Council Post: Innovation In The Nonprofit Sector: A New Path To Scale And Impact

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Many nonprofits fail to innovate at the pace of the for-profit sector. While our methods are outdated, our spending restrictions won’t allow us to take leaps.

I’ve worked in the international nonprofit space as the founder of Well Aware for 12 years in a field that combines science, technology and cultural adaptation. We construct rural water supply systems in east Africa with a team of experts while using local technology that’s rapidly expanding in the region. But the rural water supply sector, overall, is claiming pretty low success rates.

A few years ago, we decided to do something more daring to leverage the blossoming communications and banking tech to disseminate our expertise and model more broadly, while also harvesting important data to inform better work.

We explored taking a significant pivot within our nonprofit structure and found no good path without confusing or disgruntling donors. We also knew that our ranking on rating websites could be compromised if we put money toward what most would see as a risky enterprise.

So, we decided to create a new entity — a for-profit company called Well Beyond — to facilitate our new path without compromising the reputation and revenue of the original organization and to provide a source of growth for the nonprofit.

The two companies are enhancing each other’s reach, and we are building on the successes of each to forge a new path for our corner of the nonprofit world. Here’s what we’ve learned so far.

Why do nonprofits struggle to innovate?

In my organization’s subsector, it’s estimated that about 60% of water wells installed in Africa don’t work. We’re frustrated with this statistic, and many of us are trying new things, but we’re not advancing at the scale needed to address this abysmal success rate. Why?

For the most part, nonprofits are acting on already proven or quickly proven concepts. Research and development investments are difficult to justify when the parameters of charity rating platforms preclude spending on efforts outside of the mission and without short-term results. We do this because we’ve been sending the wrong message to our donor base.

The nonprofit sector has done a poor job of educating donors about what real program success looks like. True success is not the moment the well is drilled or when the treatment is administered. Real impact is only seen by results over time. And being able to measure the true impact of a program (and, thus, donations) requires additional spending and organizational capacity, meaning the true cost of an initiative is higher than what we have been telling our supports.

Meanwhile, charity rating websites give top scores to nonprofits that are putting enough funding into “program costs” but without any accountability for lasting intended impact. (I should mention that some sites do enable impact reporting that is reflected in scoring, but it’s on an “honor system.”)

So, we’re lacking the incentive to spend on the part that really matters: the follow-up to ensure that the dollars were spent wisely, the project is still working, the program is serving the intended beneficiaries, and all failures from the initiative are noted and addressed.

These perceptions, parameters and misguided messaging are stifling the world of philanthropy and the potential for the dissemination of our expertise.

Can the dual structure be amply funded?

When I talk about our new structure, one of the most frequently asked questions is, “How does this get funded?” After all, if there’s no tax deductibility for the contribution, what’s the incentive for the funder?

I’m not a huge fan of the term “social impact investing” because it means different things to different people. But it is commonly understood that this type of financing includes lowered expectations of return and the timing of the return and that this can be justified by the social good that comes from the investment.

The right social impact investors believe in the mission, see the path we are creating for the sector and are willing to roll the dice on our crusade. At Well Beyond, we just completed our seed series with credible support. We found individuals who knew the landscape of our sector well enough to embrace our business plan and whose ideals as global citizens permitted them to deviate from their typical investment portfolios.

What are the tangible benefits of this new structure?

Some real and valuable talent can grow from a nonprofit organization, but commercializing that for good doesn’t make sense for all charities. If that powerful resource can be unleashed for sector access and monetized for more mission scaling, there’s greater knowledge in the industry to more revenue to do good work.

On top of that, as the second company gains momentum, the expertise is further strengthened for use by the original nonprofit, allowing the philanthropic side to scale at a healthier pace. This in-kind support for the nonprofit cuts costs and facilitates more efficient operations.

Most importantly, we can innovate. We can take calculated risks that are necessary to tackle global issues with higher efficacy and at a much greater scale.

The Well Aware/Well Beyond sister company model is still pretty new, but we have already been able to scale the work of the nonprofit through pro bono services, as well as cover some of its operational costs. If we continue to support Well Aware in this way, we anticipate continued growth and improved impact on both sides.

Final thoughts 

Nonprofits exploring a similar structure should consider whether there is expertise or product based on your mission that can be monetized through a separate entity. It’s possible to continue your nonprofit work while sharing a successful model or product elsewhere in the sector for a bigger impact and greater organizational sustainability.

In our experience, the most important factors to success include an open-minded, forward-thinking and vigilant nonprofit board, as well as key investors and a very hardworking, brave team skilled in change management.

This dual structure could be the future of philanthropic work and might even make charity work a competitive force globally.