Let'sjust invest in what's working. The idea isintuitive and compelling, especially in this historical time of constrainedresources. If social-purposeorganizations are generating superior results, we should support themfinancially so they can expand and more people can benefit. Sadly, this rarelyhappens. Because we don't have evidence of what works and what doesn't, feworganizations grow very large.
The basic facts were established in a 2012 study by The Bridgespan Group in the Stanford Social Innovation Review,which looked at the more than 200,000 nonprofit organizations founded between1975 and 2008 to determine how many had grown to $50 million or more in annualrevenues. The answer? just 1%.
How one interprets this finding largely depends on whetheryou see the glass as 99% empty or 1% full. Being an unrepentant optimist, I'll start with thegood news — some organizations did succeed in growing a lot bigger. And theyranged in the issues they address, the financial models they use, and how theystructure themselves. So it can be done.
The bad news centers on two simple truths. For starters, 1%is far too few if we hope to build strong organizations that can address bigproblems. Secondly, and more troubling, we don't have any idea if this 1%comprised the organizations making the most actual impact. Indeed, it isentirely possible that what most distinguished the scalers from the non-scalerswas simply their skill at getterbigger.
So why don't the best social-purpose organizations grow? First off, let meacknowledge that growing any type of organization — for-profit ormission-driven — is tough to do. My work at the Social Innovation Fund (SIF) and prior experience inventure philanthropy investing, foundation grant making, and strategicconsulting taught me that. However, my experience also showed me that there's acritical issue holdingback those who want to do good: Lack of evidence.
If you can't tell which organizations or models are trulygenerating social impact, you can't know which warrant investment. Yet there isan astonishing dearth of reliable evidence onthe performance of different programs, practices, and approaches for solvingsocial problems. And there are deep disagreements about what "impact"is, how it should be measured and how much evidence is enough. Funders andinvestors are making decision in the dark.
Assessing impact has always been a major challenge. It'shard to do and it can cost a lot. But this is knowledge we have to find anduse.
Fortunately, there are some promising efforts underway. The federalgovernment is demanding stronger evidence in many of its own grantmakingprograms like SIF. Private groups like the Coalition forEvidence-Based Policy are shedding useful light on productive approachesand methods. And groups like the UrbanInstitute and the FoundationCenter have developed tools to improve evaluation and increase access tohigh-quality studies already completed. But these have yet to take hold across thesector.
Compounding the problem is the fact that funders don't typically demand proof that an innovationis working. Few are committed to only supporting solutions that have evidencebacking them up. Even where evidence does exist, too many funders, includinggovernment agencies and big foundations, still base their decisions on anecdotes, overhead ratios, or theadvice of so-called experts.
Happily, there is an expanding body of knowledge about howto effectively grow different types of models and organizations. We know wemust invest in infrastructure and capacity. And here too are many promisingefforts in motionto address these issues, involving a diverse group of actors: governmentagencies like SIF, university-based research centers such as those at Duke andStanford, and nonprofit intermediarieslike the Bridgespan Group.
One needn't be a hopeless optimist to recognize we'remaking some progresstowards the alluringvision of builder bigger, stronger, higher-impact organizations. But governmentand philanthropy need to get a whole lot better in finding and using evidenceto invest in the best.