As many as 100,000 nonprofits could go under in coming months due to the slowing economy, says nonprofit management expert Paul Light, a professor at New York University’s Robert F. Wagner School of Public Service. In an interview today, Light, a governance and nonprofit effectiveness expert, says he thinks the most vulnerable are small-to-midsized arts and social service organizations that consistently operate at the margins. Light’s prediction comes as the Center on Philanthropy at Indiana University today released a new study showing that nonprofits think they’re facing the worst fundraising climate since 1998. The center’s Philanthropic Giving Index, similar to a Consumer Confidence Index for charitable giving, is now 64.8, a 21.7 percent drop from just six months ago and a 27 percent decrease since December 2007. “Winnowing is going to occur [in the ranks of nonprofits],” says Light, “but the question is this: is this a random shooting or deliberate? Is most money now going to stronger institutions, the ones that don’t really need it as much?”
I caught up with Light today to discuss these trends as well as his new book, The Search for Social Entrepreneurship, about the traits that distinguish social entrepreneurs. Light says social entrepreneurs tend to be more optimistic than others but urges those in the sector to start focusing less on its charismatic personalities and more on which ideas work—and which don’t. “You don’t find and there hasn’t been a good investigation of failure,” he says. What follows is an edited version of that conversation:
Q: Why did you write this book?
A: I’ve been monitoring management reform in nonprofits and government for some years now and the concept of social entrepreneurship is pretty visible through organizations such as Ashoka and Echoing Green; more and more of our students at the Wagner School are interested in starting their own nonprofits and solving big problems rather than ameliorating them. So the more I looked at it and listened, the more interested I became in describing this movement towards problem-solving and audacious goals by nonprofits, private firms, blended organizations, and cross sector organizations. I started looking at it in 2004/05 and wrote an article about it for the Stanford Social Innovation Review, published in 2006, that said there appeared to be a cult of personality surrounding the concept and that we have become fascinated with these individual heroes and put the focus on finding these sparkly charismatic leaders and funding them to pursue pattern-breaking change. I wrote that it’s not the hero, it’s the heroism and that social entrepreneurship can come from existing organizations, big old organizations, fresh startups and you-name-it and that provoked a pretty instant response from the field. I continued to do research about it in 2007 and 2008 and then wrote a book to summarize what I was seeing.
Q: What did you find?
A: The more I read, the more was I able to unpack the underlying broad assumptions that define social entrepreneurship as an effort to solve a tough social problem through innovative or pattern-breaking ideas. It turns out that people who act as social entrepreneurs behave differently from other high achievers, so I have come to agree that there is something different about the social entrepreneur. But I also found plenty of examples suggesting that social entrepreneurship is not a singular—but a plural. By that I mean that many organizations pursue social entrepreneurship through partnerships and teams and through networks, and our tendency in conferences and fellowship programs is to reward the individual when, in fact, we might be better off rewarding the idea or the organization along with the individual. In fact, the lone wolf entrepreneur is fairly rare and they’re often less successful in bringing their ideas to fruition than groups and networks and even communities of individuals. At the same time, I no longer feel there’s this cult of personality. There really are individuals out there who pursue pattern-breaking change against the odds and we should look for both types of entrepreneurs.
Q: You say that social entrepreneurs behave differently than other high achievers.
A: There’s this prevailing notion that they’re more risk tolerant, which does not appear to be true. What they are is extremely optimistic about their chances of success. And that goes for the lone wolves as well as for the socially entrepreneurial teams and networks. They all have very high confidence that they will succeed and they often ignore evidence to the contrary because they believe so strongly that they’ll succeed. We don’t have many stories about failed social entrepreneurs. The field as a whole has focused almost exclusively on success stories and perhaps that’s the way it is at the beginning of an expansion of any field. The focus on the entrepreneurial individual dates back to the early 1980s with Bill Drayton and Ashoka but it turns out that optimism and confidence are what drive the perseverance that produces this kind of constant focus on driving forward with change. It’s not that these people have a gene that can be identified as social entrepreneurship. It’s that they really see the world in very optimistic terms. Additionally, they’re not more likely to take risks than others but they do tend through their optimism to stick with it, and when they are told they are going to fail, they actually invest even more energy; they rebel against messages that suggest they’re somehow on the wrong track. This optimism can shift into overconfidence and entrepreneurs of all types need to be careful about that. They need to fine-tune and listen to what the “market” is saying to them about their idea. They also need to be aware that they do see the world in very optimistic terms and therefore need to check themselves from time to time and challenge their own assumptions about their ideas.
Q: What have been some of the key failures?
A: Honestly? You don’t find them and there hasn’t been a good investigation of failure. We just don’t know. We’re so focused on success that I can’t point to any failures. The failures just disappear. We know that a very high proportion of business entrepreneurs do fail. If you look at business entrepreneurship or define it as plain old survival, then you’ve got a very high failure rate among small business owners and new business ideas. The most recent example is the failure of HD-DVD to take control of the market. It’s Blue Ray now. You can study why HD-DVD failed to claim market share and understand what the sources of failure and success might be, but we don’t have that kind of research base in the social entrepreneurship field. There’s so much enthusiasm for the idea of social entrepreneurship that we are not taking careful inventories of where success occurs and where failure might reside. We’re lacking an entire branch of research that would be very useful for instructing nascent social entrepreneurs on what they can do to avoid failure. That’s a problem in the field right now and one of the threats to developing the field so it’s useful to people who want to launch a change effort.
Q: What kinds of research would be most useful in your view?
A: There are sweeping studies about success and failure in the field of business entrepreneurship. Is the organization still alive? Is its market share increasing? Is it profitable? Yet when we go to blended organizations or nonprofits, we just don’t have those indicators. Ashoka uses some reasonable indicators to get the dialogue started, like; to what extent do their fellows affect policy change? To what extent are their ideas still alive? But we need better measures of outcomes if we’re going to start separating the wheat from the chaff in social entrepreneurship, and we just don’t have those yet.
There’s also a lot of argument over what constitutes success. Do you have to change the world or can you change a piece of the world? Does it have to be changing an entire policy regime within a country or within a region or even a continent, or can it be changing a city block and diffusing the idea so that others can pick up the change effort for their city blocks and eventually you have a cascading affect? There’s a lot of confusion in the field right now.
The general goal of social entrepreneurship is quite noble and I’ve become more and more impressed with what social entrepreneurs are trying to do but there are a lot of question marks still in the field. A lot of the investing in social entrepreneurship is really gut-level, intuitive investing—rather like a venture capitalist—versus a very careful rate of return investment based on the actual impact of a given idea on changing the status quo. To me the idea is the important component of social entrepreneurship. We have to be careful not to neglect the possibility that it’s not so much the individual leader but the power of the idea to create a market and to create change that is most significant.
Marcia Stepanek is Founding Editor-in-Chief and President, News and Information, for Contribute Media, a New York-based magazine, Web site, and conference series about the new people and ideas of giving. She is the publisher of Cause Global, an acclaimed new blog about the use of digital media for social change. She also serves as moderator and producer of New Conversations for Change, Contribute’s forum series highlighting social entrepreneurs and new trends in philanthropy.