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

Let’s Take a Step Back in the Outcomes Debate

There is a growing discussion among social impact organizations and those who fund them about how to measure impact.  It is indeed a very slippery endeavor.

Mario Marino, Chairman of Venture Philanthropy Partners (a venture philanthropy fund in Washington D.C. that makes growth capital investments in nonprofits) has been encouraging nonprofits to measure outcomes for years.  Indeed one of the fundamental characteristics of venture philanthropy is a reliance on metrics and outcomes for investment to happen.  He recently wrote a post arguing that he is “increasingly worried that the vast majority of funders and nonprofits are achieving, at best, marginal benefit from their efforts to implement outcomes thinking.”  He argues that in an zealous pursuit of metrics we have left common sense and “softer” impact behind and encouraged nonprofits to move away from the impact they were working towards.

To add further confusion to the outcome measurement discussion, the Gates Foundation’s Melinda Tuan studied 8 approaches to measuring cost vs. social impact, or the value that nonprofit organizations create versus the cost of their activities.  The results of the study were disheartening; none of the approaches they studied was a magic bullet, all had significant drawbacks, which led them to conclude: “Integrated cost approaches to measuring and/or estimating social value are still in the nascent stages of development due to the lack of maturity in the field of social program evaluation.”

And there are other camps working towards outcome measurement, like those debating about whether randomized control trials (a research methodology where a random group of program participants is tracked and compared to a random group of cohorts who did not participate in the program) are feasible for nonprofits. And on the social business side, the GIIN (Global Impact Investing Network) is developing standards for measuring and communicating the social impact of investments known as The Impact Reporting and Investment Standards (IRIS).  And that’s just a start.

This whole social impact measurement endeavor is incredibly important because if we can figure out a way to measure which social change efforts work, and which don’t, we can allocate resources accordingly and, in theory, get closer to solutions to social problems.

But I think we need to first take a step back.  As is so often the case in efforts to build nonprofit capacity, effectiveness and infrastructure (including, in this case, the ability of nonprofits to evaluate their work) the focus is on the largest, most resourced nonprofit organizations.  Let’s remember that more than 80% of nonprofit organizations have budgets under $1 million (see the Nonprofit Almanac).  Budgets that small leave very little room for funds to support randomized control trials or other kinds of outcome measurements.

But an even bigger roadblock is the fact that many nonprofit organizations have not articulated their theory of change, or their logic model.  Many nonprofit organizations are doing good work, but they don’t necessarily have an articulated strategy around that good work.  A logic model helps an organization understand and articulate how they believe that they translate resources (inputs) into social impact, or change in a community.  This understanding allows the organization to better articulate (to potential funders, volunteers, supporters, partners), and create strategy around, their work.  A potential logic model for an English as a Second Language after-school program could be as follows:

One of the first steps Social Velocity undertakes with clients who want to increase organization capacity, sustainability, revenue, growth, or really any kind of progress, is to create a logic model with the organization.  The majority of nonprofits that I encounter don’t have an articulated logic model or theory of change.  It may seem like an academic exercise, but I would argue that it is absolutely critical to just about anything a nonprofit does.  In order to understand their place in the community, the value that their work adds, how additional inputs (like funding) can increase impact, and their strategy for delivering services, they need to articulate this process.

But the larger debate about outcome measurement ignores the fact that the majority of nonprofit organizations have not completed step 1 in outcome measurement: articulating a strategy for using resources to create outcomes.  Once this is articulated, we can talk about how to measure whether that strategy is actually coming to fruition.

Tags: Gates Foundation, GIIN, IRIS, logic model, Mario Marino, Melinda Tuan, Nonprofit Almanac, outcomes, randomized control trials, social impact, Social Velocity, theory of change, Venture Philanthropy, Venture Philanthropy Partners

Two Weeks to SoCap

Two weeks from today the 2nd annual Social Capital Markets Conference kicks off in San Francisco.  I’m pretty excited about it because I think one of the biggest things standing in the way of social innovation is a social capital market–the financial tools and vehicles necessary to adequately capitalize social innovation.  The speaker’s list for the conference reads like a Who’s Who of the social innovation world.  There are some incredible sessions, too many to choose from.  I wish the conference were longer than 3 days.  I’ll be tweeting (as much as my multi-tasking challenged brain can handle) and blogging from the conference.

Just a few of the topics to be discussed at this year’s conference include:

• The Social Capital Movement Across the Globe
• Social venture funds’ prominent role in the new economy
• The sophistication of social investing pioneers
• Raising money for impact investing in a downturn economy
• The Obama Administration’s focus on social innovation
• Creating effective collaboration between the private sector and development agencies
• Moving beyond Microfinance
• Market based solutions for the base of the pyramid
• New corporate structures, including hybrid businesses and L3C organizations
• Creating metrics and value around social change
• Mobile technology platforms worthy of investment

Are you excited yet?

One of the things I’m particularly excited about at this year’s conference is a movement toward including nonprofits and philanthropy in more of the conference.  Last year’s conference tended to focus a bit more on blended value investing (investing in social impact organizations that provide a social AND a financial return). But we don’t want to neglect those social entrepreneurs that employ a nonprofit model to create their desired social impact.

To that end, SoCap this year has a host of sessions about nonprofit social entrepreneurs  and a social capital market for them.  I am moderating one of these sessions, Growth Capital for Nonprofit Social Entrepreneurs on Wednesday, September 2nd at 1:30pm.  Darell Hammond of KaBoom!, Greg Baldwin of VolunteerMatch and Kelly Ward from America Forward/New Profit will discuss the growth capital that was used to bring some impressive nonprofit organization’s to scale.

If you are going to attend only one conference in the social innovation space this year, I would highly recommend SoCap.  Hope to see you there!

Growth Capital for Nonprofit Social Entrepreneurs

Date: Wednesday, September 2nd
Time: 1:30pm

Moderator: Nell Edgington, Social Velocity
Greg Baldwin, VolunteerMatch
Darell Hammond, KaBOOM!
Kelly Ward, New Profit and America Forward

Nonprofit social entrepreneurs like Volunteer Match and KaBoom! have become, over the past decade, very successful, national, multi-million dollar nonprofit organizations working to solve critical social problems. They’ve achieved this impressive scale through growth capital from individuals, foundations and venture philanthropy funds. Greg Baldwin from Volunteer Match and Darell Hammond from Kaboom will be joined by Kelly Ward from America Forward and New Profit, a pioneer venture philanthropy fund in Boston, to discuss the various financial tools available and necessary to scale nonprofit social entrepreneurs.

Tags: America Forward, KaBoom!, microfinance, New Profit, nonprofit, scale, SoCap, social capital market, social entrepreneurs, Venture Philanthropy, Volunteer Match

A False Dichotomy: Non-profit vs. For-profit Solutions

In a recent blog post, Tony Wang, a brilliant researcher at Lucy Bernholz’s  Blueprint Research & Design, a strategy consulting firm for philanthropy in the Bay Area, makes a thought-provoking, yet ultimately flawed argument about the social impact of nonprofits (which he calls charities) versus social businesses. Tony and I have sparred before on PRIs and mission-related investing, and I had to take up the cause again with his argument that poses a false dichotomy.

Tony’s underlying argument is that a for-profit business model is better able to deliver social impact per dollar than a nonprofit one.  He gives many reasons for this:

1. Dollars for charity are limited. True the nonprofit sector is undercapitalized, but that is changing, and will continue to change as the public, private and nonprofit sectors continue to converge and the social capital market, for both for-profit and nonprofit social impact organizations, grows.  The mere fact that nonprofits are undercapitalized is not a reason to dismiss nonprofit solutions out of hand.
2. Charity is often inefficient “ because of its lack of accountability to the people who are the primary beneficiaries of aid.”  This has been true in the past, but I think it is changing.  An increasing focus on metrics, brought on by the venture philanthropy movement and others, has encouraged nonprofits to track and demonstrate outcomes.  These aren’t perfect by any means and there is much work still to be done, but why not work to encourage better accountability rather than simply say nonprofits are inefficient?
3. Charity is often harmful and insulting to its recipients.  I agree that Western solutions to third world problems can sometimes be full of hubris, but this is no less true in social businesses than it is in nonprofits.  Read my post on the “missionary” nature of some social business solutions.
4. Business has a much easier time scaling: “it will be difficult for domestic nonprofits to scale when the federal government is the only viable answer and that international nonprofits will still struggle mightily with the issue.”  Government isn’t the only viable answer.  Some great organizations have been able to scale without government assistance (Teach for America, KIPP, Citizen Schools). And the beauty of nonprofit organizations is that scale doesn’t have to mean just the expansion of a single organization.  Rather, scale can mean the dissemination of a solution that works.  Because nonprofits worry less about competition, they are more likely to want to share best practices, models that work, and allow local adaptations of a solution from another area.

Because of all of this, Tony believes that “a lot of young social entrepreneurs…are starting to realize that business solutions and not charity solutions can be more ideal when it comes to maximizing impact (and philanthropy’s impact would be multiplied if it leveraged its capital to fund social impact businesses with true potential).”

I’m sorry, Tony, but I really disagree with this.  Why does it have to be either, or?  Why is one model inherently better able to create value than another? Rather, I would say that it depends on the problem and what the best solution is.  Yes, there are problems and inefficiencies within the nonprofit sector, but there are also some pretty major problems, and inefficiencies in the for-profit sector (dot-com bust, financial crisis, anyone?).

Rather, we need to take a holistic approach to social impact.  There need to be multiple tools available to social entrepreneurs, whether they be for-profit or nonprofit  (different business models, various financing, etc).  And let’s remember that there are some inherent problems with for-profit social impact models as well.  When a solution requires the appearance of impartiality, a nonprofit model might be more effective.

I think the whole point of the convergence and “resetting,” to quote Lucy Bernholz, that is going on is that the old dichotomies and definitions don’t work anymore.  We have to break out of the notion that the way we used to categorize things doesn’t apply anymore.  Structures are changing, new models are emerging.  We need to be flexible and analyze the best solution to each problem that faces us.  “One or the other” thinking just won’t cut it anymore.

Tags: Blueprint Research and Design, charity, Citizen Schools, KIPP, Lucy Bernholz, nonprofit, social business, Teach for America, Venture Philanthropy

Understanding Social Innovation

If you are interested in learning more about the social innovation movement and will be in Austin on May 14th, join me for a seminar, “New Models: Social Innovation.” This 90-minute session will discuss what social innovation is, what the terms social entrepreneurship, growth capital, venture philanthropy, mission-related investing, and social enterprise mean, and what some really innovative organizations are doing in this space.  If you run a nonprofit, serve on a board, run a social business or are thinking of launching one, donate to social impact organizations, or are interested in solutions to social problems, there is great significance for you in the social innovation movement. And because Austin  has a lead role to play in the movement, I’ll examine how Austin compares to the rest of the country.  You can read some of my past posts on Austin’s social innovation ecosystem, where Austin is going and what it needs to be a leader in this space here, here and here.

If you’ve been intrigued by social innovation and want to learn more, join us:

Lunch and Learn: New Models  – The Social Innovation Movement

May 14, 2009
11:30am-1:00pm
At Greenlights

Click Here to Register

Tags: Austin, nonprofit, social business, Social Enterprise, Social Entrepreneurship, social innovation, Venture Philanthropy

Here Comes Some Real Education Reform

As President Obama signs the economic stimulus bill into law today it is interesting to analyze what this means for nonprofits, social entrepreneurs, and crumbling American institutions like our education system.  I have written many times before about the opportunity that this financial crisis offers.  When systems are crumbling the time is right to build something stronger, better, more effective.  So it is today, particularly in the realm of American education.

Arne Duncan has taken over as Secretary of Education.  He is a young, bright, energetic innovative former superintendent of Chicago Public Schools.  He’s seen as a consensus-builder with a similar governing style to Obama’s, which has allowed him to push through some key reforms while keeping teacher’s unions happy.  In his 7+ years as CEO of CPS he:

• Increased elementary test scores in Chicago from 38 percent of students meeting the standards to 67 percent
• Increased the graduation rate by 6%
• Increased the number of master teachers who’ve completed a rigorous national certification process from 11 to 1,200
• Spearheaded merit-pay incentives rewarding school leaders and teachers for gains in student achievement
• Championed good charter schools
• Shut down failing schools and replaced their entire staffs
• Opened 53 new schools

Another less talked about thing that Arne Duncan has done is to encourage the success of the Chicago Public Education Fund.  This corporate-backed venture philanthropy fund is in its 9th year and has invested over $25 million in innovative programs in Chicago’s public schools.

The Fund invests significant capital and management expertise in a limited number of well-managed, high-impact programs that improve school leadership, drive policy change and make system-wide impact. The Fund has invested in programs like Teach for America and New Leaders for New Schools and only invests if Chicago Public Schools signs on as a co-investor.

It’s a fascinating model, much like a city-sized, education-focused version of the social investment fund that America Forward, the Obama administration and others have been discussing where government and private dollars are pooled and invested in high-impact social innovations.

So Duncan brings to the table success in education reform paired with an understanding and experience with new models of social innovation (both social entrepreneurship and venture philanthropy). Now, add to that the $100 billion in emergency aid for public schools that he will have at his fingertips with the stimulus plan, and you have a pretty exciting combination of factors that could mean a transformation of the public school system based on social innovation.  $54 billion of this money is largely at Duncan’s disposal. According to a New York Times article, Duncan said he intends to reward:

• “Islands of Excellence:” school districts, charter schools and nonprofit organizations that demonstrate success at raising student achievement
• Programs that tie teacher pay to classroom performance
• Training efforts that pair new instructors with veteran mentors
• After-school and weekend tutoring programs

So, perhaps what we are starting to see is the large-scale education reform that Marc Tucker, president of the National Center on Education and the Economy, argued last month wasn’t happening with social entrepreneurs.  As I argued in response to him,

Perhaps we needed social entrepreneurs like Teach for America and others to point out the problems within the system and offer a theory of change.  Now that they have demonstrated that there are programs that work and new ways to do things, we can now create policy around those ideas.  And with a new administration and a new Secretary of Education, Arne Duncan, who has a history of reforming the Chicago Public Schools and implementing new models like Teach for America, perhaps policy reform has a chance.  It will be interesting to watch.

Yes it will.

Tags: American Forward, Arne Duncan, charter schools, Chicago Public Education Fund, Chicago Public Schools, Obama, Social Entrepreneurship, social innovation fund network, Venture Philanthropy

What Creates an Environment for Social Innovation?

I’ve been thinking about it a lot.  Indeed, the very reason I created Social Velocity was to spur, or grow the movement for social innovation here in Austin and the Southwest region.  There is a reason (or reasons) why our region has not yet caught the wave of social innovation that has been sweeping the two coasts of the country in the last 10 years or so.  We certainly have examples of social innovation (earned income enterprises, capacity-building grants) but we don’t have venture philanthropy funds, social investment vehicles, social enterprise incubators, or plentiful growth capital that other cities like San Francisco, Boston, Portland, Seattle, DC and others have.

I recently posed the question to my Tweeps (followers on Twitter).  And the initial response back was that those East and West coast cities that I mentioned all have an encouraging environment for tech startups.  That’s true, but so does Austin.  We are the third largest venture capital city in the country AND the vast majority of that money is invested in tech companies.  Aren’t we dubbed Silicon Hills?  So that’s not the answer.

I posed this question to the many people I’ve met with over the past 18 months as I was envisioning and refining what Social Velocity would later become.  And I got various answers, such as:

• Austin is basically a middle-class city with no real pressing social needs.  Innovation comes from necessity and without that necessity or deep need, social innovation cannot flourish.
• Austin’s philanthropy is young.  Other cities have had 70+ years of philanthropy to evolve and begin to look at newer models, like venture philanthropy and social investing.
• Texas, and Austin by extension, is very independent-minded.  The individual tends to be emphasized over the collective and therefore large investments in community-wide efforts are harder to come by.
• Our nonprofit sector is more grassroots.  60% of Austin’s nonprofits have a budget of $25K or less.  Some of these new models require a certain level of infrastructure in order to implement them.
• Austin is a very heterogeneous population in terms of viewpoints.  Coming to consensus on anything (from public transportation to urban development to creating an infrastructure that fosters social innovation) is difficult.

That’s just a sampling of responses I’ve received.  I’m sure there are many more reasons.  But where do we go from here?  How do we foster an environment for social innovation here?  How do we get people excited about investing capital in social enterprises?  How do we encourage social enterprise incubators to form?  How do we create a pool of social investment capital?  How do we pilot social entrepreneurial models and demonstrate and scale their success?

I think the answer lies in infrastructure.  We have to create an ecosystem that encourages and invests in social innovation.  Perhaps a breakdown of that infrastructure can be seen in my colleague Jessica Shortall’s earlier post about what created London’s social innovation environment.  She saw 5 elements:

• Public sector: A cabinet-level “Minister for the Third Sector” who focuses much of his time on social enterprise.
• Foundations: Make grants to test out ideas for social change, invest in social innovation-based businesses, talk as a group about innovations in social finance and share deal flow.
• Social Investors: Innovative funds provide new nonprofit and social enterprise finance tools such as loan guarantees for charities to access debt and quasi-equity deals to social enterprises, as well as providing networks, advice, and entrepreneurial knowledge.
• Academia: Centers for research on social entrepreneurship at several academic institutions in the area.
• Big and small ideas: Events, gatherings, workshops, think tanks and other activities that help social entrepreneurship and innovation bubble up.

I would say, broadly, that the infrastructure elements necessary include:  adequate funding, space (incubators), expertise, research, and buy in (both in words and in resources) from all three sectors (government, private, nonprofit).

As Jessica says, it’s the overall environment that creates social innovation:

It’s an ecosystem approach, where things swirl and evolve over time, with different players watching for patterns; making connections; providing physical, social, intellectual capital; and taking risks.

What can we do to create that ecosystem in Austin?

Tags: Social Enterprise, social innovation, social investment capital, Twitter, Venture Philanthropy

Why Not Austin?

Social innovation is gaining a lot of momentum along the two coasts of the country. San Francisco, Seattle, Boston, D.C., New York are just a few places where these new ideas are taking hold. The Bay Area alone seems to be a hotbed of social investing, venture philanthropy, social enterprise, etc. The Social Capital Markets Conference earlier this month in San Francisco brought together leaders in the social investing, philanthropy, nonprofit, social enterprise space to talk about how to create a social capital market (a market for capital employed towards solving social problems). You can read a roundup of different blogs on the conference here and see video of various sessions here.

At the same time, foundations in the Bay Area, New York, Boston understand this growing movement and are providing growth capital and other incentives to help social entrepreneurs find and solve the root causes of problems.

These cities are witnessing an exciting blend of talent, money, great ideas, energy, initiative and enthusiasm that is resulting in some new ways to tackle the many problems facing our country today.

I’d like to see that similar energy and enthusiasm here in Austin and in the Southwest region of our country. Austin is the 3rd largest venture capital city in the country. I would argue that being a venture capital center makes Austin a ripe candidate for social innovation. San Francisco and Seattle (venture capital cities #1 and #2) have embraced social innovation and are home to several venture philanthropy funds, capacity and growth capital-focused foundations, social entrepreneurs, social investment funds, and social enterprises. Over the last ten to fifteen years these communities have fostered a new way of thinking about and blending the for-profit, non-profit and government sectors in order to find solutions to complex social problems.

I see the same opportunity for Austin. We have a wealthy, talented entrepreneurial sector, a diverse nonprofit sector, and complex social problems. If we can embrace social innovation here we can not only solve our own problems, but also, and more importantly, we can add to the national conversation.  We need to come together with new ideas that tackle our problems at the root.  The problems of the economy, education, healthcare, poverty are too large for any single entity or sector to solve. These times call for bigger solutions. Social innovation provides those solutions.

Tags: Austin, Foundations, Social Entrepreneurship, social innovation, Social Investing, Venture Philanthropy