Beating Innovation to Death

There is a tendency in America of late, or maybe for awhile, to over-analyze to the point of distraction. So too is the case with the Social Innovation Fund, the federal government’s $50+ million experiment in providing growth capital to nonprofits. This great experiment to see whether government can do something pretty different to address social problems is in danger of being railroaded by leaders of the social innovation community who should be the ones most supportive of a new day for government.

The Social Innovation Fund (SIF) was modeled after the idea of venture philanthropy funds who were themselves modeled on venture capital funds. The idea with the SIF is to grant $50 million to private grantors (foundations, venture philanthropy funds, etc) who match the money and then turn around and grant it to promising nonprofits to scale their proven programs. Is the idea really innovative? No. But what is innovative is that the government is  recognizing the concepts of social innovation and scale and is experimenting with becoming a builder instead of just a buyer of nonprofit services.

But this experiment is in danger of failing before it even gets out of the gate. A major controversy developed this week with the announcement of SIF grantees. The controversy centers around whether New Profit, arguably the inventor of the venture philanthropy concept, was given preferential treatment in being awarded a grant.  Paul Light, the Nonprofit Quarterly and others voiced their concerns about the granting process. You can read all the details of the saga here.

Let’s be honest, everyone knew New Profit was going to get a SIF grant. New Profit pioneered the idea of venture philanthropy. And their spin-off organization, America Forward, which works to connect the vast governmental resources to social innovation, was behind getting the Serve America Act,  containing the SIF, formulated and made into law.  Would the SIF make any sense without New Profit? They have been scaling nonprofits for years, and they have unlocked the door between government and social innovation. How could they not be at this table?

And the growing amount of documents being released by the Social Innovation Fund demonstrates the fairness and process behind the grant awards and more than makes up for any of SIF’s initial ignorance of the importance of transparency.

I understand that discussion, transparency, and refining of process are all critical elements to getting change to happen, but too much of that before the actual experiment happens can actually prevent change. Let’s not conduct business as usual by over-analyzing a new project to death. Let’s see where this experiment takes us instead of railroading it before it even begins. It’s not perfect innovation, it’s not a perfect process, but experiments never are. If we don’t give the government some space to actually innovate, they may never go down this road again. Instead of beating innovation to death, let’s get out of our own way and see where this goes.

Tags: America Forward, builder versus buyer, New Profit, Nonprofit Quarterly, Paul Light, Serve America Act, Social Innovation Fund, Venture Philanthropy

Reinvent Austin’s Social Sector

There is much talk lately about what the fallout of our deepening recession will be for the nonprofit sector.  Paul Light gives four future scenarios for the sector, others are pinning their hopes on the new Obama administration, a new economic stimulus plan, and/or the Serve America Act to revitalize and strengthen the sector.  Who really knows what the future will bring.  However, I firmly believe that if we realize the opportunity in these unknowns, we can fundamentally transform a fairly broken sector.  And let’s be honest, the sector is fairly broken:

• The sector is sorely undercapitalized.  It is very difficult to find capital to scale successful organizations, to take out an expansion loan, or to build capacity.  Nonprofits are forced into a continuous fundraising cycle that is difficult at best and nearly impossible in times like these.  And we tend to reward those organizations that keep their “administrative costs,” the very costs that will help them be more effective at what they do, to an absolute minimum.
• Because nonprofit organizations are undercapitalized they cannot pay competitive salaries to attract or keep top talent in their organizations.  That’s not to say there is not top talent in the sector, to the contrary there are incredibly talented people, but they are working much too hard, with very little resources (including adequate staffs) and are burning themselves out.
• Nonprofit boards of directors, the stewards of these organizations, are often not trained in their duties and are too strapped for time to help organizations achieve their missions, grow, and become financially stable.
• The process for becoming a 501(c) 3 is too easy and somewhat unregulated, creating incredible competition for very scarce resources.
• The high-dollar philanthropic funding for the sector comes from individuals and foundations who often have their own theories of change.  Grants tend to be direct-service, not infrastructure, focused and put too many strings on the money.
• Governments who contract with nonprofits increasingly push them to deliver the same or increased level of services for less and less money, creating a move towards rock-bottom priced services.
• There are no rewards in the sector for innovation or risk-taking, in fact innovation is disincentivized.

So, how could we seize the opportunity that the changing economic, social and political climate affords the social sector? What could we in Austin do to innovate out of this situation:

• Our city government could partner with local businesses and venture capital firms to fund a local version of the proposed federal social investment fund.  A pooled fund of government and private money could be invested to grow and build the capacity of nonprofits and social enterprises that deliver great solutions to our community.
• Philanthropists, both individuals and foundations, could make a commitment to fund the capacity and infrastructure of those nonprofit organizations that are demonstrating real results.  These investments would not be direct-service program investments, but rather investments in the high-quality capacity and infrastructure (technology, staff, consulting, etc.) these organizations need to be successful.
• Nonprofits could talk about the social return on investment they offer investors and how they are providing real solutions to the problems we face.  They could encourage their board members and funders to understand what it really costs to provide the high quality services they provide (both direct and indirect costs) and what it would really take to grow to meet the increasing need.

And finally, we could all start to recognize that we can no longer leave nonprofits alone to figure out how to serve more people with fewer resources while the problems that affect all of us get bigger and more complex. We need to recognize that things are changing.  Our economy is changing fundamentally; the government, private and nonprofit sectors are converging; a movement for social innovation is going on nationally.  There is real opportunity for Austin to get involved in, profit from (socially and economically), and potentially lead this movement.  Let’s start that conversation.

Tags: Austin, capacity, Obama, Paul Light, Serve America Act, social investment fund