FROM INNOVATION TO IMPACT: HOW PHILANTHROPY CAN SUPPORT PROBLEM-SOLVING

This piece originally appeared on Stanford PACS.

Innovation in social entrepreneurship is critical to solving the world’s most pressing social problems, such as rising inequality and persistent poverty. The good news is that in recent years, the sector has seen an explosion of innovation, with rigorous methods like human-centered design leading to more testing of pilot projects, the development of solutions that are more responsive to the needs of beneficiaries, and the implementation of better methods of measuring actual impact. Yet as Johanna Mair and Christian Seelos point out in a comprehensive review of non-profit innovation practices, many mistakes are being made. Too many organizations are devoting too much of their scarce time and money to flawed ideas, aren’t abandoning approaches quickly enough that fail to produce results, or, on the flip side, aren’t allowing enough time to test for results and then modify programs to improve them.

Philanthropists can play a critical role in fostering more effective innovation. But many donors are reluctant to play an active part in funding innovation, in part because they consider themselves ill-equipped to evaluate the risks involved and whether they are worth taking. They also aren’t confident that they can identify which organizations are best prepared to manage the process successfully. Additionally, many funders categorize innovation as an overhead expense rather than a program expense, and their policy is not to fund overhead. As a result, donors often default to funding programs that have already proven their impact, leaving minimal financial support for critical research and development.

So how can philanthropists do more to support innovation? Here are some key lessons I have uncovered in my conversations with leading experts in the field:

1. Focus on the problem as opposed to the solution. As I found in my research on early stage nonprofits for my forthcoming book Social Startup Success, the best innovators fall in love with solving the problem, not with a particular solution they’re testing. According to Jim Bildner of Draper Richards Kaplan, a funder of early-stage social entrepreneurs, donors must focus on funding organizations that take this kind of “problem-centric” approach as opposed to tying their funding to specific solutions.  For example, Seelos and Mair highlight that Gram Vikas, a social enterprise that brings water and sanitation to rural Indian communities set forth reducing gender and cast inequality as the problem it wanted to solve. The organization tried various tangential approaches, such as developing a biogas to improve electricity access, and rigorously assessed which were actually solving that problem, discovering that the most effective way it could advance the mission was to pursue other efforts that matched its mission.
2. Don’t give up too soon. In the venture capital world investors often double down when companies don’t make profits as quickly as they’d hoped. By contrast, philanthropies often withdraw funding too early when a nonprofit isn’t showing results.  A few organizations that achieved rapid-fire success, such as Kiva.org, the microfinance crowdfunding platform, have led to something of a mythology about how quickly results should be seen. Kiva benefited from an exceptional publicity opportunity – the founders appeared on the Oprah Winfrey show, which generated  $11million dollars in donations in a single day. Most innovative solutions require decades to develop, with multiple failures along the way that help organizations hone their approaches. Funders should provide “patient capital” in the form of multi-year, unrestricted grants that allow organizations flexibility in developing their approaches.
3. Embrace Failure As the Route to Success.  Most nonprofits are in a constant race to raise their next round of funding, and the emphasis by funders on showing results incentivize them to focus on touting their successes rather than sharing about their failures. This leads to less risk-taking and therefore less innovation. Christian Seelos quoted Stanford Professor Jim March who famously stated: “most new ideas are bad ones.” By acknowledging that failure is inevitable along the way to finding a good solution, and re-framing failure as a learning process, funders can play a crucial role in creating safe space for nonprofits to take more risks and to reveal vital information about which of their programs are working and which aren’t.  That then allows for better development of programs. One funder I talked with, New Profit, has a great approach to this, asking every nonprofit that walks in the door to tell them about a program that’s not working, starting the relationship off with a spirit of openness and collaboration.
4. Acknowledge who is getting shut out of support for innovation. The data on funding reveals a significant racial and gender bias in grants to early-stage organizations. This is seriously limiting the ability of the sector to tap the talents of social entrepreneurs who can bring valuable experience and fresh insights and perspectives to problem-solving. Funders who want to address this injustice can help level the playing field by (a) purposefully identifying leaders from a diversity of racial, gender and socioeconomic backgrounds to support; (b) opening up their networks to introduce underrepresented leaders to other funders; and (c) helping with capacity-building by coaching these leaders, perhaps even taking a seat on their board, as Draper Richards Kaplan does with all of the organizations they fund.
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We are living in exciting times for social innovation. The sector is booming, with university programs rapidly expanding, more and more organizations making better use of tools for testing ideas and measuring impact, and growing public awareness of the vital role social entrepreneurs play in innovating bold solutions.  By learning how to fund innovation in a more strategic way, philanthropy can provide jet fuel to accelerate the problem-solving. The severity of the massive social problems people all around the planet are facing makes doing so an urgent mission.

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