Why Social Change is Harder Than Business
What investors and philanthropists need to know about how social change works.
Impact investors and donors want to use capital to serve humanity and the planet. But what does funding this kind of change actually mean?
Believe it or not, running a social enterprise or nonprofit is harder than running a startup.
Social change is complex and unpredictable. Investors and donors want the predictability of a particular outcome or return. As a result, they think small, funding what is predictable rather than what is transformative. Here’s how those dynamics work.
What Investors and Donors Want
The most important decision of investors and donors is a binary one: “do we invest?” Yet, behind “do we invest?” lies a deeper question: “does it work”? That is, does a particular model, service, program, or product generate benefit with minimal harm and (for investors) a sufficient return? The closer that answer can be to a binary yes/no, the better.
Behind “do we invest?” lies a deeper question: “does it work”?
Unfortunately, the binary “does it work?” elides the most critical work of social entrepreneurs and nonprofits, particularly if their work is innovative. Developing solutions to wicked social problems — like homelessness, low educational attainment, environmental degradation, and racial inequity — is difficult because the complexity of the solution must match the complexity of the problem.
How Social Change Works
In fact, social change is even more difficult than the (also very difficult!) commercial problem of developing a profitable product or service. Believe it or not, running a social enterprise or nonprofit is harder than running a startup.
Why is social change harder than commerce? In a commercial endeavor whose single bottom-line is profit and which seeks to achieve that goal by selling a good or service, the business entity has a high degree of control over what their product or service looks like. Success means exchanging that product or service for a fee.
In commerce, one has competitors. In social change, one has opponents.
For social enterprises and nonprofits, on the other hand, success does not (only) mean exchanging and offering for a fee. Particularly for nonprofits, it means achieving a change in an individual or organization outside the bounds of their organization, over whom they have limited control.
To improve the health of one homeless person, to change one municipal law, to reduce greenhouse emissions in one county, requires complex interactions among many individuals and organizations from beneficiaries to service providers to advocates to consumers to politicians. In commerce, one has competitors. In social change, one has opponents.
Broader Goals with Less Control
What’s more, this complexity is dynamic. This means the system is constantly changing, sometimes in reaction to the intervention. For example, a 2006 California study on attempts to reduce class size by incentivizing teachers to transfer between districts found that students in high-poverty districts ended up worse off. The most qualified teachers in those districts left to work in districts able to offer more appealing inducements.
On the evaluation side, investors and donors may expect impact measurement to work like a drug trial. The situation, however, is not analogous. In a drug trial, there is a fixed chemical compound and standardized set of protocols acting on the system of a single human body with a specific diagnosis.
In social change, the intervention is a dizzyingly complex combination of behaviors and systems composed of dozen or hundreds of interlocking individuals and organizations. Broader goals with less control — this is why social change is harder than commerce.
Cause-effect relationships are often unpredictable… because increased social scale means increased social complexity.
All this means that cause-effect relationships are often unpredictable. This is particularly true the larger the scale of the intervention, because increased social scale means increased social complexity.
Going back to the California classrooms example, decreasing the student-to-teacher ratio in individual classrooms resulted in higher educational attainment. However, scaling this solution statewide resulted in unintended harms — enticing the most effective teachers away from high-poverty districts — to the detriment of the most vulnerable students.
Scaling Winners Means Thinking Small
One can treat social change as a commercial problem. Unfortunately, this means focusing on social enterprises and nonprofits that use a commercial model to create product and services. It means focusing on narrow problems over which an investee does have control.
Choosing predictable solutions to simple problems, rather than attacking social problems at… scale.
Looking for commercial actors in social change work means choosing to invest in fixing simpler problems with predictable cause-effect relationships. One can improve the educational attainment of one student. One can install solar panels in one neighborhood. But this means choosing predictable solutions to simple problems, rather than attacking social problems at the full scale of their complexity.
Impact, Time, and Evidence
It is possible to identify solutions that will have the exact same effect at scale, but it’s hard to know what that effect is until years later. Lagging evidence can mean investing in social “solutions” that are ineffective or have unintended harms. (See charter schools and microfinance.)
Lagging evidence can mean investing in social “solutions” that are ineffective or have unintended harms.
And, as you may have guessed, it can take a long time to collect sufficient evidence to determine ultimate impact. It can take years to answer the question “did it work?”
Managing for Adaptation
In future posts, I’ll explain how Do Big Good uses participatory processes of impact measurement to address unpredictability. In our view, the best impact metric is a KPI that helps a social entrepreneur or activist manage unpredictability with practical information about performance.
The expectation of an investee [is] not scaled replication, but constant responsive adaptation.
Measuring for management (rather than binary evaluation) addresses unpredictability by making the expectation of an investee not scaled replication, but constant responsive adaptation to social complexity.
The challenges of investing in social change are real, but there is a better way.
TL;DR
► Social change is harder than business. This is because, though impact goals are broader than commercial goals, less control over social outcomes.
► Unfortunately, many investors address this complexity by investing in smaller problems with more predictable results.
► Measuring for management can address the problems of unpredictability by making the expectation of an investee not replication, but constant responsive adaptation.
by Mary Joyce, founder and principal of Do Big Good.
