Innovation is the Answer

There’s a really great recent post on the Stanford Social Innovation Review blog by Mario Marino, founder of Venture Philanthropy Partners, a venture philanthropy fund in Washington, DC. Mario’s post is the best attempt I’ve seen yet to frame the current state of America (deepening recession, crumbling institutions, etc.) as a tremendous opportunity to reinvent ourselves.  And although Mario set out to write a post about the new White House Office of Social Innovation, he realized that what is happening in America is a much larger need for innovation:

Instead of focusing on social innovation, I feel compelled to lift up a level and talk about innovation more broadly. I am convinced that, amid the many challenges facing our President, nothing is more important for the long-term strength of our nation than driving greater levels of innovation across all sectors of our economy, including the nonprofit sector.

Indeed, Mario points out that although we are a country of innovators, we have lost our urgency to innovate.  The current crisis we are in will force us as a country to find innovative solutions to all that ails us:

Through radical innovation in our commercial, nonprofit, and public sectors, we must break the status quo that is too often miring us in mediocrity—from how we manufacture our products to how we educate our children, from how we consume energy to how we provide health care. We have no choice but to discover and deliver new, different, and better ways of dealing with our most vexing challenges.

He suggests that three trends will enable us to seize the moment and innovate our way out of this mess:

1. Influx of Talent: The increased entrepreneurial spirit and drive of 20-40 somethings, the energy of the Baby Boom generation, and immigrant talent and expertise will create a large group of people with energy, interest and initiative to develop new solutions
2. New Mindset: The new generation of entrepreneurs is more interested in innovation for social good than innovation for individual gain (I wrote about this trend as well).
3. New Networking Technologies: Web 2.0 and social media have made coordinating and scaling innovation much easier and faster.

These three trends create a huge opportunity for America to take our crushing problems and innovate our way to solutions:

If necessity is the mother of invention, then this crisis, which has laid bare the depth of our needs, provides us the dramatic necessity to drive innovation and spur entrepreneurs of all types and sizes to find ways to deal with our challenges. The real change makers will be those throughout the land in small and big enterprises, the new and the old, the scientific innovator to the obsessively compelled entrepreneur, across all sectors, who take up this challenge.

And Mario tasks the Obama administration with leading this movement towards innovation :

So while I could not be more supportive of the Office of Social Innovation, I believe this is a chance for the President to systematically foster a mindset in America that is nothing short of a cultural and economic ground-shift. He must broaden the focus across and among the private, public, and nonprofit sectors—to seek and spark the most promising innovations whether they come from commercial or social entrepreneurs, executives or line workers, community leaders, public servants, researchers, or citizens who don’t fit into any of these categories. The real opportunity before the President is to supercharge innovators from all walks of life and make commercial and social innovation our national imperative.

However, I don’t think it is all up to the Obama administration.  Rather, this national need for innovation is up to all three sectors, not just the public sector, to lead.  Venture capitalists and angel investors can seek out and seed great solutions (for profit or not), nonprofits that have found solutions can create growth plans,  corporations can take a larger view of how they measure success to include social profit instead of just financial profit, foundations can harness their corpus towards innovation through mission-related investing, and the list goes on.   A White House Office of Social Innovation is a start and Obama encouraging a new spirit of innovation would be great.  But to truly become an innovative nation again we’ve all got to take the lead and explore how we can use our respective resources in new ways to encourage solutions.

Tags: innovation, Mario Marino, Obama, venture capital, Venture Philanthropy Parnters, White House Office of Social Innovation

The Benevolent Energy of a New Generation

I participated in the semi-finalist judging this past week of the Dell Social Innovation Competition, run by the University of Texas’s RGK Center for Philanthropy and Community Service.  The competition invites undergraduate and graduate level students from colleges worldwide to submit business or nonprofit venture plans.  The goal of the competition is to encourage and train students to use entrepreneurial practices in the creation of creative solutions to the world’s most entrenched social problems. Through three elimination rounds of competition one winner is chosen to receive $50,000 for their venture. This year over 1,500 students representing 33 countries studying at hundreds of universities around the globe entered their ideas. 

This is the third year of the competition.  Last year’s winner, Husk Power Systems, turns discarded rice husks into energy in India.  The social enterprise is so innovative they even found a way to turn the ash from the burned husks into fertilizer and cement.  Husk Power Systems was named FastCompany’s Social Enterprise of the Year last year.

The judging process culminated last night in our final decision making meeting.  We were charged with narrowing the 75 semi-finalists down to 3 finalists and an alternate. Those finalists will be announced today.  It was in some ways an overwhelming charge; the ideas and energy of the applicants was amazing.

In the process of judging, however, I was struck by two things.  First, it seems that there is something happening in this generation of students.  When I was in graduate school, towards the end of the dot-com era, most student interest and energy was channelled towards technology opportunities.  So many of my classmates were swept up in the  dot-com craze, hoping to become the next multi-millionaire entrepreneur.  Many thought the old notions of profitability, company valuation, business planning were outdated.  Dot-coms were ushering in an entirely new business model that was breaking all the rules.  Obviously that didn’t pan out.

Now it seems a new energy and excitement is sweeping college and graduate school campuses.  But this energy and excitement has a much more benevolent spin to it.  Now  the rage is to create a social enterprise, to become a social enterpreneur.  The Dell competition is one of countless social enterprise competitions across the globe. There are so many problems facing our world from tremendous poverty and disease, to global warming, to inadequate food and energy supplies, to disparate educational opportunities.  The push is no longer to find the next greatest technology in order to make money, but rather to find the next greatest technology in order to save lives or save the planet.  That’s a really interesting switch.  And an exciting, inspiring one.

Which brings me to the second thing that struck me.  Just as there was hubris in the dot-com boom, I can’t help but wonder if there might be just a little hubris in this trend as well.  I don’t want to dampen the energy and excitement of this generation of idealist at all.  I marvel at their resolve to work towards righting so many disequilibriums.  But I do wonder if some of the social enterprises that emerge, not necessarily in this competition, are borne of Americans thinking that they have the answer to what ails other countries.  I think true solutions to the world’s problems have to be envisioned and created locally, that is to say a social entrepreneur needs to spend some serious time living, breathing, researching and listening to the market they are trying to penetrate.  They also need to find significant local partners to suggest, refine and challenge solutions.  Western countries can absolutely offer ideas and certainly resources to make those solutions a reality, but I’d hate to see anyone in this new generation acting like the missionaries of the 19th and 20th centuries bringing “answers” to developing countries.

That’s not to say that any of the plans we reviewed suffered this fate.  Rather, I’m merely offering a caution to the great idealists of this new generation.  By all means, keep the ideas, energy, enthusiasm and initiative coming.  But at the same time, let’s take a step back and make sure that the ventures being created are locally grown and developed.  That is the only way that they will truly be sustainable solutions.

Tags: Dell Social Innovation Competition, FastCompany, Husk Power Systems, RGK Center, social entrepreneurs

Working Towards Scale in Austin

Something pretty interesting is happening in Austin around growth, social entrepreneurship and investment capital.  The KDK Harman Foundation, launched in 2004 by Janet Harman with a $26 million endowment, is spearheading an effort to get the social sector here talking about and thinking about how to grow and replicate successful nonprofit models.  The mission of the KDK Harman Foundation is two-fold:  “To break the cycle of poverty through education while promoting a culture of giving excellence.”  While the first part of the mission is admirable and necessary, it’s the second part that really excites me.  In 2008, when the foundation was only 4 years old, they decided to modify their mission to include the giving excellence piece because, per their website:

Janet [had a] desire to assist Central Texas in creating a culture of giving excellence. The Foundation is actively involved in the community through its role as a host and convener of community stakeholders interested in education and philanthropy. The Foundation also offers opportunities to share information about grantmaking with newly formed foundations as part of its Foundation 101 trainings. KDK-Harman Foundation is committed to funding and celebrating excellence; excellence in programming, excellence in nonprofit management, and excellence in grantmaking.

To that end, the KDK Harman Foundation launched what they call the “Growth Learning Collaborative” last year.  The Growth Learning Collaborative is a social innovation project that brings together various Austin-based nonprofit Executive Directors to discuss and analyze various growth models. The group wanted to talk with and learn from experts and peers about options for growing organizations.  These nonprofits are social entrepreneurs with great organizations that want to figure out how to scale.  I presented to the group in December about the process an organization that is thinking about growth should go through.

One member of the Collaborative is well on their way towards scale.  Heart House is a daily afterschool program for school-age children in neighborhoods known for high crime and high unemployment in Austin and Dallas.  The program has achieved some pretty impressive results for these kids, including:

• 90% of Heart House children improved their reading level by at least one level.
• Teachers report that 96% of Heart House children have improved their math skills.
• Teachers believe 85% of Heart House children have shown an improvement in behavior with adults and other children at school.
• 0% of Heart House children were victims of violent crime or engaged in juvenile delinquency.

Heart House has plans to grow to 25 sites throughout Texas.   They have a great growth plan, and I’m helping them refine it and create an investor pitch for the growth capital they will need to make it a reality.  The founder of Heart House, Anna Land, helped KDK Harman launch the Growth Learning Collaborative because she wanted to learn with others how best to replicate, as she explains:

The idea of the Growth Learning Collaborative has been more than simply expanding our organizations. I wanted us to meet to discuss and plan implementation of best-practice techniques to help grow and — more fundamentally — replicate our organizations. In our case, children across Texas need a resource like Heart House. To that end, we focus on how we can naturally nurture and maintain our sense of organizational culture, our enactment of our missions and values, through cycles of leadership and volunteers across Heart House hubs.

These are relatively new ideas for Austin and Central Texas.  Austin doesn’t tend to grow homegrown nonprofit organizations state- or nation-wide.  By bringing local nonprofits with a vision for growth together and giving them the space and expertise to envision growth and make it a reality, KDK Harman is providing an invaluable service.  It will be exciting to watch how this momentum grows and whether other local foundations and philanthropists follow their lead.  I’d like to see more philanthropists both here and across the country take the lead in encouraging scale, best practices, innovative use of funds and so on.  They are a key player in the movement for social innovation, and they have the resources to make a real difference in the success of the movement.

Tags: Austin, Heart House, KDK Harman Foundation, scale, Social Entrepreneurship

PRIs: Another Part of the Emerging Social Capital Market

Continuing the various discussions about the beginning signs and formations of a social capital market, I’d like to add PRIs (Program Related Investments) to the conversation.  In all of the concern about decreasing philanthropic giving because of the economy there has been little talk about these financial vehicles as a real opportunity for foundations, and a potential social capital tool.  A PRI is basically a loan made by a foundation to a nonprofit at a low/no interest rate. The loan is made out of a foundation’s normal 5% minimum payout requirement.  However, because it is a loan, the foundation eventually gets this money back to be regranted elsewhere.

I wrote a few months ago about how foundations could use PRIs in a new way to invest in increasing a nonprofit’s fundraising function (new development staff, new technology, training, collateral, infrastructure, etc).  The PRI investment would be paid off in a few years and the nonprofit would be left with an elevated revenue generating engine. So the foundation’s investment has a pretty impressive return: the principal plus interest is returned to the foundation and, in addition, the nonprofit that they were supporting is now able to generate annual operating revenue at a much elevated rate, bringing them that much closer to sustainability.

It seems to me that now is the perfect time to institute this new use of PRIs for several reasons:

• Foundations have decreased funds with which to invest, so the further they can stretch their money, the better
• Nonprofits need to be smarter and more strategic about raising money in an increasingly difficult economic climate, so investments to help them do that would be very helpful
• The nonprofit sector lacks access to capital for capacity or infrastructure projects like this, so these investments would expand that capital pool

I was encouraged to see that RSF Social Finance recently noted an increased interest among grantmakers in PRIs, especially given the financial market conditions.  In their eyes, PRIs are a real opportunity:

Now more than ever, PRI offers foundations a unique opportunity to respond to the challenge of using fewer resources to provide support to communities with greater needs. Organizations  that were already  promoting PRI as a means for foundations to support their missions are now upping the ante. “As we know, the turn of 2008 to 2009 caught many foundations by surprise,” says Dana Lanza, Executive Director of the Environmental Grantmakers Association. “Within the environmental grantmaking community, assets are down by an average of 30%-40% in many cases. We are noting that in this climate, PRI is garnering significant interest from our members as a means to continue to support innovative efforts while essentially ‘recycling’ funds. I expect this to become a critical form of grantmaking as we pull ourselves through this rough period over the next few years.” The PRI Makers Network, which provides a wealth of resources and data related to PRI, organized a call last month for funders to discuss the results of a recent member survey: PRI in Tough Economic Times.  The survey revealed what callers confirmed: while there are reasons to be cautious, there are even more reasons to seize the opportunities inherent in PRI. According to the survey summary, “last year, in many cases, PRIs constituted [foundations'] highest performing asset class – providing downside protection in the bear market.”

So RSF Social Finance is launching the RSF PRI Funds which allows family foundations to invest at least $250,000 into a pooled PRI fund.  RSF handles the terms and deal sourcing and invests the PRIs into organizations in three areas: food & agriculture, education & the arts, and ecological stewardship. As RSF Social Finance puts it: “Our pooled PRI model means that each foundation’s investment will work alongside other funds, re-invested into a portfolio of borrowers doing critical work on the ground. This approach maximizes the power of leveraged PRI impact while also mitigating risk.”

It’s an interesting idea.  I’d like to see more foundations using PRIs in innovative ways.  I think PRIs are an underused financial tool available to the social sector.  They could be used to help nonprofit organizations increase their capacity, their revenue generation function, their infrastructure and perhaps even help them scale.  It is just another piece of the social capital market that is yet to be developed.

Tags: Foundations, Nonprofits, PRIs, RSF Social Finance, social capital market

A New Direction for American Public Education

I’ve written before about the potential for some serious education reform in America because of the Obama administration and their appointment of Arne Duncan, former Chicago Public Schools superintendent, as Secretary of Education.  Arne has a great track record and some exciting ideas and experience with education reform.  There is more insight into his ideas for how he will reform the American education system in his recent interview on Charlie Rose:

Tags: Arne Duncan, Chicago, education reform, Obama

5 Ways to Scale

Key to the entire social entrepreneurship movement is the idea of scale.  If we are truly going to solve a social problem, right a disequilibrium, or fix a crumbling institution the solution has to grow to scale.  It cannot stay small and secluded; it has to grow until it has changed the underlying system.  But scale can be a nebulous thing.  What does it mean, what does it look like, how does it happen?

Peter Frumkin, head of the RGK Center for Philanthropy and Community Service at the University of Texas at Austin and leading nonprofit management and philanthropy thinker and author, came up with a model for understanding the various forms scale can take.  His 5 Models for Scale provides a nice framework for understanding the broader implications of what scale is and what it can look like.  He defines scale as “creating a lasting and significant impact” and defines the five platforms  from which scale can emerge as:

1. Financial Strength: Scale comes from the financial strength and sustainability of a large and enduring institution (usually universities and museums).  Through endowments and deep donor relationships these institutions can weather most, if not all, economic situations and potentially exist indefinitely.  Scale here is not about outcomes or inputs, but rather about the institution itself and its ability to endure.
2. Program Expansion: Scale is a function of the increasing number of clients served.  By growing the number of program inputs (clients) by several multiples, a program can achieve scale.  This form of scale happens in one location, not to be confused with Multi-Site Replication (below).
3. Comprehensiveness: Scale here is achieved when a set of activities and interventions occur within one organization or a closely integrated collaboration of organizations.  For example, when the food, housing, education, childcare and healthcare needs of the homeless are all addressed through one integrated solution, in the case of Jane Addams’ Hull House.
4. Multi-site Replication: Scale in this case expands a program to other sites in the city, region, country or world.  This replication can be instigated either from within the organization (through franchises and chapters) or from outside of the organization through independent efforts of funders or other interested parties.  This form of scale often requires the vision and commitment of a single individual to make it a success, for example with Teach for America or KIPP (charter schools).
5. Accepted Doctrine: In its final form, scale does not involve growth or expansion of an organization or program, but rather an idea.  Scale occurs when a way of thinking or addressing a problem or field changes.  A particular organization or program does not control scale in this case, but rather a new model or way of addressing a problem reaches a “tipping point” where it suddenly becomes the norm.

Each model has its benefits and drawbacks.  For example, the Financial Strength model doesn’t necessarily mean that change is occurring, rather an institution merely persists.  The Program Expansion model, too, doesn’t guarantee impact, rather scale is about increasing the number of inputs.  The Accepted Doctrine model is difficult, if not impossible, to control and mold to a particular outcome.  And, as mentioned above, Multi-Site Replication relies heavily on a key individual, a very clear understanding and articulation of what makes the current model successful, and an ability to replicate that success.

I think this framework is a useful way to understand the various forms that scale can take.  It all goes back to the notion that in order for social entrepreneurship to be a successful movement, we have to understand what it is that we are doing and how we are doing it.  If broad and sweeping change in various areas of need is the ultimate goal, we have to be smart and strategic about how that change is happening and what form of change makes the most sense.  Impact, change, scale can take many forms depending on the problem being faced and the best solution(s) for it.  I imagine that as the field of social entrepreneurship continues to evolve other forms and understanding of scale will emerge.

Tags: Hull House, KIPP, Peter Frumkin, scale, Social Entrepreneurship, Teach for America

Making Change Happen

There’s an interesting article by Michael Grunwald in Time Magazine about how Obama is using behavioral science to create the tremendous change he has promised and that America needs. Perhaps this approach can be useful to social entrepreneurs as well.

Grunwald illustrates that throughout the presidential campaign Obama used behavioral science to change voter and donor behaviors. Now, the administration is using it to take on healthcare reform, the economy and energy. During the campaign Obama relied on a advisory group of behavioral scientists which included authors Dan Ariely of MIT (Predictably Irrational), Richard Thaler and Cass Sunstein of the University of Chicago (Nudge), and Nobel laureate Daniel Kahneman of Princeton. These advisors provided his team research to back up their recommendations on everything from voter turnout, to rumor control, to fundraising. Behavioral science (among other things) got Obama elected and now its charge is to change the behavior of Americans who eat too much, use too much gas, don’t save money, run up their credit cards, etc:

The latest science suggests that yes, we can [change]. Studies of all kinds of human frailties are revealing how to help people change — not only through mandates or financial incentives but also via subtler nudges that preserve our freedom to make choices while encouraging us to make better ones, from automatic-enrollment 401(k) plans that require us to opt out if we don’t want to save for retirement to smart meters that warn us about how much energy we’re using. These nudges can trigger huge changes; in a 2001 study, only 36% of women joined a 401(k) plan when they had to sign up for it, but when they had to opt out, 86% participated.

What behavioral science offers, the Obama administration believes, is a way to capitalize on the inherent imperfections of the human race, which were formerly ignored or denied:

Neoclassical economics…has ruled our world for decades. It’s the doctrine that markets know best: when government keeps its hands off free enterprise, capital migrates to its most productive uses and society prospers. But its elegant models rely on a bold assumption: rational decisions by self-interested individuals create efficient markets. Behavioral economics challenged this assumption, and the financial meltdown has just about shattered it; even former Fed chairman Alan Greenspan confessed his Chicago School worldview has been shaken. Behavioral economics doesn’t ignore the market forces that were all-powerful in Econ 101, but it harnesses forces traditionally consigned to Psych 101. Behaviorists have always known we don’t really act like the superrational Homo economicus of the neoclassical-model world. Years of studies of patients who don’t take their meds, grownups who have unsafe sex, and other flawed decision makers have chronicled the irrationality of Homo sapiens.

In order to curb human being’s natural imperfections (their desire to pick the bad option) four aspects in the better option must be present:

1. Knowledge about what the better choices are, which is why the Obama administration is so interested in information transparency.
2. Affordability–Change can’t be expensive or it becomes unattainable.
3. Ease–Default options on healthcare and automatic retirement plans make it more difficult to not participate, making the better option the easier option.
4. Normalization–If people think that everyone else is doing it, they’ll be more likely to do it.

It occurs to me in reading this article that in essence Obama is the ultimate social entrepreneur.  As Grunwald points out:

Obama is no therapist changing individuals one at a time. He’s an organizer trying to build community and inspire collective action through house parties and Facebook as well as rhetoric about shared values. In other words, he’s trying to create social norms — behavioral change’s killer app.

He is trying to scale change throughout the country, perhaps throughout the world, in not just one area, but several.  So isn’t there something to be learned from his behavioral science approach to creating change that could be translated to the field of social innovation?

For social entrepreneurs whose challenge is to change crumbling systems and institutions, perhaps a behavioral approach can make scale achievable, more effectively and quickly.  For those looking to create a social capital market and bring “dinosaur” philanthropists and traditional investors toward new financial vehicles, perhaps behavioral incentives could help.  Whatever the area, whatever the need, the end goal is to change old ways of doing things.  Perhaps there is something to be learned from this new approach. Instead of denying or overriding human imperfection, we could actually harness that imperfection in order to create change on a large scale.  Perhaps the very problems we seek to solve require such an approach.

Tags: behavioral science, change, Obama, social capital market, social entrepreneurs