“Impact investing” is predicted by analysts to become a $500 billion industry. It has been growing in popularity in the past few years, attracting a diverse set of players with a range of expectations regarding financial returns. Across the globe nearly 200 impact investment funds are now registered and many foundations, networks, and mainstream financial institutions are becoming active in this space.

But the growing excitement around the overall market potential and the higher return expectations of some newer entrants raises a number of questions. Are we creating yet another hype based on a bubble filled with good intentions and hope? Are we too narrowly focused on financial markets and thereby missing out on more holistic approaches to support social innovation?

I have the pleasure to chair a group known as the Global Agenda Council on Social Innovation. This council is in a unique position to discuss such questions in a frank and open way. The council, initiated by the Schwab Foundation for Social Entrepreneurship in collaboration with its sister organization, the World Economic Forum and guided by Mirjam Schoening and Katherine Milligan, brings together leading academics in the field of social entrepreneurship, pioneers in impact investing, and globally recognized social entrepreneurs to address some of the most pressing issues facing the impact investing industry. Greg Dees, Jacqueline Novogratz, Alvaro Rodriguez Arregui, Andrea Coleman and Asad Mahmood are just some of the leaders who contribute to this generative effort ensuring that this nascent industry reaches its potential and promise.

In our discussions, a number of issues pop up again and again.

1.Many studies offer unrealistic estimates of the size of the industry, raising expectations beyond what the sector can currently deliver.
2.Despite the current focus on generating returns, subsidized capital from philanthropists or foundations will continue to be critical.
3.Local knowledge is highly underestimated but remains the “x” factor as social needs are related to problems with local root causes.
4.The needs of young social ventures requiring seed capital is largely neglected, indicating that the industry might under-invest in its future pipeline.
5.As more social ventures are involved in traditional capital market operations, there’s an increasing risk of mission drift.
These are just some of the trends identified by our group and that warrant honest debates and interaction among all the stakeholders involved.

My own conclusion for the future of funding social innovation is that we need to consider social and human capital as equally important as financial capital. We need to create a level playing field for investors and investees (social entrepreneurs and their organizations). Investing in the education and knowledge base of both parties will allow us 1) to better understand the nature and types of “risk” involved for investors and investees, 2) to generate new asset classes, investment vehicles and non-financial support activities that are reflective of local realities and challenges on the ground, 3) to develop meaningful schemes for evaluating outcomes and impact and develop fair schemes to compare social enterprises across issue domains and geographies, and 4) to speak with one voice when demanding new regulatory frameworks and legal forms.

Our penchant for self-employment has been the subject of many articles in recent months, most notably Deresiewicz’s November 12 New York Times op-ed, “The Entrepreneurial Generation.” But while the articles accurately highlight the symptoms of entrepreneurship, they fail to diagnose the causes. What’s unique to this generation isn’t just that we are entrepreneurs; it’s why we’re entrepreneurs.

It should go without saying that technology has played an integral role in our entrepreneurship. Enhanced connectivity and services like Skype, Etsy, Elance, and Dropbox have lowered the barriers to working independently. And what’s more, the traditional idea that we should “work our way up” in our careers is becoming less and less relevant, as the role of technology in business grows and the youngest technologists are often the most capable. We have little incentive to stay in menial jobs.

Entrepreneurship is more accessible now than ever before, and although my business has been made possible because of it, technology is not the reason I’m an entrepreneur. Deresiewicz attributes elements of our entrepreneurship to the idea that Millennials “feel themselves to be living in a fundamentally agreeable society,” but that’s certainly not why, either. On the contrary, I’m an entrepreneur because I see fundamental problems with society and want to be active in creating solutions.

As a product designer with a deep understanding of the negative impacts my profession has had on the environment and society, I committed myself early on to addressing meaningful problems and leaving a positive impact with my work. I spent my first few years after college at Method, designing products I was proud of and using my skills as a designer to help drive a shift toward a more sustainable economy. When I outgrew the role and started to look for a new position, though, I became starkly aware of the limited employment opportunities for an altruistic designer. The few firms that were committed to design for social innovation weren’t yet stable enough to hire, and the social innovation projects in the larger design firms represented such a minuscule amount of their work that it was nearly impossible for their employees to focus on them exclusively. If I wanted a job in social innovation, I realized, I’d have to create one for myself. And so I did. In 2009, I left Method, moved to Argentina, and I founded Black and Blue Design with an old friend.

In the years since, I’ve met hundreds of entrepreneurs with a similar story. “What’s really hip is social entrepreneurship,” Deresiewicz writes, and it’s true. Social entrepreneurship, a phenomenon unique to our generation, is the recognition of social needs, and our unwillingness to take jobs that don’t address them. It’s our refusal to accept the world as it is, and our belief that, with hard work, we can make it better. And it’s why, when Deresiewicz writes that our generation has “no anger, no edge, no ego,” he’s missing the point. For many of us, entrepreneurship is our anger, our edge, and our ego. It is our social movement.

Like any social movement, ours has great momentum, but is not without its share of challenges. Almost 30 percent of early-stage entrepreneurs in the United States are driven to entrepreneurship because they have no other option for work, and that rate is growing. Even for those of us who choose entrepreneurship, many of us choose it reluctantly. We would prefer the stability and support of full-time employment, but jobs are scarce, and ones that align with our skills and values are even scarcer.

I never intended to run a business until I was actually running one. I struggled without a strong understanding of business and without the support of colleagues and mentors, and was overwhelmed early on with the administrative aspects of entrepreneurship. I faced financial troubles when clients didn’t pay on time, and had difficulty focusing and growing professionally. Mine were the challenges of any new business owner, but because I lacked any background in business or the resources to overcome that deficiency, they were magnified.

As the number of entrepreneurs grows, so does the need to empower, educate, and serve them, and to ensure that they’re better equipped than I was. To fill this need, organizations like the Unreasonable Institute, General Assembly, and the Freelancers’ Union have emerged, as have numerous educational programs on entrepreneurship. I didn’t have access to these programs when I was struggling, but with the help of my peers and mentors over the years, I’ve found exactly the work I’ve wanted to do. I’ve returned to the States and moved on from Black and Blue Design, and now I’m consulting for several social enterprises, while helping to manage two startups. Next fall I’ll be co-teaching a class on entrepreneurship to students of Design for Social Innovation. I’m determined to help them avoid the struggles I experienced and to empower them to use their skills for good.

I’m proud to be a member of the Entrepreneurial Generation. Whether we’re entrepreneurs by choice or by circumstance, we’re resisting complacency and charting new territories. We face many uncertainties as a generation, no less because of our entrepreneurship, but I’m confident that we will thrive. We’ll find our way for the same reason we’re entrepreneurs in the first place: we’re not willing to be held back, and to us, every challenge is an opportunity.

One of the principal reasons impact investing is growing in popularity is the parallel rise in the number of social businesses that are being started. As entrepreneurs create more for-profit businesses that have strong social missions—such as Numi Organic Tea, Method Products, and New Leaf Paper (all certified B Corporations)—the opportunity for socially minded investors to invest in those businesses grows right along with it.

Not all impact investments are in for-profit companies, however. Many nonprofits also need access to investment capital, sometimes as standard loans, and other times in the form of creative financial products. The Nonprofit Finance Fund, for one, has played an important role in helping US nonprofits access this type of investment capital. Under its new CEO, former Rockefeller Foundation executive Antony Bugg-Levine, NFF is likely to push into new areas of impact investing. Bugg-Levine has been a prominent advocate of impact investing and is the co-author (along with Jed Emerson) of the new book Impact Investing: Transforming How We Make Money While Making a Difference. To read a provocative review of his book, see “Shifting the Market.”

Impact investing is not just a US trend. It is growing in popularity around the world as well. For an interesting look at the first Brazilian social capital fund, read “Journey into Brazil’s Social Sector.” Leonardo Letelier, the founder and CEO of Sitawi, recounts his experiences creating and operating the fund. Sitawi has provided more than $1 million in loans to a range of Brazilian social enterprises, including a community bank, a handicraft collective, and a poverty alleviation agency.

For an extensive look at impact investing, read “Roundtable on Impact Investing.” In this discussion, impact investing leaders from around the world discuss their experiences and the trends that they think are important. The participants include Jacqueline Novogratz, founder and CEO of Acumen Fund; Álvaro Rodríguez Arregui, chairman of the Mexican microfinance bank Compartamos Banco and managing partner at the impact investing firm Ignia Partners; Asad Mahmood, managing director of Global Social Investment Funds at Deutsche Bank; and Iftekhar Enayetullah, co-founder and director of the Bangladesh social business Waste Concern.

And finally, for an account by a pioneer impact investor about his two decades of experience, be sure to read Roger Frank’s “Impact Investing: What Exactly Is New?” Frank provides an honest and often humorous look at the difficulties he has had getting investors to consider impact investing.

We decided to analyze in depth one of the collaborative competitions pioneered by Ashoka’s Changemaker Initiative. As of 2010, the Changemakers Initiative had run more than 45 collaborative competitions on social and environmental issues, including maternal health, women and sport, drinking water and sanitation, and new media and tourism. Competition contributors include social entrepreneurs already selected by Ashoka, but the competition is open to everyone.

The competition follows a four-month schedule. The process is to identify the topic and its key questions; launch the competition online; invite online entries, comments, revisions, etc.; select up to 15 finalists by a jury (selected by the Changemakers Initiative); and then have the Changemakers community vote on the top proposals. The competitions are sponsored by companies and foundations, some of which offer further support after the competition ends.

We began our analysis. Drawing on recent work in sustainability science, we analysed the collaborative competitions as a public, open, dynamic, and reciprocal peer-review process: all entries and comments are publicly posted; anyone with Internet access can contribute their own idea or contribute to others’ ideas; contributors can respond to comments (this is potentially developmental, in that contributors can improve their entries in response to comments); and contributors are simultaneously reviewers. Due to our own research background in the water sector, we decided to examine the collaborative competition on the water and sanitation crisis.

What would we learn about collaborative spirit? There were 263 ideas presented by proponents from 52 different countries. In total, 694 comments were made. Out of the 263 entries, 143 were commented on. However, the distribution of comments was very skewed: Twelve entries received almost a third of all comments. No finalist responded to criticisms or suggestions. Thus, there did not seem to be evidence that the competition had improved the winning entries; or put differently, the jury and then the online community in the final vote did not consider participation in refining and enriching a necessary condition for winning the competition. This result was confirmed by an examination of four other collaborative competitions with different themes.

So are the collaborative competitions just competitive? No, we we also found evidence for reciprocity. About 60 percent, or 150 of 254 people, who posted an entry also commented on other entries. Less than a third of those who posted an entry (72) also replied to comments on their entries. Thus, some collaboration was in evidence—but not amongst the winners. However, one important thing to note is that these findings are limited—the method of analysis did not include collaboration by phone, email, in-person meetings, and other exchanges.

Innovation requires the carrying out of ideas, not just having them. The online competition gives global visibility to ideas. As the Changemaker team put it, “It surfaces them.” Our analysis suggests that using online competition as a way of making ideas visible to a worldwide community of people interested in change is the key innovative aspect of the collaborative competition, rather than the collaborative effort to improve proposals.

Still, strengthening the collaborative spirit could be achieved several ways. One way is to offer different awards. Contributions often range from speculative proposals to ideas that have already manifested in mature projects, thus a single category final makes the local soccer fan compete against the professional soccer player. Another thing to do is reward excellent commentators, or even invite schools or university seminars to actively comment on thematically close proposals. A third possibility is to change the rules of the games so that finalists must comment, and must respond to comments in the effort to further refine their proposal. Finally, we suggest making the link between proposals and comments clearly visible so that contributors and others can trace dialogue easily.

Of course, it is easy to make suggestions if you do not have to implement them yourself…but we have decided to explore the possibility of online (and offline!) collaboration further through the Big Jump Challenge. This competition will also focus on water (set to launch on March 22, 2012, World Water Day), and we’re developing it in co-operation with the betterplace lab, Viva con Agua, French social Entrepreneur Roberto Epple, the Grüne Liga, the Deutsche Umwelthilfe, and the Global Nature Fund.

In fact, privately derived earned income is the single largest source of revenue for the entire nonprofit sector. According to the Center on Nonprofits and Philanthropy, private-sourced fees for goods and services made up more than 45 percent of total nonprofit sector revenue in 2010.

Specifically, there are major segments of the nonprofit world where earned income dominates the funding picture. Just think of:

• Hospitals and primary care facilities. For example, the Cleveland Clinic gets more than 70 percent of its annual revenue from private-source program fees, mainly patient services.
• Private colleges and universities, particularly smaller ones. Haverford College (Philadelphia PA) and Juniata College (Huntingdon PA) both get more than 70 percent of revenue from private-source earned income, principally tuition and fees.
• Private nonprofit retirement communities. Kendal-Crosslands in Kennett Square, Pa., and Bay Village in Sarasota, Fla., routinely get more than 95 percent of their revenue from private earned income sources, mainly resident payments.

And there are other sectors where earned income may not dominate, but where it is still a large—sometimes the majority—source of funds. Just think of:

• Arts, culture, and humanities organizations. The Philadelphia Museum of Art gets about 12 percent of its funding as private-source earned income, while both NPR and Shakespeare and Company (Lenox, Mass.) derive about 55 percent of revenue from that source.
• Housing. Habitat for Humanity’s local organizations routinely get 20 to 50 percent of their funding as earned income, as does Common Ground of New York City.

All of that said, for an organization that doesn’t have a significant earned income stream, it may seem daunting to establish one. However, the steps that the authors of “Finding Your Funding Model” shared (understand your current state, benchmark peers, weigh costs and benefits, and develop a plan) provide an excellent roadmap to get you started. While they wrote to help organizations create an income model that “typically revolves around a single type of funding…which constitutes the majority of the organization’s revenue”, I believe their basic framework can work just as well to establish a new revenue stream, even if it is just a supporting player.

If you’re looking to start or renew an earned income strategy, a useful metric is what we call the Private-sourced Earned Income (PEI) index. The PEI index is simply the ratio of the organization’s total, privately derived earned income to its total cash revenue:

PEI Index = Private-sourced Earned income/Total Cash Revenue

Two interesting organizations to compare around earned income are Guidestar and the Wikimedia Foundation (which operates Wikipedia). Both provide information and insights to the public, but differ significantly in the role earned income plays in their funding mix. Wikimedia has a core value that “knowledge should be free” and depends on voluntary gifts from many small donors for support (see the Wikimedia Strategic Plan) with earned income being a small fraction of total revenue. Guidestar, on the other hand, is committed to long-term sustainability through earned revenue (primarily from the sale of products and services) so that while 98 percent of its visitors use the site for free, subscriptions and licensing fees from the remaining 2 percent accounted for about two-thirds of total revenue in 2008.

The PEI indexes of these organizations reflect this difference in approach. Guidestar’s is relatively high (0.67 for 2009) and the goal (according to board member Feather Houstoun) is to continue to grow it until earned income fully supports core operations (with gifts and grants supporting infrastructure and innovation.) Meanwhile, the Wikimedia Foundation has a PEI index of only about 0.03 (see 2011-2012 annual plan). And even though its PEI index is expected to grow (forecast to be 0.05 for 2011-12), it will almost certainly always be small compared to the equivalent Small Donation Revenue (SDR) index, which is about 0.79 for 2010-11 and forecast to grow to 0.85 for 2011-12.

In conclusion, while earned income currently may not play a big role in your funding picture today, it’s well worth exploring. The pot of money out there and the potential for enhancing financial sustainability are too substantial to ignore. And if it’s a good fit with your overall mission and strategy, then there are models and metrics to help your organization make it work.

Too often social entrepreneur organizations adopt a hero culture, where we take advantage of each other in pursuit of our great cause. I work equally with corporate and nonprofit organizations, and I’ve been stunned by the fact that nonprofit cultures are usually more toxic and unjust than my for-profit clients.

During strategic planning with these nonprofits, I’ll ask, “What’s the biggest barrier to your success?” More times than not they respond, “Our organization.”

The unspoken, but very clear social entrepreneur narrative goes like this: “Because we are good and our mission is noble, I can ask you to work long hours, pay you badly, and ask you to sacrifice more for the cause. So suck it up.”

Through these actions the nonprofit sector is saying is: “We need to be unjust to bring more justice into the world.”

Many young people who are growing out of their post college years at a nonprofit aren’t just disappointed at their experience with social change—they’re bitter. It’s no wonder that more and more of them are telling me they’d prefer to find for-profit social entrepreneur companies than to pursue work at nonprofits.

While more and more social sector organizations are using professional coaches to develop their talent, few invest in the hard work to develop a just organizational culture. But until they invest in developing talent in conjunction with improving the organization, the results will be disappointing.

Social entrepreneurs, who pride themselves on their reputation of being champions for justice, have a difficult time admitting that their own organization is unjust. And it’s rarely in anyone’s interest to call them on it.

But there are nonthreatening ways to do this. The Leadership Circle recently developed an amazing assessment tool. Its Leadership Circle Cultural Survey offers an “MRI of leadership culture,” and I would argue that it is one of the best tools to gauge the health of an organization. Though it is primarily corporations that use it, it can provide a powerful tool for the social entrepreneur sector as well. Basically, it graphs where the organization’s leadership thinks the organization’s culture is, compared to where employees and board members think it is. The gap presents a nonjudgmental starting point for an organizational strategy plan.

It’s next to impossible to make the world a more just place while your own world or organization is unjust. All true world-changing organizations must have a written strategic plan that supports both personal leadership development and improvement to the organization’s leadership culture.

The social entrepreneur sector must better itself before it can better the world.

But what if we went beyond this? What if we taught the key mindsets and skill sets that help make successful social entrepreneurs?

For the past six years, the Transformative Action Institute (TAI) has been promoting a curriculum that teaches these skills. From in-depth studies of social innovators, we have identified seven important competencies that are essential for success:

1. Leadership. These people take initiative and action to solve problems (rather than complaining about what’s wrong).

2. Optimism. These people are confident that they can achieve a bold vision, even when many other people doubt them. They have a strong sense of self-efficacy and a belief that they have control to change their circumstances.

3. Grit. This is a combination of perseverance, passion, and hard work—the relentless drive to achieve goals, complete commitment to achieving their task.

4. Resilience in the face of adversities, obstacles, challenges, and failures. When things fall apart, these people rise to the occasion. They thrive in the most ferocious storms. They see failures as valuable feedback.

5. Creativity and innovation. These people see new possibilities and think in unconventional ways. They see connections and patterns where few other people would imagine.

6. Empathy. These people are able to put themselves in the shoes of others, and imagine perspectives other than their own; this is one of the most valuable qualities for understanding the needs of others whom they serve.

7. Emotional and social intelligence. These people are excellent at connecting with others and building strong relationships.

The important thing to note here is that each one of these qualities is something that people can develop with practice. There is a tremendous amount of scientific evidence that people can grow in each of these capacities. They can see statistically significant progress.

For a long time, people thought that these traits were fixed. You either had them or you didn’t. There were some people who were born creative, and others who would never have an ounce of creative inspiration. There were some people who were naturally optimistic, and others who just were naturally pessimistic. People couldn’t change.

But now we know that people can develop these competencies. Just in the same way that college students can learn a foreign language at age 20, so too can they learn the key skills for being great social innovators—becoming proficient, or even “fluent,” in these core competencies.

First piloted at UCLA in 2005, this course has now been taught at more than 30 universities across the world including Yale, Princeton, Cornell, NYU, Johns Hopkins, and UC Berkeley. Both Echoing Green and Ashoka U have recognized the organization as an innovator in social entrepreneurship education. In surveys, more than 90 percent of students said this class changed their lives.

However, the financial downturn has made it more difficult to innovate on campus. Faculty and administrators face an uphill battle because of budget woes. How can you offer new course ideas when universities are cutting deep into traditional course offerings, and hiring fewer and fewer faculty? TAI’s module for social entrepreneurship is adaptable and cost-effective for universities because practicing social entrepreneurs from the local community can be brought in to teach as adjuncts. The TAI curriculum gives instructors a teaching manual to draw from, cutting down their course preparation time, while students benefit from an exchange with real-life social entrepreneurs who can share their experiences.

For instructors who have adapted TAI’s curriculum, one of the keys to its success is its flexibility. This is not an all-or-nothing approach. Great success has come from incorporating a small section into an existing course, circumventing the need for new course approval, which can be a lengthy and involved process. Grace Davie, professor at Queen’s College, CUNY, adapted elements of the curriculum into her existing African history course. Davie casts figures in African history as social entrepreneurs: visionaries and innovators who have fought for change in their societies. She uses the concept of social entrepreneurship and a portfolio assignment from the curriculum to help each student identify the changes they want to make in the world.

Let me finish by talking about this portfolio assignment, because it’s one of the keys to the success of this course. College students often have passion and energy and a desire to make a difference, but they frequently have no idea what they want to choose as a major, let alone what “big, hairy, audacious goals” they have for changing the world. We have students spend at least five weeks engaging in a rigorous assessment of their talents, strengths, skills, passions, and personal histories. Many students have reported that this was the most meaningful assignment they have ever had at any educational level. It helps them figure out what they want to do with their lives.

Our goal now is to help spread this curriculum to more than 200 colleges and universities across the world: to help train the next generation of social entrepreneurs, innovators, and problem solvers for the 21st century.

With these challenges in mind, SSE has been designed as an innovative course that brings teams of students together with experienced student advisors on projects for system-changing organizations. Each team commits to working approximately 40-hours per week, the equivalent of a full time intern. The class takes place in the Fall and Winter semesters when organizations are usually short on internship help. Instead of the students seeking internship opportunities to complement and enhance their college education on their own, the SSE approach builds a course around the internship experience, emphasizing the academic merit of hands-on learning—the type of experience most valued by future employers. Students compete for the opportunity to take the SSE course with the promise of collaborating with peers on projects based on real world relevance and critical organizational needs.

Each SSE class includes up to twelve prominent social entrepreneurship organizations that recognize the benefits of training and identifying future talent while they are still in college and further developing the human capital pipeline for the sector. Each organization benefits from a higher-quality deliverable due to the collaborative nature of the projects. After two years in operation, successful SSE work examples are numerous and include projects such as creating Dowser articles/profiles and working on Acumen Fund’s Blue Sweater college outreach.

The SSE course parallels other on-campus internship opportunities at BYU’s Marriott School where students intern primarily for corporations. Students showed interest in having the same opportunity in social entrepreneurship. The SSE Internship class follows a conventional internship model with the partner organization drawing from its own work and administrative tasks to create the student project. The dynamic project forges a direct link between the academic and social entrepreneurship communities and provides an exceptional opportunity for students to help make a difference in the world.

SSE developed and grew as a resource created primarily by students and for students. Although Curtis and Misty Lefrandt have since graduated, they did much of the initial legwork to recruit on-campus internship partner organizations. Their personal story helped to convince early adopters of the significant benefit to both students and social entrepreneurship organizations. As the faculty instructor of the course, the biggest challenge has been coordinating ever-increasing engagement points with partners of our Peery Social Entrepreneurship Program in ways that continue to benefit everyone involved. Misty has now returned to contribute as the SSE Partner Relations Manager. Curtis is also managing a team of student interns this semester from his position at Innosight, a leading consultancy for innovation.

Students have served as key allies to build this new program and to develop even more partnerships for BYU’s Ballard Center. We continue to integrate student perspectives and leadership in other initiatives at our flagship Peery Program. With their energy and enthusiasm, we’ve learned that students can play a crucial role in making institutional innovation a reality.

Note: This project was a 2011 Ashoka U Innovation Award winner. You can submit new innovation entries for the 2012 competition now.

I launched Innov8Social a few months ago to explore social innovation, with special interest in its intersection with law and policy. The timing coincided with the progress of AB 361 through various stages at the California State Senate and State Assembly. After connecting with the B Lab Policy team, attending a few of the hearings in Sacramento, and writing about the legislation, I began to see things from a unique perspective. The legislation, rather than being stand-alone happenings in the field, seemed to be part of a broader evolution of social innovation. The following walks through one view of that evolution.

A Social Entrepreneur by Any Other Name…
Bill Drayton’s furthered the concept of a “social entrepreneur” in the 1970’s. In 1980, he started Ashoka, which has helped define the term, the field, and the relevance of social entrepreneurship.

Against the backdrop of an ending war, a stock market crash and an uncertain economy, periods of high unemployment and inflation, the resignation of a President, the rise of the Peace Corps, and the beginnings of the Internet as we know it—it makes sense that there was an emerging need to connect the dots in new ways. And it makes sense that it would take a luminary such as Drayton to recognize a unique way to engage the social sector with entrepreneurship.

Technology, Out of the Box
Drayton’s concept of transforming society through engaging and expanding the citizen sector began to take shape. And it was happening at a time of profound technological revolution responsible for personal computers, mobile phones, smart phones, tablets, and the rapid expansion and development of the Internet.

In the past few decades, technology has astounded, mesmerized, challenged, sometimes-disappointed, and often amazed us. More than anything, it has served to connect all of us in a way unparalleled to any other period of history. As tech entrepreneurs developed new technologies that shot to fame, social entrepreneurs began to find new ways to harness those technologies to connect business with cause.

Not Business as Usual
Social innovation took another leap forward when Muhammed Yunus introduced the concept of microfinance, slowly shifting the paradigm from philanthropic donation to impact investment. Investing in change connects the investor and beneficiary in a sustained relationship. It builds communities and it enables new kinds of businesses to emerge. Yunus’ 2006 Nobel Peace prize for his innovative approach for creating change inspired broad-scale efforts in microfinance through organizations such as Kiva.org.

The need to see beyond a singular bottom line began to take shape. And new reporting standards began developing ways to account for a triple bottom line—a way to recognize a broader view of stakeholders including as stock-holding shareholders, but also including other sectors impacted by business such as the community and the environment. Those efforts have culminated in development of systems such as the Global Impact Ratings System (GIIRS).

Academia, Governance, and Fellowship
Social innovation continued to evolve and blend into traditional fields. New fellowship programs emerged to try to capture and rising interest in social entrepreneurship. Ashoka, Acumen, Skoll, Echoing Green fellows joined many others participating in and furthering social innovation. Universities followed closely behind with the establishment of courses on social entrepreneurship and centers on social innovation. The rise in interest even reached the White House, with the establishment of the White House Office of Social Innovation and Civic Participation.

Evolving to Policy and Law
Perhaps, then, the logical next chapter of the social innovation story is law and policy. Existing laws tend to draw lines between for-profit and non-profit businesses. Early cases such as Dodge v. Ford made clear that the businesses exist to benefit shareholders. The starkness of that notion and its sometimes unintended consequences gave way to the development of the Business Judgment Rule and state constituency statutes.

And now, in a handful of states, there is a new option for how companies can incorporate, lending a distinct legal structure to recognize social ventures. This type of incorporation can effectively blend social and environmental missions with entrepreneurial motivation. Benefit corporations have become an option in 6 states and have been in existence for over a year in Maryland.

California is the first state to introduce two options for social ventures. Corporations can opt to incorporate as benefit corporations or flexible purpose corporations—a form of social venture unique to California.

Forging a Path
When forging a path, the road ahead is always unknown. Similarly, though we’ll have to wait and see how companies engage with the new legislation—the fact that there is legislation is not the feat of a single effort, but the culmination of an evolving story of social innovation.

Solutions, most people told us, came from entrepreneurs and experts. Ideas for those solutions came from…well, no one could really tell us.

That was until we met Maurice Miller and Mia Birdsong, founders of the Family Independence Initiative (FII), late in the afternoon of our final day in the US. They were adamant about where ideas didnʼt come from.

“In America, we have had a 47-year war on poverty. Everybody knows we have not impacted poverty. It is actually totally logical to go to families and say, after 47 years of the smartest people with a lot of money and resources trying it their way, it’s your turn,” Miller said.

FII gives working poor families the resources to find and implement ideas that get them out of poverty. For FII, the best ideas come from people who are experiencing social challenges themselves. FII learns from and pays families, rather than researchers or consultants. By collecting data directly from families about what works (and when and where), they hope to influence how welfare systems operate. Solutions are the product of ideas developed and tested by families.

Like FII, we think itʼs critical to invest in bottom-up ideas and solutions.

What we saw in most of the organizations we came across, such as Root Cause, New Profit, and the ASH Center for Democratic Governance, were sophisticated methodologies for selecting and scaling solutions—far more sophisticated than those we encountered in the UK or Australia.

What we didnʼt see was the same level of sophistication or rigor in developing and testing ideas.

The big social challenges of our time—problems like educational disengagement and chronic health disease—are defined by their complexity. They have multiple, interlocking causes that render any one solution or theory of change incomplete.

That means that solving the big social challenges of our time requires change at multiple, interlocking levels: at a system, community, family, peer, and ultimately, individual level. At the end of the day, unless children participate in learning, or people eat and exercise differently, educational disengagement and obesity will remain so-called intractable problems.

Enabling people to shift their behavior works better when they see the value of such change and take ownership over the change process. In other words, itʼs much easier when people are the source of ideas for what should change, and when and how that change happens, provided we are also able to remove barriers at the broader system and community levels.

We use the word co-design to describe an approach of working with people to develop and prototype the ideas that will enable them to live the lives they want. We use the word coproduction to describe solutions that tap into peopleʼs natural resources—their skills, experiences, time, and money—to enable different outcomes. Ideas may take the form of new roles, interactions, materials, services, and policies. Solutions may take the form of new networks, platforms, organizations, or movements. In our work at The Australian Centre for Social Innovation (TACSI), we’ve spent the last 12 months co-designing ideas with families. Now, weʼre working with families to spread and scale a new network of families helping families, and beginning a new project with older caregivers and those they care for to develop and test ideas for improving relationships and outcomes.

A handful of institutions outside of North America are investing in co-design—ironically without investing in the sophisticated mechanisms we saw in North America for scaling the solutions that co-design may yield.

Back home in Australia we met with Lynelle Briggs in her fourth-floor, corner office that overlooks Canberra’s still lakes and rolling hills. After a long career as a public servant, Lynelle was about to retire as chief executive of Medicare Australia. There, she helped to establish the countryʼs first co-design unit inside the biggest government department: the Department of Human Services.

She explained, “The journey of moving towards co-design was one of being frustrated with what we had and thinking we needed something better. Co-design means that people in the community have the opportunity to engage with us in the thinking about policies, the design and choice of what policies are most suited to them, and the design of the services as they are delivered, and give us feedback after they have got them.” For Lynelle, co-design isnʼt just a fancy word for consultation; it’s a concept that requires re-sequencing how services are designed and delivered.

Government investing in processes, rather than just solutions, was deemed near heresy in the US. Even progressive city departments on the West and East coasts expressed deep skepticism that government could play a constructive role. The assumption was that government—at any level—was too risk-averse and bureaucratic to generate ideas by working directly with people. Michele Jolin underscored that view in her Summer 2011 Stanford Social Innovation Review article “Social Innovation in Washington, D.C.”: “Although government lacks the flexibility and tolerance for risk that are critical to innovation, government investments can be structured to fund evaluation and support scale, both of which are critical in later stages of the innovation cycle.”

Australia provides an instructive counterexample. Government investments can be structured to support bottom-up idea generation. What the co-design unit can do from inside the federal government and what TACSI can do outside of state government is demonstrate that starting with people—not just with entrepreneurs or experts—produces better results.

It took over ten years for FII to gain national attention and convince major funders that working with families, from the ground-up, produces better results. Experts and entrepreneurs were no match for families themselves. We hope it takes far less time to convince social innovation organizations in North America to invest in where ideas come from, and to convince social innovation organizations in Australia to invest in scaling solutions that work.