The Imaginations of Unreasonable Men (25 page)

Once the ambition of such institutions changes, the way they allocate funds changes. They now must become long-term institution builders, investing not only in programs, but in operations, capacity, and leadership. They must place greater priority on sustainability and scale. Above all, they must invest not only in creating solutions, but in creating markets that will embrace and distribute their solutions.

This has become the special province of today’s most far-reaching social entrepreneurs. If ever there were a label made catchy by the business-worshipping zeitgeist that has
held a grip on the nonprofit sector, “social entrepreneurship” is it. If ever there were a label in need of a useful definition, this is it, too.

Nearly everyone engaged in nonprofit work today wishes to share in the aura of social entrepreneurship being touted by philanthropic insiders and repeated in the media. It sounds more impressive, implies more talent and strategy, and personifies more attractive qualities than mere charity work. But not all new nonprofits are entrepreneurial. Being entrepreneurial means more than just being new, or being started by young people, or leveraging private resources for a public purpose, or even starting with a little and turning it into a lot.

What is new—and what excites me—about social entrepreneurship is the determination to find or create markets to enable nonprofit goods and services to get to scale and sustain themselves, instead of having to depend on constant philanthropic subsidization. This means creating commercial markets. Nowhere is this strategy being pursued more vigorously or more purposefully than in the field of global health, especially around the effort to battle the so-called “neglected diseases.” But there are examples from other fields as well. Perhaps none is so visible currently as the market for carbon offsets created by companies that cannot cut their own carbon emissions enough to meet legal requirement and so instead pay other companies that have made an excess of cuts, making an offsetting purchase.

The laws of economics govern global health outcomes every bit as much as principles of biology and sequences of genes do.

Until recently, there has been very little economic interest at stake in addressing malaria and the neglected diseases. So, in the absence of obvious commercial markets, today’s entrepreneurs have sought to create their own, or at least have begun to believe that there has been a market hiding in plain sight all along. Steve Hoffman, for example, sees the armed services and American and European travelers as a $3 billion market for the Sanaria vaccine. It is a market large enough to reward a pharmaceutical corporation for investing in a product that could also be made available to children in developing countries for no profit, but ideally at cost.

Bill Gates, at the 2008 World Economic Forum in Davos, Switzerland, observed:

The challenge is twofold. One is whether nonprofits can not only develop a needed product or service, but also have enough sophistication and skill to attract market forces, bring the product or service to scale, and sustain those efforts in order to reach all of those in need. The other is whether philanthropic institutions will be able to provide the risk capital essential to gaining meaningful access to markets in the first place. Increasingly, entrepreneurial funds are doing just that—ranging from the Edna McConnell Clark Foundation, which evolved from a more traditional grant maker, to SeaChange Capital Partners, created in 2006 by two former Goldman Sachs investment bankers expressly for this purpose.

Such an investment approach requires something different from support for entrepreneurship—including social entrepreneurship—and something distinct as well from the passion, innovation, and risk-taking that the word “entrepreneurship” implies. In addition, it requires nurturing a new kind of nonprofit that strategically repositions itself and directs its energies toward long-term market solutions: an NGO, or nongovernmental organization, that transforms itself into an MDO, a market-directed organization.

At some point, most industries or sectors of society are convulsed by genuine revolutions in thinking that transform their growth from the incremental to the exponential.
Manufacturing had its industrial revolution. Technology saw the creation of the silicon chip. Science is currently racing to catch up to the mapping of the genome. Such revolutions have more to do with leaps of imagination than they do with money.

But the nonprofit sector has yet to experience such a revolution. That may be about to change, and bringing market economic principles into social policy may mark the beginning of the shift. It could enable the sector to go beyond good intentions to actually solving and eradicating neglected social diseases in the same way that the neglected tropical diseases are being attacked.

If one believes there is a moral obligation to share our strengths and intellectual gifts to develop solutions to human need, then the moral obligation may be even greater to ensure that such solutions are accessible to everyone, and not just to the privileged few.

As society continues to struggle to strike the right balance between political, nonprofit, and market solutions, philanthropic organizations have a huge opportunity to shape that debate. By taking the kinds of risks philanthropic institutions alone have the ability to take, and helping to manage the risk of nonprofits willing to hold themselves accountable to market forces, the philanthropic sector can provide leadership that can determine the fate of our generation and those of the future.

The new philanthropy, as represented by the Gates Foundation and others, does not supplant what government or
the economic marketplace can do. And unlike traditional philanthropy, it is a by-product not only of enormous riches, generated by innovation and acumen in business, but also of shifting political tides.

Andrew Carnegie and John D. Rockefeller operated before the era we think of as big government. It was before Lyndon Johnson’s Great Society, before World War II, and even before Franklin Roosevelt’s New Deal. Originally, philanthropic funding filled gaps left by political institutions so young that they did not yet fully recognize issues such as literacy and education as a national responsibility.

Bill Gates came along at the opposite end of the spectrum, after the expansion of government and after the backlash that led President Bill Clinton to proclaim that “the era of Big Government is over.” Instead of filling the void left by government, like Carnegie, Gates designed funding to bridge gaps left by economic markets, such as the lack of vaccines for neglected tropical diseases, or the shortcomings in efforts to increase agricultural productivity and crop yields in Africa.

With social entrepreneurship principles playing a larger role, philanthropy has evolved to take on tougher, more complex, seemingly intractable problems—problems that other institutions have avoided or abandoned. The philanthropic leap to doing things like attempting to invent vaccines that no one has ever been able to invent before means taking big risks; being willing, at times, to pay for a failure; and committing to long-term investments that may not yield short-term rewards.

This doesn’t make the new philanthropy of Bill Gates better or worse than the old philanthropy of Carnegie and Rockefeller. It just makes it a better match for our times.

In Washington and the other centers of government that we look to for solutions to social problems, the battle over how to solve our toughest and most controversial problems usually revolves around spending more money or less money, government taking a bigger or smaller role, and the right and left poles of the culture wars. But from today’s unprecedented convergence of science, entrepreneurship, and philanthropy, there is emerging a set of problem-solving strategies that, while not apolitical, are certainly less political, and until now have been widely overlooked.

Those from whom I’ve learned have made no grandiose claims for their work. Their energies have been naturally and appropriately focused on solving the specific and very pressing problems in front of them. They haven’t had the luxury of looking across the philanthropic field and discerning patterns that may be useful beyond their own office or lab, or extracting broader lessons.

What follows is a summary of six major lessons I have learned about solving seemingly intractable problems and how this new philanthropy, at its best, can work. There were other small discoveries to be made, of course; but these are the ones
that I felt had the most import and utility for others working in a wide range of organizations to bring about change. Although I learned them by observing how leaders in global health seek to solve problems that affect people who are not served by the markets that the rest of us rely upon, their usefulness cuts across many fields and disciplines of social change.

“The key to developing a malaria vaccine is biotech engineering, not scientific discovery,” Steve Hoffman said the first time we met, intentionally overstating the point to make it, because targeted scientific discovery clearly played a critical role in his work. When all else failed, or at least had not succeeded, Hoffman devoted his energies to the daunting engineering required to bring viability to the one discovery that had worked, however impractically, already. Jay Keasling employed a very different methodology to do the same thing with artemisinin. The same approach could be used to solve many other social problems. What we need are not necessarily new solutions, but strategies for making existing solutions affordable, scalable, and sustainable. Until recently, there has been little institutional support, in the form of money, talent, or intellectual capital, for such strategies.

Most problems—whether they have to do with hunger, illiteracy, health care, or education—have a solution, but few solutions have a strategy for getting to scale and being
sustainable. Jeffrey Bradach, a former Harvard Business School professor who started the consulting firm Bridgespan to advise nonprofits, put it this way:

In Washington, D.C., a nonprofit called College Summit faces just such a challenge of bringing a proven strategy to
scale on a national level. The organization has exceeded all expectations in helping talented, low-income high-school students successfully navigate the college-access process. But its growth has been constrained by lack of funding and low visibility. Mary’s Center, in the Adams Morgan neighborhood of D.C., knows how to provide quality maternal and child health care for immigrant Latino families and has successfully reversed horrible infant mortality statistics. If it grew into a national organization, tens of thousands of lives would likely be saved. But after twenty years it has expanded no further than neighboring Maryland. Because the nonprofit sector lacks mechanisms to steer capital toward high-performing organizations and away from the low-performing ones, they often remain unknown to others—and undercapitalized.

One reason this is so is that new ideas, not old ones, have been the darling of traditional philanthropy, and all of the incentives align with pilot programs and starting something, as opposed to scaling something. But that attitude is starting to change.

Chuck Harris, a Goldman Sachs banker for twenty-three years, is the founder of SeaChange Capital Partners, which hopes to fill the market gap that exists for growth capital for nonprofits with proven track records. SeaChange arranges funding for nonprofits that is large enough to be transformational. Harris, who first noticed the problem after becoming a donor to College Summit in 2004, told me: “I decided to
work for six months in the development department. I observed the disconnect between the founder, J. B. Schramm, a dynamic entrepreneur with very lofty ambitions, and the way it was being financed, which was by grant writers cranking out as many grants each week as they could. And I thought, why not finance this as a corporation would finance this at the same stage of its growth?”

Much of the entrepreneurship in social entrepreneurship today is finally beginning to focus on scaling, not just creating. They require two different skill sets, and they are rarely found in the same individual. Share Our Strength board member Wally Doolin, who was CEO of the restaurant company that owned TGI Fridays and also served as CEO of casual dining chains La Madeleine and Buca di Beppo, made this very point to me once, explaining, “I could never build a really good restaurant. But I could build one hundred of them.” In other words, he was not a creator, but a scaler. Once proof of concept is achieved for a creative vision, Wally uses market forces—consumer demand, investment capital, and so on—to bring it to scale.