It’s one of this generation’s most popular buzzwords, but how well do we really understand innovation? Aunnie Patton Power puts the concept under the microscope, arguing that purpose is an overlooked element of successful innovation. 

Innovation might be one of the most overused words of our time. From the iPhone to self-driving cars to see through solar panels we are surrounded by talk of innovation. It stimulates a relentless appetite for novelty: ‘what’s next?’

But the part of innovation that is often overlooked is the purpose. If innovation is really about solving problems and realising new opportunities, what problems are we solving and for whom are we realising new opportunities?

This is where the study of social innovation comes in. In social and inclusive innovation, we seek to solve problems that are relevant to people’s livelihoods and quality of life, trying to make the world a more inclusive place – rather than innovating for its own sake or just for money.  

Over the past few decades, new business models have emerged around social and environmental impact.  These are companies and entrepreneurs that have blurred the line between non-profit and for profit. They have successfully changed the view of the Base of the Pyramid from beneficiaries to consumers and producers.

The problem is these business models have evolved faster than our funding approaches.  So in essence we are constraining this 21st century approach to social change with a 20th century funding mindset. This is incredibly limiting. We don’t expect the fast growing companies of the 21st century to use the same models of delivery as their predecessors. Amazon doesn’t have to build stores to be the largest bookseller in the world.  

Similarly, we can’t expect the traditional structures of debt, equity and grants to work effectively unless they are re-designed to address the needs of these innovative business models and the social and environmental outcomes they are working towards.

One of the reasons that traditional financing structures don’t work for social impact is that they often treat impact measurement as either a nice-to-have (debt and equity) or a post-project calculation (grants).  Neither of these positions fully integrates social impact as an intrinsically valuable goal.

If we want to makes decisions in funding around social, environmental and financial returns, we need similar amounts of data for each. This means that impact measurement needs to be a part of the strategy of the company, how capital is disbursed and how it is priced, right from the start.

The message from investors continues to be that there are not enough investable deals, while entrepreneurs continually complain about the lack of capital available. These can’t both be true, so what’s going on?

Funders are generally focused on the gazelles – the fast growing, high impact, highly scalable organisations run by social entrepreneurs who can deliver a slick presentation.

But much of the capital need is for oxen – the slow growing companies that are in less sexy industries (i.e. not tech) and run by entrepreneurs who understand their businesses, but might not be able to clearly articulate it in ‘industry speak’. These oxen often require small amounts of debt capital instead of large equity investments.

Innovative financing can help realise social goals. The creation of microfinance is a great example. In the 1980s, when the Grameen bank was founded by Muhammad Yunus. The concept of making tiny loans to poor people and expecting them to pay them back was thought to be a crazy idea. And yet, 30 years later microfinance is estimated to be a $10 billion a year industry.

Regardless of whether or not microfinance lived up to its original hype as far as impact, it opened up a whole new understanding of how finance could be adapted to suit individuals and organizations outside of the current banking system.


ABOUT THE AUTHOR

Aunnie Patton Power is the founder of Intelligent Impact, an Entrepreneur in Residence at the Skoll Centre for Social Entrepreneurship, and an advisor to the Bertha Centre for Social Innovation at the University of Cape Town’s (UCT) Graduate School of Business. As well as teaching at the Marshall Institute, Aunnie is an impact investor working with start-ups, funds, family offices, foundations, corporates and governments across the world.