therefore have the skills of patience, deep listening, and knowing how to connect across identities — to build companies that might start very small like Ziqitza HealthCare with nine ambulances and grow to bring 50 million people to hospitals across India.
Dave Ellis and his partner, Joe Shields, had never held a live chicken when they decided to start EthioChicken, a poultry company in Ethiopia. We were their first investor. They understood that farmers don’t have the capacity to do all it takes to raise a few baby chicks to maturity, but once a chicken is grown, it will forage for itself and provide eggs — an important source of protein — even during droughts. So the entrepreneurs built a business that employed agents who would buy 1,000, day-old chicks and work night and day to raise them to maturity. They would then sell them to farmers in tiny batches, and the farmers would sell the eggs that their families didn’t eat to local markets.
We accompanied that company with our patient capital for probably eight years. They paid us back, and then one of our for-profit funds, the Acumen Resilient Agriculture Fund, invested another round of capital in the for-profit impact space. Under the holding company Hatch, EthioChicken is now operating in nine African countries. The company works with 16 million agents, some of whom make $10,000 or more per year. Last year the company sold 43 million chickens to more than 3.5 million smallholder farmers who, in turn, sold 3.5 billion eggs. In Ethiopia they’ve been credited for significantly reducing childhood malnutrition. It’s thrilling for me to see Ethiopians building capacity in new markets like Rwanda or Ghana. They are creating local jobs, and they are creating value, not extracting it.
RL: Let’s talk about some hard-earned lessons when things didn’t go right.
Novogratz: We have a failure report. It’s so important to us. We make it public. It is an accountability mechanism for us, for our companies, for other impact investors, and for our peers. If we want to call ourselves a learning organization, we better not just have stories of how good we are. You learn more from your failures. You grow more from the hard times as a leader, and that’s the reality of risk-taking and investment.
About 25% of our investments fail. What’s interesting is most of those companies are still functioning, but we exited our investment. I would say there are typically three reasons for our failures.
One is the character issue, where you might discover two sets of books being kept. We have very few of those examples, but when they occur, they break your heart.
The second is when we’ve been too early on the innovation curve. In Pakistan we were the first investor in micro-health insurance without fully understanding the customer — that people didn’t want to pay for something they couldn’t see that might happen in the future if they got sick — so we wrote off our investment. But what was exciting about that is we watched a whole industry then build off of that experience and become a real leader in micro-health insurance for low-income people.
Third, early on we sometimes were too excited by the technology without fully understanding the distribution systems and low-income people’s preferences. A hearing aid that was $30 and operated as well as a $3,000 model — fantastic, but if you don’t have a distribution system, and if a low-income farmer doesn’t see the connection between that hearing aid and working in the field, you’re not going to have a market.
We’re a lot smarter now. We still make mistakes, and in fact, we have an adage in Acumen that if you aren’t willing to fail, you will not succeed.
RL: What is your outlook for the future of impact investing and Acumen?
Novogratz: What I’m excited about for the future is to see more players in this space and to support young people who deserve opportunities to build their ideas into reality. I’m committed to bringing forth practices of moral leadership that are not about righteousness or a set of rules coming down from on high but are about what it actually takes to operate in a world based on the growing recognition that we are connected to all human beings and living things, that our action and inaction can impact people every day, and that we have it within us to solve these problems.
However, the new set of skills needed are not the ones I learned in business school. They are focused on what we sometimes think of as soft skills: deep listening, holding opposing truths in tension, seeing our identity as a way of connecting with each other rather than as a way of dividing one another, telling stories that are truthful in ways that matter in a world of fake news. I believe that these skills of moral leadership are the new hard skills.
So how do we lift these hidden heroes, these new business models for a generation that is looking for more than inspiration? How do we show up as leaders and point to those people who are trying not to tear down but to build up?
I worry sometimes that investing and business get a bad name, some of it deservedly so. How do we get under all these labels and instead use the tools of business, the tools of capital in service of our world? I see how much change is possible, and I also don’t want people to forget that in my lifetime, we’ve gone from a world with 40% of people living in extreme poverty to 8%. I’ve seen the 40 energy companies we’ve invested in reach more than 230 million people with affordable solar light and electricity. Change is possible. You just have to work for it.
RL: What is your definition of a real leader?
Novogratz: A real leader is here to serve. A real leader asks herself not, “What am I doing in service of myself?” but, “What am I doing in service of others?” A real leader listens. A real leader learns how to partner. A real leader walks with humility and never lets go of their audacious dreams to build a world they know is possible.
Use the power of markets; don’t be seduced by them.
Partner with humility and audacity.
Accompany each other.
Tell stories that matter.
Embrace the beautiful struggle.
Novogratz’s Top Practice
As told to Real Leaders, here is Novogratz’s top practice.
The most important principle is to just start. There’s a lot of fear and cynicism in the world. “Where will I get the capital?” “I don’t know anybody.” There are a million excuses not to start. To that, I say start where you are with what you have. If you see something that looks like a problem, ask yourself, “What opportunity is that problem hiding? How might it be solved?” Take a step toward that problem. Try to understand it — not from your perspective but from the perspective of the people being impacted by it.
You probably will make a mistake. Fine. Learn from it. Take another step. Before you know it, not only will you be on your way to finding solutions to that problem, but you will be on your way to finding the purpose that will reveal itself to you as the whole reason that you’re here. Just start and then don’t quit.
I was a woman who just started — probably recklessly. As a 25-year-old banker with three years of Wall Street experience, I had no business trying to build a bank for women, and I was stretched to find Rwanda on a map back in 1986. I didn’t know a soul, but women had just gotten access to open a bank account without their husband’s signature. What I did know was that humans are capable of extraordinary things. So all I saw was the upside.
What I lacked when I first started was the humility to know what I didn’t know and to come without solutions but with a whole bunch of questions with respect for local knowledge. I learned to listen and to learn from those I was there to serve. I learned to be more patient and to behave like a guest until the locals decided to treat me like an insider — and that made all the difference.
As I grew I saw that you could change a corner of the world and make history. Maybe I had to go through the humiliation, rejection, and people calling me crazy. In fact, I’ve learned that when people call you crazy, it usually means you’re onto something. But if you persist, you keep showing up, and you treat the people around you with the kind of respect that you believe we need in the world, all of a sudden there’s an entity that’s bigger than you, and everybody who works with you is smarter than you. That all starts to teach you.
I have the same spirit now that I did when I was 25 years old. I know change is possible. I know what the tools are, and I’ve seen solutions work. I know the problems ahead are a heck of a lot more complicated and bigger than the problems seemed way back then, but it gives me a chance to seem crazy sometimes and start that journey all over again, and I am not stopping till I’m no longer here.
Novogratz talks leading a moral revolution and helping pioneer impact investing, an industry that just might save the world.
By Kathryn Deen
If you could use a dose of hope, look to Jacqueline Novogratz. Hers is not some vague, pie-in-the-sky hope. It’s hard-edged and backed by action and results. This impact investing pioneer has been beating the drum for lifting people out of poverty for nearly 40 years, and her company, Acumen, has helped lead the way for 23 of those years.
Novogratz founded Acumen in 2001 during the early days of impact investing. Acumen invests in and supports nonprofit and for-profit companies and individuals fighting poverty and restoring dignity for long-term change. It has impacted over half a billion people and earned a spot on the 2024 Real Leaders of Impact Investing list.
She shares her well-earned lessons and most valuable insights on using money as healing in this candid conversation with Real Leaders.
Real Leaders: You helped establish impact investing as a new sector. What was it like to be at the forefront of this movement?
Jacqueline Novogratz: Nearly 50 years ago, pioneers like Muhammed Yunus, founder of the microfinance bank Grameen, and Ela Bhatt, founder of the Self-Employed Women’s Association, saw the power of using tools of business to make change. They made small amounts of credit available to very low-income women who otherwise would have had to pay usurious rates to many lenders.
I came in on this wave in 1986 when I moved to Rwanda and co-founded the nation’s first microfinance bank. That experience taught me not only that a small group of people could make a big amount of change, but that making markets work for the poor was essential to building nations. That thesis — using tools of business to solve problems of poverty and build a world of dignity — has been my life’s work.
The early days of establishing an entirely new sector can be tough. I founded Acumen in 2001 and can remember countless meetings with captains of industry who would explain with great certainty that my understanding of business was muddled. “I make money on one hand, and I give it away on the other” was their conventional wisdom. I found little curiosity among them regarding what had failed the poor and whether there might be new ways to solve problems that were more effective either than maximizing financial returns or giving charity away. Gandhi says, “First, they ignore you, then they laugh at you, then they fight you, then you win.” In 23 years our investments have impacted the lives of more than half a billion people. Patient capital and impact investment have grown into a multi-trillion-dollar market. Change is possible if you have the grit and resilience to keep working at an idea whose time has come.
RL: Tell us more about the new approach you took to solving poverty with Acumen’s patient capital model.
Novogratz: Our financial systems are constructed based on short-term thinking that no longer serves — if it ever really did. Patience is a revolution. For entrepreneurs to build business solutions serving very low-income people takes experimentation, sometimes failing and getting up to try again.
Early on we saw a growing group of entrepreneurs who had what we call moral imagination — the audacity to imagine the world that could be and the humility to interact with the world that is. They also had the resilience and grit to stick with solving a problem. We were willing to take bets on those entrepreneurs. Entrepreneurs see the possible in the impossible. They recognize opportunities in every problem. When it comes to low-income people, they see customers who want to change their own lives instead of passive recipients waiting for charity.
Acumen could bring long-term, risk-oriented patient capital as well as access to our social capital — networks, expertise, and knowledge.
When we started I thought patient capital meant seven to 10 years. I now see it as 10-20 years. That’s what it takes to build markets in places where people are very low-income, where there is very little infrastructure, where there’s often very little trust, where it’s hard to build talent pools that you can afford, and where there are often high levels of corruption.
RL: How has impact investing changed since you started?
Novogratz: When I started there was no impact investing space. So in the early years, we were one of the only games in town, and we were very defiantly focused on using philanthropy, investing it as long-term equity and debt. Accounting for the impact we made, any money that we get back gets reinvested.
There was an early set of philanthropists who had their own money and thought, “I can also do this,” but they didn’t want to give up returns. So they would set up capital pools with the same expectations — 20-23% returns — despite the fact that they were trying to solve world hunger. It took time for the industry to acknowledge that we need different pools of capital to solve different kinds of problems.
As the impact sector grew in size and sophistication, we grew in size and skill. Today we manage philanthropic-backed patient capital investments as well as a portfolio of larger for-profit impact funds. Those funds are structured for the problems they address. For instance, the Acumen Resilient Agriculture Fund is a $58-million blended fund with a first-loss component and significant technical assistance support. We’re working on a $250-million facility composed of philanthropy, debt, and equity to bring off-grid solar electricity to those considered hard to reach in 16 of the most fragile African nations. Our investment portfolios represent more than half a billion dollars in assets. Through all of it, we are committed to seeing investment as a means to solve tough problems of poverty — and not as an end in and of itself.
RL: Whom have you looked up to most in the impact investing space?
Novogratz: Ceniarth has always been willing to take outsized risk, move first, and go where others will not dare. Omidyar played a very strong role in this field. Currently the Green Climate Fund — the world’s largest climate fund funded by major governments around the world — is a brave partner with a commitment to fighting climate change. They are a real leader in structuring blended facilities so that we can reach the hardest-to-reach individuals with electricity or agriculture. IKEA Foundation also has been very innovative in supporting us to build new models in energy access, helping build green pathways out of poverty using new and inclusive business models. Without such partnerships, we would not have been successful.
RL: Is impact investing here to stay?
Novogratz: I once told a prospective philanthropist in Acumen about one of our companies, d.light, which is an off-grid solar energy company that has now reached over 160 million people with solar light and electricity. The philanthropist said, “I love the work that you do, but are you a real investor — because you still raise philanthropy and not just returnable capital?”
It really shook me. I said, “Help me understand what your definition of a real investor is.” He said, “I want at least market rates.” I said, “Help me understand what a market rate is when there hasn’t been a market and you’re the first one to create one.” And he said, “I would at least want 15-20% returns.” I said, “Here is the rub. The world continues to look at ‘real’ simply as the financial returns made to the investor. We are in a world where we have to deal with climate change and inequality, and we both believe that the private sector is a critical player in solving those problems. Yet when will we get to a point when real investors are rewarded for the good they do — the impact they create, the forests they conserve, the people they employ? To me, that’s what real investing is.”
I look forward to a day when we no longer need words like impact investing, social enterprise, and patient capital — where those modifiers are just assumptions and we don’t continue to put on pedestals players who might destroy value to the natural worlds and diminish human beings in service of shareholders alone.
RL: What metrics must the impact investing industry align on?
Novogratz: We need to have a conversation in the business and investing communities about the importance of subsidy. Look at Europe and the U.S. Both regions subsidize their agricultural and energy sectors. No nation has electrified without significant subsidy. Yet when it comes to the poor, investors often recoil at any hint of subsidy. We’ve never been more unequal. I was just in Kenya, where the nation is experiencing devastating floods due to climate change. Making rural electrification work for the poorest people will require businesses that are supported by wise policy and effective financing. That requires new ways of thinking and acting.
When it comes to building a company that serves the poor, affordability is everything. It’s right at the heart of how low-income people make decisions. Think about solving a problem like deforestation. Peter Scott was literally a tree hugger in the 1990s trying to save forests in Africa when he finally realized that the root cause of deforestation in Africa comes down to a few things, but the No. 1 reason is these little cookstoves that low-income women cook on. They cut down trees or use charcoal, which is made from trees. He realized that to save the trees, he had to build a cookstove that women can afford. That was hard to do because very poor women can’t afford a $40 unit, which is essentially the lowest cost that will reduce your fuel consumption by 50-60%. We were the first investor in his company, BURN Manufacturing. This year BURN will have sold 4 million cookstoves, saving 20 million trees, employing over 2,000 young people, and impacting over 20 million human beings whose health is changed, whose income is significantly increased, and whose footprint, which is already very small, is reduced even further.
We need more measures around the environmental impact that a company is creating, and we need to internalize those costs in the environment and for human beings.
Chocolate is a $100-billion industry built off 5 million cocoa families, 90% of whom make less than $2 a day. We will not have high-quality chocolate unless we find ways to fully integrate a supply chain so that those smallholder farmers are seen, valued, and earning a wage that allows them not to live in poverty. It shouldn’t be that difficult, yet we still measure a company’s performance in ways that make farmers price takers — whatever the global price is, here’s the price I will pay you even if it keeps you in poverty — rather than price makers valued for what they contribute. None of us wants to keep somebody in poverty every time we buy a chocolate bar.
RL: What is Acumen’s process for making investing decisions?
Novogratz: If you sat in on one of our investment meetings in the very beginning, it would look like serious investors sitting around the table.
Our manifesto is where you can begin to see why we are different. The first question we ask is, “Does this investment reach low-income people?” It starts by standing with the poor. “Is it structured in a way to give the company the best chance of succeeding in the long-term? And what is the character of the entrepreneur in whom we are investing?” At some point our tagline became, “At Acumen, we invest in character.” Why character? Because when you are trying to make significant change in these markets, you often end up operating in very corrupt environments.
We need to find those entrepreneurs who not only have the vision but also the grit, resilience, persistence, and moral imagination — who see low-income people as full human beings and therefore have the skills of patience, deep listening, and knowing how to connect across identities — to build companies that might start very small like Ziqitza HealthCare with nine ambulances and grow to bring 50 million people to hospitals across India.
Dave Ellis and his partner, Joe Shields, had never held a live chicken when they decided to start EthioChicken, a poultry company in Ethiopia. We were their first investor. They understood that farmers don’t have the capacity to do all it takes to raise a few baby chicks to maturity, but once a chicken is grown, it will forage for itself and provide eggs — an important source of protein — even during droughts. So the entrepreneurs built a business that employed agents who would buy 1,000, day-old chicks and work night and day to raise them to maturity. They would then sell them to farmers in tiny batches, and the farmers would sell the eggs that their families didn’t eat to local markets.
We accompanied that company with our patient capital for probably eight years. They paid us back, and then one of our for-profit funds, the Acumen Resilient Agriculture Fund, invested another round of capital in the for-profit impact space. Under the holding company Hatch, EthioChicken is now operating in nine African countries. The company works with 16 million agents, some of whom make $10,000 or more per year. Last year the company sold 43 million chickens to more than 3.5 million smallholder farmers who, in turn, sold 3.5 billion eggs. In Ethiopia they’ve been credited for significantly reducing childhood malnutrition. It’s thrilling for me to see Ethiopians building capacity in new markets like Rwanda or Ghana. They are creating local jobs, and they are creating value, not extracting it.
RL: Let’s talk about some hard-earned lessons when things didn’t go right.
Novogratz: We have a failure report. It’s so important to us. We make it public. It is an accountability mechanism for us, for our companies, for other impact investors, and for our peers. If we want to call ourselves a learning organization, we better not just have stories of how good we are. You learn more from your failures. You grow more from the hard times as a leader, and that’s the reality of risk-taking and investment.
About 25% of our investments fail. What’s interesting is most of those companies are still functioning, but we exited our investment. I would say there are typically three reasons for our failures.
One is the character issue, where you might discover two sets of books being kept. We have very few of those examples, but when they occur, they break your heart.
The second is when we’ve been too early on the innovation curve. In Pakistan we were the first investor in micro-health insurance without fully understanding the customer — that people didn’t want to pay for something they couldn’t see that might happen in the future if they got sick — so we wrote off our investment. But what was exciting about that is we watched a whole industry then build off of that experience and become a real leader in micro-health insurance for low-income people.
Third, early on we sometimes were too excited by the technology without fully understanding the distribution systems and low-income people’s preferences. A hearing aid that was $30 and operated as well as a $3,000 model — fantastic, but if you don’t have a distribution system, and if a low-income farmer doesn’t see the connection between that hearing aid and working in the field, you’re not going to have a market.
We’re a lot smarter now. We still make mistakes, and in fact, we have an adage in Acumen that if you aren’t willing to fail, you will not succeed.
RL: What is your outlook for the future of impact investing and Acumen?
Novogratz: What I’m excited about for the future is to see more players in this space and to support young people who deserve opportunities to build their ideas into reality. I’m committed to bringing forth practices of moral leadership that are not about righteousness or a set of rules coming down from on high but are about what it actually takes to operate in a world based on the growing recognition that we are connected to all human beings and living things, that our action and inaction can impact people every day, and that we have it within us to solve these problems.
However, the new set of skills needed are not the ones I learned in business school. They are focused on what we sometimes think of as soft skills: deep listening, holding opposing truths in tension, seeing our identity as a way of connecting with each other rather than as a way of dividing one another, telling stories that are truthful in ways that matter in a world of fake news. I believe that these skills of moral leadership are the new hard skills.
So how do we lift these hidden heroes, these new business models for a generation that is looking for more than inspiration? How do we show up as leaders and point to those people who are trying not to tear down but to build up?
I worry sometimes that investing and business get a bad name, some of it deservedly so. How do we get under all these labels and instead use the tools of business, the tools of capital in service of our world? I see how much change is possible, and I also don’t want people to forget that in my lifetime, we’ve gone from a world with 40% of people living in extreme poverty to 8%. I’ve seen the 40 energy companies we’ve invested in reach more than 230 million people with affordable solar light and electricity. Change is possible. You just have to work for it.
RL: What is your definition of a real leader?
Novogratz: A real leader is here to serve. A real leader asks herself not, “What am I doing in service of myself?” but, “What am I doing in service of others?” A real leader listens. A real leader learns how to partner. A real leader walks with humility and never lets go of their audacious dreams to build a world they know is possible.
Use the power of markets; don’t be seduced by them.
Partner with humility and audacity.
Accompany each other.
Tell stories that matter.
Embrace the beautiful struggle.
Novogratz’s Top Practice
As told to Real Leaders, here is Novogratz’s top practice.
The most important principle is to just start. There’s a lot of fear and cynicism in the world. “Where will I get the capital?” “I don’t know anybody.” There are a million excuses not to start. To that, I say start where you are with what you have. If you see something that looks like a problem, ask yourself, “What opportunity is that problem hiding? How might it be solved?” Take a step toward that problem. Try to understand it — not from your perspective but from the perspective of the people being impacted by it.
You probably will make a mistake. Fine. Learn from it. Take another step. Before you know it, not only will you be on your way to finding solutions to that problem, but you will be on your way to finding the purpose that will reveal itself to you as the whole reason that you’re here. Just start and then don’t quit.
I was a woman who just started — probably recklessly. As a 25-year-old banker with three years of Wall Street experience, I had no business trying to build a bank for women, and I was stretched to find Rwanda on a map back in 1986. I didn’t know a soul, but women had just gotten access to open a bank account without their husband’s signature. What I did know was that humans are capable of extraordinary things. So all I saw was the upside.
What I lacked when I first started was the humility to know what I didn’t know and to come without solutions but with a whole bunch of questions with respect for local knowledge. I learned to listen and to learn from those I was there to serve. I learned to be more patient and to behave like a guest until the locals decided to treat me like an insider — and that made all the difference.
As I grew I saw that you could change a corner of the world and make history. Maybe I had to go through the humiliation, rejection, and people calling me crazy. In fact, I’ve learned that when people call you crazy, it usually means you’re onto something. But if you persist, you keep showing up, and you treat the people around you with the kind of respect that you believe we need in the world, all of a sudden there’s an entity that’s bigger than you, and everybody who works with you is smarter than you. That all starts to teach you.
I have the same spirit now that I did when I was 25 years old. I know change is possible. I know what the tools are, and I’ve seen solutions work. I know the problems ahead are a heck of a lot more complicated and bigger than the problems seemed way back then, but it gives me a chance to seem crazy sometimes and start that journey all over again, and I am not stopping till I’m no longer here.
I founded a software company and raised over $200 million from investors — seed through series D — from angels, venture capital, and private equity. So, I’ve seen a lot and made many mistakes along the way — but you don’t have to. Here are my top seven mistakes raising $200 million — and how you can avoid them.
I met with investors in the wrong order. Never go after your top prospects first. This is when you’re least practiced and least confident. Instead, rank prospects from most interesting to least interesting.
Reach out to the least interesting prospects first and work your way up.
Use early feedback to strengthen your pitch with each new meeting.
I focused my pitch on the wrong things (by stage). Investors look for very specific criteria at each fundraising stage, so you need to know what they’re looking for and tailor the pitch.
Seed: Market and team
Series A: Product market fit
Series B: Repeatable sales process
Series C: Command of unit economics
Series D: Profitability (or path to)
Note: The market continues to be important at every stage. (See #3.)
I didn’t present the market well. Investors don’t need every little detail about your market. They’re more interested in how you’re going to attack the market.
For market size:
Show total addressable market like an archery target.
The middle is where you’re focused today.
Each outer ring is a future market.
Now, show how you’ll move from ring to ring with the same core product.
For competition: Focus almost entirely on your “unfair advantage.”
I didn’t time the raise correctly. You should fundraise when your momentum is at a “local maximum” — right after you’ve crossed a major milestone or had a breakthrough. This could be a big product launch, landing a whale, hitting profitability, etc.
This becomes the “why now” section of your pitch. You want the new funding to build upon this milestone and accelerate things.
I chased the valuation. I’ve been guilty of focusing too much on valuation and not enough on other terms. It even resulted in a bad-fit investor who almost drove us into bankruptcy. Instead, do the following:
Be willing to accept a slightly lower valuation if other terms are great.
Don’t let them prop up your valuation by increasing the liquidation preference.
Keep it at 1x non-participating.
I didn’t negotiate the term sheet well enough. Getting a term sheet is exciting. However, key terms or details are often left out, leaving too many important items open for negotiation during due diligence.
Make sure all key terms are covered (board composition, liquidation preference, etc.).
Don’t sign anything unclear or if the investor marks something TBD. (Not a joke. I’ve seen this multiple times.)
I wasn’t ready for due diligence. Your most vulnerable moment during a fundraiser is after signing the term sheet.
Why? Because now you’re locked in, and the investor gets to pick your business apart for the next 30–90 days.
If you’re not ready, they could pull out of the deal or renegotiate terms, so you need to have your house in order: three- to five-year financial model, metrics per customer, capitalization table, legal documents, etc. If you’re prepped, you’ll close in 30 days.
I founded a software company and raised over $200 million from investors — seed through series D — from angels, venture capital, and private equity. So, I’ve seen a lot and made many mistakes along the way — but you don’t have to. Here are my top seven mistakes raising $200 million — and how you can avoid them.
I met with investors in the wrong order. Never go after your top prospects first. This is when you’re least practiced and least confident. Instead, rank prospects from most interesting to least interesting.
Reach out to the least interesting prospects first and work your way up.
Use early feedback to strengthen your pitch with each new meeting.
I focused my pitch on the wrong things (by stage). Investors look for very specific criteria at each fundraising stage, so you need to know what they’re looking for and tailor the pitch.
Seed: Market and team
Series A: Product market fit
Series B: Repeatable sales process
Series C: Command of unit economics
Series D: Profitability (or path to)
Note: The market continues to be important at every stage. (See #3.)
I didn’t present the market well. Investors don’t need every little detail about your market. They’re more interested in how you’re going to attack the market.
For market size:
Show total addressable market like an archery target.
The middle is where you’re focused today.
Each outer ring is a future market.
Now, show how you’ll move from ring to ring with the same core product.
For competition: Focus almost entirely on your “unfair advantage.”
I didn’t time the raise correctly. You should fundraise when your momentum is at a “local maximum” — right after you’ve crossed a major milestone or had a breakthrough. This could be a big product launch, landing a whale, hitting profitability, etc.
This becomes the “why now” section of your pitch. You want the new funding to build upon this milestone and accelerate things.
I chased the valuation. I’ve been guilty of focusing too much on valuation and not enough on other terms. It even resulted in a bad-fit investor who almost drove us into bankruptcy. Instead, do the following:
Be willing to accept a slightly lower valuation if other terms are great.
Don’t let them prop up your valuation by increasing the liquidation preference.
Keep it at 1x non-participating.
I didn’t negotiate the term sheet well enough. Getting a term sheet is exciting. However, key terms or details are often left out, leaving too many important items open for negotiation during due diligence.
Make sure all key terms are covered (board composition, liquidation preference, etc.).
Don’t sign anything unclear or if the investor marks something TBD. (Not a joke. I’ve seen this multiple times.)
I wasn’t ready for due diligence. Your most vulnerable moment during a fundraiser is after signing the term sheet.
Why? Because now you’re locked in, and the investor gets to pick your business apart for the next 30–90 days.
If you’re not ready, they could pull out of the deal or renegotiate terms, so you need to have your house in order: three- to five-year financial model, metrics per customer, capitalization table, legal documents, etc. If you’re prepped, you’ll close in 30 days.
The traditional model of human resources is an unwieldy behemoth, an ever-expanding array of responsibilities. What started as a moral reaction to the harsh conditions of factory work in the late 1800s — or an attempt to improve economic efficiency — has become a vital part of organizations of any size.
Yet, as companies grow and the nature of employment evolves, the HR professional is constantly torn between advocating for employee interests and safeguarding the company’s well-being — a contradictory set of responsibilities that hurts engagement, retention, and efficiency. At TCG, a medium-sized public benefit corporation and U.S. government contractor, we blew up the traditional approach to HR.
Too Many Hats
HR professionals are tasked with a daunting array of responsibilities. Everything about employees is in their purview — recruiting and hiring; formulating and adjudicating company policies; payroll; learning and development; performance monitoring; disciplinary actions and investigations; workplace culture; conflict resolution; compliance and safety; health care; surveying; compensation; rewards and incentive programs; and on and on. It’s an enormous job.
After spending their morning listening with empathy to an employee’s issues with their manager and advising on how best to work with them, the HR professional must then fire that same employee in the afternoon because their manager wants them gone. They will welcome a new employee with warmth and friendship on Monday and then engage corporate counsel on Friday after the employee has been sexually harassed by a client or coworker. They have to love employees and what they can do for the company, but also fear them and what they can do to the company. Are we stuck with this inadvertent portmanteau, this pushmi-pullyu, this house divided against itself?
A Blueprint for Restructuring
Our experience at TCG led us to a strategic overhaul of the HR function. We created a new HR structure, enhancing operational efficiency and employee satisfaction. In plain English: We blew up HR, sorted it, categorized it, moved the pieces to where they made the most sense, and ended up with a repeatable solution.
Recruiting as a Unique and Vital Function
Our product is our employees’ hours, so recruiting is vitally important for us. But recruiting isn’t actually HR. It’s a combination of skills — marketing, sales, brand management, data analytics/business intelligence, and customer relationship management. For us, recruiting is primarily supply chain management. Having too many or too few employees represents opportunity costs we can’t afford. Initially reporting directly to the CEO, our recruiting group now falls under the purview of the chief operating officer as a supply chain management function.
Resolving the Duality
Once we split off the complication that is recruiting, it was easy to examine the duality inherent in typical HR. Engaged employees are retained longer and have (and create) fewer problems. HR is typically tasked with curating and maintaining the culture, in addition to loving and caring for employees. Culture plus love and care leads to engagement. Simultaneously, HR must ensure that the company is protected from its employees. Whether by harassment, poor management, illegal interviewing, bias, theft, unethical actions, or a hundred other ways, employees’ behavior can bring down a company.
An HR professional who loves and fears employees is dual-natured. That’s very difficult to pull off. So we split the two parts.
Employee Happiness Department
Our vice president for employee happiness is focused on organizational development, employee experience, and relations. Reporting directly to the CEO, she addresses the need for a dedicated effort toward cultivating a positive workplace culture.
The happiness department’s remit includes learning and development, career discussions and goal-setting, community events, soft benefits, biannual engagement surveys, and regular meetings with each employee. It is accountable for retention — if someone quits, it is expected to know why. It is the softer side of HR, the side that loves employees and wants them to stay forever.
HR Focused on Compliance
With recruiting and happiness carved out, HR can concentrate on compliance and hard benefits, reporting to the CFO. This focus and place in the organization allow HR professionals to dedicate their expertise to ensuring the company meets legal and ethical standards without conflicting responsibilities. Our HR professionals work with immense compassion and empathy, but their focus is on ensuring the company’s goals are met, rather than employees’ goals.
Ongoing Challenges
While our new model has definitely improved operations, it’s not without its challenges. Handoffs between recruiting, HR, and happiness require careful management to prevent oversights. We might have more full-time employees among the three roles than most companies have in traditional HR.
Benefits of the New Structure
Recruiting’s proximity to clients’ projects increases its understanding of their needs and prioritizes them. There are fewer complaints from project managers about recruiting, and since they sit at the same table, communication is constant.
Nobody fears going to happiness to get help resolving an issue because happiness is not HR. The term HR comes with baggage. There’s no fear that happiness is going to hold a grudge come evaluation time.
HR has a considerably stripped-down set of requirements, so it’s easier to find people to fill HR positions and easier to keep people in those roles. It’s also more well-defined and easier to manage.
Employees tell us they’ve never been treated so well by any previous employer. Engagement scores are stellar, our turnover rate is less than a third of the industry average, and our HR, recruiting, and happiness employees love what they do.
Today Doesn’t Have to Be the Same as Yesterday
The journey of HR from a mere administrative function to a strategic partner in organizational success is ongoing. Our experience demonstrates that rethinking and restructuring the HR function can lead to significant improvements in employee satisfaction and operational efficiency. Regardless of size or sector, organizations must critically assess their HR models and consider whether a restructuring could enhance their operations and workplace culture. Your employees deserve nothing less.
The traditional model of human resources is an unwieldy behemoth, an ever-expanding array of responsibilities. What started as a moral reaction to the harsh conditions of factory work in the late 1800s — or an attempt to improve economic efficiency — has become a vital part of organizations of any size.
Yet, as companies grow and the nature of employment evolves, the HR professional is constantly torn between advocating for employee interests and safeguarding the company’s well-being — a contradictory set of responsibilities that hurts engagement, retention, and efficiency. At TCG, a medium-sized public benefit corporation and U.S. government contractor, we blew up the traditional approach to HR.
Too Many Hats
HR professionals are tasked with a daunting array of responsibilities. Everything about employees is in their purview — recruiting and hiring; formulating and adjudicating company policies; payroll; learning and development; performance monitoring; disciplinary actions and investigations; workplace culture; conflict resolution; compliance and safety; health care; surveying; compensation; rewards and incentive programs; and on and on. It’s an enormous job.
After spending their morning listening with empathy to an employee’s issues with their manager and advising on how best to work with them, the HR professional must then fire that same employee in the afternoon because their manager wants them gone. They will welcome a new employee with warmth and friendship on Monday and then engage corporate counsel on Friday after the employee has been sexually harassed by a client or coworker. They have to love employees and what they can do for the company, but also fear them and what they can do to the company. Are we stuck with this inadvertent portmanteau, this pushmi-pullyu, this house divided against itself?
A Blueprint for Restructuring
Our experience at TCG led us to a strategic overhaul of the HR function. We created a new HR structure, enhancing operational efficiency and employee satisfaction. In plain English: We blew up HR, sorted it, categorized it, moved the pieces to where they made the most sense, and ended up with a repeatable solution.
Recruiting as a Unique and Vital Function
Our product is our employees’ hours, so recruiting is vitally important for us. But recruiting isn’t actually HR. It’s a combination of skills — marketing, sales, brand management, data analytics/business intelligence, and customer relationship management. For us, recruiting is primarily supply chain management. Having too many or too few employees represents opportunity costs we can’t afford. Initially reporting directly to the CEO, our recruiting group now falls under the purview of the chief operating officer as a supply chain management function.
Resolving the Duality
Once we split off the complication that is recruiting, it was easy to examine the duality inherent in typical HR. Engaged employees are retained longer and have (and create) fewer problems. HR is typically tasked with curating and maintaining the culture, in addition to loving and caring for employees. Culture plus love and care leads to engagement. Simultaneously, HR must ensure that the company is protected from its employees. Whether by harassment, poor management, illegal interviewing, bias, theft, unethical actions, or a hundred other ways, employees’ behavior can bring down a company.
An HR professional who loves and fears employees is dual-natured. That’s very difficult to pull off. So we split the two parts.
Employee Happiness Department
Our vice president for employee happiness is focused on organizational development, employee experience, and relations. Reporting directly to the CEO, she addresses the need for a dedicated effort toward cultivating a positive workplace culture.
The happiness department’s remit includes learning and development, career discussions and goal-setting, community events, soft benefits, biannual engagement surveys, and regular meetings with each employee. It is accountable for retention — if someone quits, it is expected to know why. It is the softer side of HR, the side that loves employees and wants them to stay forever.
HR Focused on Compliance
With recruiting and happiness carved out, HR can concentrate on compliance and hard benefits, reporting to the CFO. This focus and place in the organization allow HR professionals to dedicate their expertise to ensuring the company meets legal and ethical standards without conflicting responsibilities. Our HR professionals work with immense compassion and empathy, but their focus is on ensuring the company’s goals are met, rather than employees’ goals.
Ongoing Challenges
While our new model has definitely improved operations, it’s not without its challenges. Handoffs between recruiting, HR, and happiness require careful management to prevent oversights. We might have more full-time employees among the three roles than most companies have in traditional HR.
Benefits of the New Structure
Recruiting’s proximity to clients’ projects increases its understanding of their needs and prioritizes them. There are fewer complaints from project managers about recruiting, and since they sit at the same table, communication is constant.
Nobody fears going to happiness to get help resolving an issue because happiness is not HR. The term HR comes with baggage. There’s no fear that happiness is going to hold a grudge come evaluation time.
HR has a considerably stripped-down set of requirements, so it’s easier to find people to fill HR positions and easier to keep people in those roles. It’s also more well-defined and easier to manage.
Employees tell us they’ve never been treated so well by any previous employer. Engagement scores are stellar, our turnover rate is less than a third of the industry average, and our HR, recruiting, and happiness employees love what they do.
Today Doesn’t Have to Be the Same as Yesterday
The journey of HR from a mere administrative function to a strategic partner in organizational success is ongoing. Our experience demonstrates that rethinking and restructuring the HR function can lead to significant improvements in employee satisfaction and operational efficiency. Regardless of size or sector, organizations must critically assess their HR models and consider whether a restructuring could enhance their operations and workplace culture. Your employees deserve nothing less.
