All Ideas
Ideas on Entrepreneurship and Impact Investing
May 30, 2017

Lesson 5: Our Ecosystem Must Support Leaders of All Business Models.

One constant among Echoing Green Fellows is that they approach their lives and passions with an action-orientation. Their solutions-driven style and their tolerance for risk illustrate to their organizations, their communities, and the social change ecosystem at-large that deeply rooted social issues are indeed addressable. These leaders dissolve the boundaries between sectors to tackle complex challenges, and often make a business case for creating shared social value. For them, the idea is just the beginning of the journey.

Changing Structures: Mission over Model

For the better part of the first two decades of Echoing Green, our Fellows and applicants primarily proposed nonprofit organizations to solve social problems. But over time, we noticed a shift in the proposed organizational structures, with entrepreneurs thinking differently about achieving impact and a funding climate beginning to evolve to support more model diversity.

In 2006, we noted a significant rise in social business proposals with for-profit elements (15 percent of the full applicant pool). That number has steadily increased, with nearly half of our 2017 applicant pool proposing organizational models with for-profit elements, and half of our Fellowship class representing the same. We’ve seen Fellows launch market-based solutions that include hybrids, nonprofits with earned revenue streams, and for-profits. And the structure they start with may not be where they end up: as social entrepreneurs solidify their approach while ultimately prioritizing impact, their legal structure may change to most effectively meet those goals.

While the capital markets have entered the social good landscape–double- and triple-bottom line businesses are becoming more mainstream–there’s still some catching up to do when it comes to supporting social impact-first organizations. It’s exciting that more companies and investors are embracing making money while doing good, but that does not necessarily mean that the organization, its leadership, and its funders would sacrifice profits to protect its mission. Fundraising is a challenge for most early-stage entrepreneurs, regardless of the legal structure of their organizations–and when one accounts for demographics, region of work, and launching an idea that’s never been tried before, the difficulties can compound.    

One of our greatest lessons learned is that investors and funders must create open lines of communication with social entrepreneurs about the challenges with getting risky, bold ideas off the ground without setting unrealistic expectations that will inevitably prevent high-potential ideas from developing and thriving.

The Takeaway: When it comes to entrepreneurial solutions for social change, organizational model diversity is here to stay. We need to contribute to an ecosystem that supports risky, good ideas, no matter their structure.

Identifying and deeply supporting transformational leaders who are resilient, passionate, and focused on bold challenges to “business as usual” is a part of mitigating risk for future funders. We take seriously our role of working with leaders to spur the right risk-taking, remain open-minded to leave room for the entrepreneurs to experiment, and connect them to other action-oriented leaders to co-create solutions and exchange ideas and lessons learned.

Adaptive Support for Leaders of All Structures

When it comes to early-stage social businesses, accessing capital can be challenging and the philanthropic and investor landscape can be hard to discern. Early-stage leaders seeking funding aim to have the answers to “Who impact do I want to have?” and “How can it be achieved?”; the model and funding they seek will be in support of that.

The answers to those questions require tailored – or configured– support. There is some information all entrepreneurs need, but offering a menu of support allows Echoing Green to better scale the sharing of best practices, including determining the best legal structures and funding sources. These supports can look like connecting entrepreneurs to mentors and potential funders, providing pitch coaching, or developing tools, like the Seed Impact Investment Template Note designed to help social entrepreneurs enter negotiations with clearer terms for debt investment.

Lengthen the Runway

There is increasing conversation around expectations when it comes to fundraising: in particular, investments for profit and impact-generating models need to evolve and cannot mirror expectations around investment returns for single-bottom line companies. People proposing bold, untested ideas to disrupt structural inequities need time to measure, codify, and report on their impact in a way that does not interfere with the goals of their mission. Building out more runway for all early-stage organizations–including nonprofits, for-profits, and hybrids–will result in an ecosystem better able to support their growth. Giving people the room to succeed means making room for them to fail forward. In part, this means grant makers and investors accepting more calculated risks at the earlier stages and for organizations and funders to partner to match expectations around those goals.

Open Communication

Transparency across the social entrepreneurship ecosystem is critical – especially when impact is at stake. For investors and entrepreneurs alike, opening the lines of communication–and being clear once you do–helps to manage expectations, align social and financial goals, and fosters deals that better satisfy the goals of each.

The social innovation landscape–but especially entrepreneurs, capacity-builders, grant makers, and investors–benefits from asking tough questions about what works when it comes to supporting emerging leaders in social innovation. The more knowledge sharing and tool-creation we do as a field to make risk-tolerance more palatable, the better chances we have to seed and support ideas that will boldly change the world for the better.

Here’s what’s next

Look out for an upcoming report on Echoing Green’s impact investing work, and stay tuned to check out the leaders of the new class of 2017 on June 8–learn all about their nonprofit, hybrid, and for-profit ideas for dramatic, positive social change!

Go Deeper

The Power of 30 Years

2017 is Echoing Green’s 30th year. To mark this milestone anniversary, we're taking stock of lessons learned, sharing how these perspectives inform our work and the field at large, and looking at ways we can apply these insights to help us contribute to more social transformation over the next 30 years.

Read all of our 'Lessons at 30' →