There have been rumors lurking in the corners of social entrepreneurship gatherings. I heard them whispered: “There are investors who want to pursue impact investing and social impact bonds, but we don’t have the right deal flow.” We didn’t know for sure – until now. A recent study in Australia has confirmed the rumors to be true. According to the report, “Demand for social impact investment is higher than supply, with only $1.2 billion committed in capital in the last five years and an estimated $18 billion gap expected in the next five years.”
The opportunity presented in this report is why I chose to pursue social entrepreneurship. I realized early in my career that we could never solve the big social issues through charitable dollars and traditional means alone. I wanted to learn new methods for solving old problems, so I left a wonderful career at the national office of American Heart Association to spend the next decade getting my MBA in social entrepreneurship at Duke University and experimenting alongside dozens of nonprofits to find the best path forward. This week, I returned to share with the American Heart Association’s Diversity Leadership Panel the five truths that all social architects need in their toolkit to ensure that the supply of the right deals meets the demand of impact investors. Here are the truths I have learned:
Fall in Love with the Problem, Not the Solution – As Albert Einstein once said, “If I had an hour to solve a problem, I’d spend 55 minutes thinking about the problem and 5 minutes thinking about solutions.” The opposite is often true in the social sector – in part because of our traditional funding mechanisms. But, this is changing and, as social sector experts, it is incumbent upon us to ask the right questions so that we can reach the optimal solutions. In addition, by focusing on the problem, we can shift the solution as circumstances or needs change.
Build from the Bottom Up – When investigating the problem, it is essential to involve those you serve in developing the solution. This is the most effective way of getting to “root cause issues” and designing solutions that will last. For more ideas, we suggest reading thought-provoking books, such as Bridges Out of Poverty, to learn about how our own assumptions about poverty get in the way of alleviating it. In addition, techniques like Design Thinking can also help facilitate this process.
Think Outside the Box – Thinking outside the box is easy to say, but not as easy to do in the social sector. It requires a whole new mindset, which we discussed in our recent blogs on the 3Qs and Entrepreneurial Culture. It also requires each of us to engage in eco-thinking, putting the interests of our clients and the community ahead of our own.
Impact Is the Bottom Line – The key to greater investment in social change is impact measurement. As Global Impact Investing Network chief executive Amit Bouri said, “The better we can measure impact and agree what constitutes success, the more effective we can be at directing investments to areas and issues of greatest need.” As social architects, our focus must be elevated to impact rather than exclusively on the traditional model of outputs, activities and outcomes. We built a framework – Social Alchemy – to help social sector leaders take ideas and turn them into the gold that investors are looking for. Once we have proven impact, we must also determine how to replicate similar results in the most efficient manner possible. Finding ways to create social change that saves taxpayer dollars in the long run is the underpinning of all social impact bonds and Pay For Success.
Scaling Is the Final Frontier – We know what works for many social issues – our problem is an issue of scale. We must develop the discipline needed to make the tough trade-offs and systematically invest in what works. If we can do this, it will move us from an innovation model to a franchise model. We also need to move beyond just using traditional programs and look at layering all types of interventions – e.g., policy change, coalitions and social marketing – together to drive systemic change.
While these new truths are daunting and will require new ways of thinking and doing, I predict that the ever-resilient social sector will catch up with demand for investment. We welcome your thoughts on these five truths and look forward to sharing more ideas next week.