[This continues Sean Stannard-Stockton's and my conversation about theories of change. Sean wrote a guest post on this blog, arguing that donors should be primarily concerned with funding great nonprofit organizations rather than crafting theories of change for social programs. I replied. And Sean has now responded on his Tactical Philanthropy blog. Here's an excerpt from his response. I'll plan to respond later in the week.]
In "Donors as Investors not Entrepreneurs," Sean writes:
For-profit firms are generally built by entrepreneurs and funded by investors. Most investors are "passive" in that they provide capital, but do not influence the day to day operations of the firm. Some investors, especially large, early stage investors such as venture capitalist, do exert influence over how the firm is run. However, at the end of the day, the business plan is crafted and adapted by the entrepreneurs, not the investors...
Sure nonprofits should have sound business plans that address both operations as well as a Theory of Change for why their programs will affect social impact. While neither nonprofits nor their funders should expect the level of evidence found in science, I do think that nonprofits should base their plans on evidence that they will likely work and accumulate evidence along the way that things are working (or not). My point is the designing of programs and researching of validity should be the domain of nonprofits. The focus of donors should be reviewing nonprofits and selecting those that appear to offer the best opportunity for impact. This is not how foundations behave today.
...Many foundations are practicing philanthropy with their emphasis in the wrong place. Foundations should be spending most of their time researching nonprofits and then figuring out the best way to fund the ones they chose, rather than spending their time designing programs and then finding which nonprofits they can contract with to execute their plans. ...
So yes, evidence of social impact is important. Yes, any public benefit activity should be executed according to a plan and progress towards goals should be tracked. But I refute Paul's assertion that philanthropists are the ones charged with designing a theory of change. Instead, I think their role should be in funding the best nonprofits. It is no wonder that we've been so slow to develop social capital markets if the major funders are more interested in designing programs than in providing capital to build great nonprofits.
In my model, donors would have their own beliefs and expertise around what sorts of programs work. But they would be "synthesizing generalists" in the words of philanthropy advisors Lowell Weiss ... A synthesizing generalist, which is an apt description of most great for-profit investors, does not have the domain expertise to create social impact business models. But they do have the ability to evaluate nonprofit firms across a variety of areas and select the ones who are most likely to have a theory of change that works and the ability to execute their plan. ...