Risk = ‘to dare’. Why funders need to rethink their attitude to risk if they really want to support innovation

August 8, 2014 1 By Duncan Green

Following on from last week’s piece on the role of Foundations, here’s an excerpt from an excellent piece in the Stanford Social Innovation Review. Although it is aimed at

Wanted: heroic funder (white horse optional)

Wanted: heroic funder (white horse optional)

Foundations, spending the income from their endowments, it has important messages for others, including NGOs.

‘Risk stands at the center of an inherent creative tension within the field. Endowments, by definition, are tools for conserving resources, and as stewards of those resources, foundations are obliged to make prudent use of their assets. Yet foundations are also uniquely positioned to take risks. Whereas businesses are responsible to their shareholders for quarterly financial returns, and governments are accountable to voters for the careful use of public money, foundations have extraordinary discretion to experiment and try new things.

So as funders contemplate risk, it’s worth remembering the idea’s early roots. As investment writer Peter Bernstein noted in his book Against the Gods, “The word ‘risk’ derives from the early Italian risicare, which means ‘to dare.’ In this sense, risk is a choice rather than a fate.” For the early seafaring adventurers, risk was a powerful choice that carried a strong sense of reward and opportunity, as well as danger and potential peril. The Spanish crown and Italian investors who backed Columbus’s voyages knew he and his crew might never return, but the rewards of finding a new route to Asia pushed them to support him as he sailed into the unknown.

Over time, however, the concept of risk has largely shed its upside and become something to be avoided, mitigated, and managed at all costs. If funders are going to create social change, they will once again need to see beyond the potential for reputational damage and lost opportunities to rediscover the upside of risk, recognizing that innovation offers the potential for tremendous reward and opportunity as well.

high low no riskTo find and support these types of breakthroughs, innovation funders are also re-embracing the importance of experimentation as a core part of their work. An experiment, in scientific parlance, is a test or a trial undertaken to make a discovery. And because wicked problems like entrenched poverty and climate change rarely have clear and technical solutions, innovation funders constantly seek out and test new approaches. “Van Jones [a senior fellow at the Center for American Progress and a former special advisor to President Obama] once told me that what’s needed is for funders to stop giving grants and instead to fund experiments,” says Linda Wood, senior director for leadership and grantmaking at the Evelyn and Walter Haas, Jr. Fund.

The idea of “funding experiments” requires foundations to develop a deep appreciation for iteration, failure, and learning. Social change is a messy and uncertain process, and innovations rarely follow a linear path. They move ahead in fits and starts, through repeated trial and error. And because it’s hard to know the path forward from the start, supporting this type of experimentation requires an unusual degree of flexibility. Innovation funders often use an emergent approach, adapting their strategies as they learn more about issues and leverage points. They leave themselves open to possibilities. And they trust and support recipients as they learn and find new solutions that are built on the backs of early failures.’

I’d be interested in hearing about examples of this positive approach to experimentation and failure, including the ‘venture capitalist’ approach of funding multiple parallel experiments, as Oxfam has tried in Tanzania, and efforts to get a better balance of risk across organization’s whole project portfolio.

[h/t Rakesh Rajani]