On Scale & Innovation in Philanthropy

This is a guest post by Kathleen Enright, executive director of Grantmakers for Effective Organizations.

By Kathleen Enright

EnrightIf I tried to sum up the discourse in philanthropy in 2010 with two words, they would be innovation and scale. Innovation and scale are key themes in several new, high-profile federal initiatives, including the Social Innovation Fund and the Promise Neighborhoods program, and even in Facebook founder Mark Zuckerberg’s $100 million donation to Newark public schools. These efforts respond to a growing feeling that current approaches to improve health, education and economic opportunities are not having the desired impact. Government, private and individual funders alike have a keen interest in identifying and growing the impact of successful community-based solutions.
The focus on innovation and scale has been met with a healthy dose of skepticism. Some of the nonprofit sector’s greatest champions and most thoughtful leaders have voiced concern that the focus on innovation and scale is just the latest fad, that it doesn’t appropriately build on what we know works, and that it is an insider-only conversation with little relevance to the broader field. When innovation and scale are framed as ends in and of themselves, these criticisms are entirely valid. But when scale and innovation are exclusively in service of growing the impact of important programs, these criticisms fall away.

Some common conceptions about innovation and scale could actually prevent those who command philanthropic dollars from successfully leveraging limited resources for maximum impact. Insights generated by members of the Grantmakers for Effective Organizations’ community suggest we need to frame the conversation in some new ways, including:

  1.     Bigger is not always better: Many think of scale exclusively in terms of bigger organizations and programs replicated in more sites. These are important approaches, but not the only ones. The most important thing to scale is not the size of an organization, but the results it achieves. Scaling impact is about leveraging resources and relationships to achieve better results, namely significant and sustained benefit for people and communities. This can be done in a variety of ways including some that do not require a major expansion in size. In fact, several smaller, regionally-based foundations have found creative ways to scale impact with limited dollars.
  2.     Innovation and impact are not synonymous: Innovation is primarily important in so far as it enables an expansion of social impact.  While fostering innovation can lead to new breakthroughs, we must recognize that impact can grow by appropriately resourcing ideas that have been around for years.
  3.     Waiting for Superman can be your kryptonite:  Most high-performing nonprofits are led by inspiring, visionary leaders. Leadership is a key ingredient for all efforts to grow impact. Yet the type of leadership the most effective social entrepreneurs are now exhibiting, and the approach that will insulate their organizations against dependence on a single person or idea, is a collective, facilitative and networked approach. Both individual and institutional donors can grow impact by supporting those organizations that are built to far outlast their founders.
  4.     Funders can do harm: When funding nonprofit solutions, we must ensure our investments are not structured in a way that is harmful to those we intend to help. Funders can be sure to “do no harm” by weeding out inefficiencies in the grants process, picking partners well, providing significant, ongoing, flexible funding, and remembering that growing impact at any scale will take time. Additionally, funders are wise to steer clear of trying to be the sole architects of social solutions and instead trust the instincts and ideas of the high-performing nonprofits and other stakeholders that are closest to the problems we hope to solve.


  1. Ginny Deerin says:

    WINGS has been mustering the courage to bury the kryptonite for the past 3 years. Like Ms. Enright, we believe it is essential for an organization to replace its founder to allow the intense power of a founder to dissipate so that leadership can spread naturally and broadly throughout the organization. As the founder – and only 6 weeks away from “taking flight” – I feel a sense of peace, pride and optimism that WINGS will be all the stronger as a result of a successful transition.

    • Kathleen Enright says:

      Ginny, I wish you the best in this transition, but I hope you didn’t read my post as a call for the removal of founders!! Certainly many founders evolve their roles over time in ways that allow for organizational leadership to be shared among others on the board and staff. My point is less about who leads and more about how they lead. Instilling joint ownership creates organizational leadership that is stronger than any single contributor.

  2. Here’s where funders need to do some reality checking:
    Local or regional nonprofits that develop truly incredible innovations often find themselves at a crossroads, especially if those innovations are the development of new systems and not the type of direct service that attracts buyer not builder funding. Many of these innovations are financed by one or two institutional funders with the sophistication and foresight to understand the implications of the innovation.

    But what happens when the funding cycle of those initial investors ends? Does the innovative nonprofit decide to only share their innovation by taking themselves to a bigger scale — thus enhancing their ability to attracting sustaining dollars by wooing funders in the new locations. But if they decide they don’t want to grow and would prefer to set free their innovations for others to adapt locally, they put themselves at the risk of putting their own financial sustainability in jeopardy.

    We all know that sustaining funding after the initial big investor has left is a game of cycling from investor to investor. But in many communities, there isn’t another big investor to find.

    What’s a poor innovator to do?

    • Kathleen Enright says:

      You have certainly pointed to several core issues here.
      * The tug and pull between competitive imperatives and decisions that would contribute to the fastest progress against mission.
      * The disinterest in paying for the less-than-sexy part of innovation
      * Institutional funders who, despite their understanding of the importance and impact of an innovative nonprofit, still create arbitrary funding cycles that end their support.
      And the list goes on. My question for you is this: have you encountered funders who buck the status quo and get much of this right? There are some great examples from the GEO community, but we’re always looking for more.

  3. Kathleen,
    With the exception of government funding (in particular federal funding or federal state pass throughs), not yet in the private sector at the scale needed to sustain operations.

  4. Geri Stengel says:

    Very good points, particularly that bigger isn\’t always better and innovation is not the same as impact, and it’s how effective you are at changing people’s lives that counts. As you say, “scale” and “innovation” are the buzzwords of the day. Local, long-time nonprofits who have done great good in their communities are often overlooked in philanthropic discussions these days but they are an important part of the collaborative network that is chipping away at the world’s ills.

    • Kathleen Enright says:

      I couldn’t agree with you more. What’s more important than innovation is discovering and funding what’s working on the ground.

  5. In my experience as a grant maker [as the OSI Director of the Global Internet Program] scale and innovation are two very different things. Most funders are exceptional at one and terrible at the other, and the same is true of the private sector related to socially responsible innovation. When and how the various sectors intervene are critical to successful outcomes related to scale and innovation.

    Innovation is something foundations are quite good at, in particular funding seed and pilot projects that the private sector would not support to begin with. For example, in 1996 high speed internet access in Romania was extremely expensive and limited. So OSI put in mobile satellite communications for high speed Internet access in the 4 major cities spread throughout that country. They were installed for the priority use of the educational (primarily high school) and nonprofit sector. As a business proposition, this was not thought of as a good business investment, yet the community was in dire need of being served – and the foundation’s primary priority.

    On the other hand, Foundations are often terrible funders of scale; more often than not because it involves some sort of sustainability model to keep the project going at these increased levels of investment. While funders talk about sustainability, they often mean “finding someone else to continue funding this rather than us”. When faced with real business proposals to keep a successfully scaled socially responsible project going, foundations are often conflicted and confused. You’ll often hear concerns voiced that the nature of the revenue model puts the project in jeopardy as a traditional nonprofit grant. To be both socially responsible and still generate revenue remains a philosophical issue in the nonprofit sector for both funders and nonprofits. However, unless scaled projects move from funder subsidy to government grant subsidy, some type of underlying business model is needed to support these larger scale initiatives in perpetuity – particularly in these times of reduced government spending and foundations that typically do not fund large amounts forever. Finally, typical funder program criteria geared to piloting innovation may have the unintended consequence of limiting the ability of a larger scaled project to thrive.

    Returning to the OSI experience again, once it had placed the Internet satellites in Romania, the foundation assumed in five years it would either be the only entity offering such a service, or I would create a local market for it. Fortunately for the foundation within 12 months it had 14 competitors vying to provide service to a variety of constituencies. You see, the problem was that resources were tight in Romania at that time for research and development making it a very risky investment to test. Once the foundation stepped in with resources to fund risky innovation that proved successful, it eliminated much of the downside risk, allowing others to follow its lead. The foundation was offering a subsidized service to its constituents and not long afterward the business community came to OSI to ask it to start charging even a nominal fee and restricting the user base because the subsidies were actually undermining the market the foundation had created. The foundation complied. When it came time to really scale the ISP service it had created it actually spun it off into a real business which could be bought and scaled by another commercial ISP that eventually bought it.

    The moral of this story, and the one I suggest in my Book The Dynamics of Technology for Social Change is that subsidy funders like foundations are actually wonderful seed funders for socially responsible innovation that doesn’t have an immediately recognizable business model. However, once a socially responsible project is successful, ready for scaling and the next tier of funding, it should have a good business plan and resource input from the private sector. The private sector is typically better as scaling successful enterprise, social or otherwise. Conversely the private sector is often terrible at funding pilot social innovation, often sacrificing the “social” part for profit to maintain its viability. In effect the baby gets thrown out with the bathwater before it has a chance to mature.

    As an example, had the OSI ISP project in Romania started as a business rather than a grant, we would have had to sacrifice our poor nonprofit and student users who could not initially pay for such an abstract thing before using it and prioritizing it as a useful resource in their lives. It would have instead had to concentrate on users who could immediately pay. However, by starting as a social enterprise with a grant, the foundation first satisfied its constituency while proving the project economically viable and then scaled it as a business investment when it was strong enough to defend continuing to support new nonprofit and educational users, converting people who then understood the value of the Internet into paying customers and additionally adding new paying users.

    This type of initial philanthropic approach followed by private sector scaling [to a greater or lesser degree] is certainly not unique to OSI. Sesame Street, PBS Newshour, Grameen Bank all followed similar trajectories. Innovation and scaling are both necessary ingredients to promote successful projects – but who is involved in these two areas and at what point are critical to a project’s success. In my experience, socially responsible projects invested in too heavily and too quickly by subsidy donors can ruin said projects as well. You see this often in the developing world where some social entrepreneur comes up with a ground breaking and unique idea that is promoted at one or another International donor’s conference. The project becomes a funder darling and immediately many donors pile on and smother it with resources before a good operational/business plan is in place to expand appropriately. The water “play pump” comes to mind as a recent, but by no means, unique example.

    Not every project lends itself to both social and entrepreneurial approaches. Human rights work comes to mind as an example where the mission is often to spread information about abuse far and wide, and a revenue generation model might limit that mission by allowing only buyers to access it. However many socially responsible projects do lend themselves to a hybrid approach of innovation and scaling. The education, health care and arts & culture sectors for example have long attached revenue models to socially responsible service provision.

    In the final analysis it is useful to look at socially responsible investment with a venture funding lens — in so far as it starts with “angel funding” and progresses in tiers with funding and other resource support as a project matures. The private, government and philanthropic sectors would do well to partner in defining at what point its best for the different sector actors to invest in and help a socially responsible project innovate and scale — and what the most positive role is for each to help market it, fund it, operationally support it, etc. at different stages of a project’s development.

    • Thanks for the in depth comment Jonathan. I’ve noted in the past that many impact investment opportunities seem to be in developing world markets where the delivery of certain goods and services are seen as a social mission whereas the delivery of the same goods and services in the developed markets is purely a for-profit market.

      This seems to suggest the critical role of funders that you posit. However, there is still a large nonprofit market in developed markets. Do you think that nonprofit only markets can all be transformed into for-profit markets if the seed funding to bring in for-profit investors works correctly? Or are there areas of social impact markets that will stay nonprofit for good? If so, how do we bring those to scale?

  6. Sean,

    Some good questions.

    1) I don’t believe that all non-profit ventures can be brought to scale the same way. Just as with business there will always be small nonprofits, medium sized and very large scaled entities. However, because I dint think funders do a good job in funding nonprofit capacity/administrative support, it behooves nonprofits to find revenue opportunities for at least core operating support to sustain themselves while going to funders for program related support.

    2) Some sectoral nonprofit issue areas will probably always need subsidy support. I think often of Human Rights work in this respect. There are about 120,000 private philanthropic entities in the US alone and there will always be deep pocketed donors that have a specific mission they wish to support. There are donors now that people know to go to for human rights support.

    At the same time, even some of the intractable problems one would think might never be resolved through income generation, like feeding hungry children (with that protein rich peanut paste), or reducing Malaria through proper netting, have developed at least revenue models recently if not full scale business models. Now its true that the major buyers are aid agencies and you can argue they are tax subsidized so that giving in just another name, but companies get corporate welfare too so maybe its not that different.

    This gets into a whole bunch of other interesting topics but to answer your question directly: Some nonprofit issue areas will continue to require subsidy support. At the same time, a clever person could come up with a reasonable revenue generating model even for these – possibly as technology evolves — certainly the Internet revolution has made possible income generation opportunities that did not exist previously for nonprofits. Medical breakthroughs will deliver others.

    Hope this answers the question.