A Clear Theory of Change

Entire books have been written about theory of change, and many consultants make a good living helping organizations create or iterate theirs. Some philanthropic foundations consider it a prerequisite for their funding, so much so that funders like the Edna McConnell Clark Foundation help grantees refine their theory of change before they scale up. At its simplest, a theory of change articulates what societal benefit the organization aims to create and how it will occur. Along with a mission or vision statement and stated organizational values, the theory of change helps all stakeholders—staff, volunteers, donors, and directors—understand what they must believe and work toward.

However, the first major challenge is often to establish a shared understanding of what a good theory of change looks like, how comprehensive it needs to be, and what level of detail would be most useful. Given the complexities and challenges of any social change effort, authors of an organization’s theory of change must decide whether to favor a more compact document and risk oversimplification or err on the side of comprehensiveness and risk opaqueness.

The simplest formats for a theory of change are linear, sequential if-then infographics that depict the organization’s major inputs, processes, and outputs along with the ultimate desired goal: “given these conditions, if we do these things, then this will happen, and then these benefits will be achieved.” In a Stanford Social Innovation Review article, Moaz Brown makes a strong case that a good theory of change should also articulate the underlying rationale for the goal and process (i.e., why the impact is possible and why the activities are important).¹ Others want a theory of change to include assumptions, context, supporting factors, externalities, and unintended consequences. Alas, the visual elegance desired by graphic designers and the uncomplicated pithiness that works well in a fundraising pitch can lead to oversimplification, leaving open questions and mysterious “black boxes” encompassing unarticulated steps in the change process. But then, in an attempt to capture some of the complexity and nuance of social change, many a theory of change author adds more words and components to the originally simple boxes-and-arrows chart, reducing the font size and margins until they have an impenetrable wall of spaghetti.

Those who wish to create a documented theory of change that is both clear and thorough may consider embracing hyperlinks. Definitions, frameworks, explanations and caveats, and other details can be covered in one or more connected supplemental documents so any audience member can understand the theory of change at the level of detail appropriate to their use.

An Aligned Operating Model

In the literature on social impact organizations, much less has been written about operating models, which describe how the many parts of an organization work in alignment with each other and in the service of the organization’s goals. This is often just as important as a well-crafted theory of change. As Jim Collins and Jerry Porras put it succinctly in their bestseller Built to Last, “Building a visionary company requires one percent vision and 99 percent alignment.”²

Many frameworks applied to private sector companies are helpful for describing the inner workings of social sector organizations. For example, McKinsey’s 7S Framework, created by Robert H. Waterman and Tom Peters, includes structure, strategy, systems, skills, style, staff, and shared values. Bain’s five-part operating model framework includes structure, accountability, governance, ways of working, and capabilities.³

Fleshing out an operating model that is aligned internally and with the organization’s goals not only helps maximize efficacy; it’s also a prerequisite to scaling. A health-care organization may have developed a treatment with a 100 percent cure rate, but it won’t achieve its mission without distribution channels, suppliers, partnerships, marketing, trained clinicians, political savvy, and cultural sensitivity to support widespread adoption of the treatment.

The operating model also needs to be aligned with the external context—an approach that is well designed for a particular time or place may not be well suited for other geographies or when conditions change. For example, Fresh Lifelines for Youth, which prevents juvenile incarceration through legal education and mentoring and typically works with high school students, created a new program for youths age eighteen to twenty-one in response to the passage of a new law.

A Robust, Well-Integrated Approach to Measuring Progress

Social impact organizations also need to regularly ascertain that what they are doing is working—not only to garner support from external parties such as donors or governments but also to inform adjustments to the approach and motivate staff. At first, anecdotal and self-administered measures are often sufficient. Some organizations can get by with participant satisfaction surveys, quotations from beneficiaries, and captivating photos. Some can also gather, analyze, and publish efficacy data themselves using widely agreed indicators. For example, a program to employ formerly incarcerated men might track and share recidivism rates, while a prenatal care innovator may celebrate a reduction in infant mortality. Many organizations eventually seek validation from an external third party such as a university researcher or independent evaluator—usually requested by others who may provide new funding or enable growth. In fact, some governmental funding programs require or embed third-party evaluation into their requests for proposals and grants. Eventually, some organizations initiate a randomized controlled trial (RCT), which is widely considered the gold standard of experimental methods. But, to some, even that is not the pinnacle of demonstrating efficacy. In their “standards of evidence” framework, Geoff Mulgan, Ruth Puttick, and Simon Breakspear encourage mission-focused organizations to make sure they understand why the intervention is effective and to evaluate efficacy in different contexts and over time.⁴

Ultimately, efficacy in achieving public benefit is what distinguishes a social sector organization from a private sector corporation, but proof of efficacy doesn’t guarantee the opportunity for growth. Studies of charter management organizations by the Center for Research on Education Outcomes (CREDO) at Stanford used matched student samples to determine the size of the effect of attending charter schools. They found significant effect sizes in many cities, with students accelerating by many additional months, yet politically motivated opposition to charter schools has nevertheless stymied the expansion of even schools with the most demonstrated efficacy and parent demand. The world is also littered with ineffective “solutions” that, despite not working, nonetheless become widespread (and lucrative). Units of Study, a set of resources for teaching English language arts to elementary school students, used methodologies that contradicted well-established scientific findings regarding how children learn to read. Yet this program was widely adopted by school districts across the country. The program, created by Lucy Calkins at the Teachers College Reading and Writing Project at Columbia University and published by Heinemann Publishing, captured a 16 percent market share in 2019. The founder of the program, Lucy Calkins, finally recanted assertions of the efficacy of its methodology, but during the thirty years in which it was a dominant approach to teaching young children in many schools, it undoubtedly contributed to the dismal literacy rates and persistent racial reading proficiency gaps across the United States.⁵

A Viable Revenue Model

Identifying and developing a model that is financially sustainable—one that provides a steady stream of resources that grows commensurately with the organization’s expansion—is a major challenge for almost all social sector organizations. Social entrepreneurs have a variety of options for achieving financial sustainability, but each potential source of funds requires different capabilities, organizational characteristics, and risks. Dollars may be earned from customers, secured as charitable donations, or received from the government.

An Understanding of Cost Structure

For many scrappy organizations, a dollar saved is as good as a dollar earned. Many social impact organizations operate on a shoestring—particularly those that are small, local, and provide social services. They rely on volunteer labor, underpaid employees, used furniture, and decommissioned equipment to deliver services to a vulnerable population. This approach is usually not sustainable over time and is not scalable, as this practice essentially underestimates the real cost of doing the work.

Any impact-focused organization wishing to manage its budget needs to understand the costs of delivering its social benefit, often at multiple unit levels, especially as the organization grows. For example, a health clinic would need to understand cost per patient as well as costs per health-care provider. Before adding additional locations in the same city, it would also need to understand cost per site; before expanding to another city, it would need to calculate cost per geography. Calculating unit costs usually requires making assumptions about how staff time is allocated. To ensure a complete understanding, leaders need to make sure that unit cost calculations are “fully loaded.” It’s not enough to know the cost of the raw materials and labor that go into producing the new low-cost infant warmer; an entrepreneur also needs to calculate the costs of sales, distribution, training, maintenance, fundraising, and administration. Geographically distributed service providers and multiprogram organizations often struggle with how to allocate costs of shared services (such as a finance department), which are often administrative but nevertheless essential to understanding the full price tag for delivering the social benefit.

Strong Cash Flow

Many startup and high-growth organizations, including mission-oriented ones, find that cash flow is more important to corporate survival than profitability on a GAAP (generally accepted accounting principles) basis. Assurances from a foundation program officer that a grant will be approved at the next quarterly board meeting may not be sufficiently soothing for frontline workers who need to pay rent. Securing a huge government contract is a win—until that bureaucratic government agency is ninety days in arrears on its invoices for services already rendered. It’s not unusual for founding social entrepreneurs to forgo their own pay when their nascent organizations face cash shortfalls. To manage cash flow, entrepreneurs need to plan ahead. They may borrow to ensure sufficient cash by securing a line of credit before they need it or by tapping governmental loan programs. A mission-focused organization that is structured as a for-profit corporation and has a plan for accelerated high growth within a large market may also be able to secure funding from individual private investors, venture funds, private equity firms, or strategic corporate investors.

Legal Structure

The organization’s legal structure—whether for-profit, B corporation, or nonprofit public benefit corporation—somewhat affects the sources of funds that are available to it. However, the lines have become increasingly blurred. Some not-for-profits now earn revenue for their services—sometimes the same services offered by for-profit companies. TalkingPoints and Remind are similar text-messaging tools that facilitate communication between schools and families, and both earn revenue when schools and districts pay for the service, but TalkingPoints is a not-for-profit and Remind is a venture-backed for-profit. Both for-profit and not-for-profit organizations are usually eligible for government funding, in the form of competitive grants or payments for specific services. Health clinics, services for immigrants or veterans, and postsecondary education are all fields within which organizations with different governance structures can receive government funding for similar services. Even in the world of philanthropy, mission-focused for-profit corporations have sometimes received “nondilutive capital” to support their activities. NewSchools Venture Fund, a venture philanthropy focused on education entrepreneurs, created its Ignite program to provide early-stage grants to organizations—both for-profit and not-for-profit—that are developing education technology products that address identified gaps. Large foundations can also use their endowment funds to make mission-aligned investments (“program-related investments”), although arguably they do so far too infrequently. However, some types of capital (e.g., venture funding, strategic partnership investments, and private equity) are only available to companies with equity stakes that could eventually provide a return to investors. As a result, social entrepreneurs organized as for-profit corporations are more able to access larger amounts of capital for hypergrowth than not-for-profit public benefit corporations (as described by Clavier in chapter 5 of this volume). Some entrepreneurs even create multiple connected organizations to maximize their access to different types of capital.

Ultimately, traditional labels may not be sufficiently informative. Some not-for-profit organizations are quite profitable, and plenty of venture-backed for-profit companies operate for years with sizable operating losses. In any case, any organization regardless of incorporation type needs to manage resources wisely over the long term to achieve its mission.

Readiness for Scale

An important first step is simply determining whether a social impact organization is ready to scale. Many organizations scale too soon—because of overambition, the urgency of the cause, time-sensitive opportunities, and/or pressure from funders. Bruce Holley and Wendy Woods provide six good questions to ask about an organization’s readiness to scale: (1) Have you earned the right to grow? (2) Do you manage your costs effectively and understand what will change with expansion? (3) Are the conditions for success in place? (4) Can you fund the growth? (5) Do you have the right people and leadership in place? (6) Is your organization model scalable?⁶ In general, both efficacy and financial sustainability need to be strong before scaling, since scaling will put pressure on both. If the program model isn’t refined, adding more staff and more locations is likely to make quality problems worse, not better. If the financial model doesn’t work, trying to serve more beneficiaries will usually result in an even deeper fiscal hole.

A Model for Scaling

Many social entrepreneurs assume that adding a new geography is the only way to scale their impact, but that is just one of many approaches for scaling. Jeffrey Bradach and Abe Grindle provide an excellent framework for considering a wider variety of approaches to scale that go far beyond geographic replication, including recruiting others to deliver the solution, unbundling, field building, and policy advocacy.⁷

Kingmakers of Oakland was originally a program within the Oakland Unified School District in which Black men mentored Black male students. When other school districts asked them to replicate the program, it “spun out” to do so. As demand grew, Kingmakers of Oakland eventually created a curriculum so that other districts could deliver the program themselves.

Configuring Operations for Scale

Increasing scale requires purposely configuring the way a social impact organization works to reach more beneficiaries. As illustrated in figure 8-1, an organization’s leaders should consider two important questions in conjunction:

1. What drives its social impact? (In other words, is it principally a service, product, or idea?)
2. How much control is needed to produce the desired benefit? (In other words, how much flexibility could there be in how the impact is achieved?)

Based on these two decisions, entrepreneurs may take different approaches to configuring their activities for scale.

FIGURE 8-1

Configuring for scale

A service organization with a control-oriented approach might scale through a franchise approach or by directly operating all its sites (see cell A in figure 8-1). In order to scale, this type of organization needs to codify what is nonnegotiable in its approach, build strong systems for managing mission-critical activities (especially those related to the people delivering the services), and cultivate a strong culture to facilitate aligned decisions and behaviors. Over a fifteen-year period, the charter management organization Success Academy grew from a single school serving 157 students to forty-seven schools serving 20,000 students and yet maintained its extraordinary academic results. (In 2019, 99 percent of students were proficient in Math and 90 percent were proficient in English Language Arts compared to about 50 percent for all other New York City public school students; although almost all Success Academy students are children living in poverty, academic proficiency rates of its schools are much higher than New York City public schools serving affluent students.) Success Academy accomplished this by tightly managing every aspect of the educational program.

A social entrepreneur operating a service organization who believes that a variety of means could get a similar result may instead choose a network design for scaling, and then focus its resources on building the tools to support other groups delivering similar services (see cell B in figure 8-1). The NACA Inspired Schools Network takes this approach to creating high-performing charter schools serving Native American students. Rather than directly operating dozens of schools, they operate a fellowship program for aspiring school founders, a teacher training program, and a resource hub.

Social impact organizations that create an impact through a product or technology tool are in many ways more inherently scalable than service-oriented ones. Scaling models for this type of organization center on how the product or tool is distributed. More control-oriented organizations seeking scale may revise the product to ease adoption, reduce customizations, streamline the manufacturing process, expand the supply chain, closely manage distribution, and provide user support to ensure correct use of the tool (see cell C in figure 8-1). The Miraclefeet brace to correct the debilitating clubfoot condition in children (described in more detail by Stuart Coulson in chapter 11 of this volume) configured its operations to increase scalability by establishing industry partnerships for manufacturing and distribution.

Products and tools that produce benefit even with modifications and variations can increase scalability by building the field to help others to produce similar tools, facilitating collaboration among providers to increase use, enabling use in multiple languages, increasing user-friendliness, lowering culture-specific barriers, adding uses for application, and accelerating adoption (see cell D in figure 8-1). Social impact investors like Reach Capital facilitate convenings among the education technology entrepreneurs in their portfolio to build momentum for the field, encourage sharing successful practices, and facilitate partnerships.

Organizations that are focused on an idea—changing attitudes or behavior rather than delivering a product or service—may build scale through a variety of communication and advocacy strategies. Some will desire tighter control over messaging, messenger, and form (see cell E in figure 8-1). PATH, an NGO, worked for thirty years to secure global adoption of heat-sensitive stickers on vaccine vials to monitor viability of vaccine doses and reduce waste. (For more details, see Davis’s discussion of scaling in chapter 7 of this volume.) In contrast, those comfortable with loosely affiliated groups that reach shared goals by a variety of means scale by building a movement (see cell F in figure 8-1). Black Lives Matter has influenced public perceptions of race relations but is a collection of independent actors with a shared purpose rather than a single organization with a hierarchical structure.

Regardless of scaling model or scalability, organizations seeking to scale need to ensure there is sufficient demand and that their approach is applicable in the new context.

Mitigating Risks

The difference between successful and less successful organizations is often the ability to mitigate the downside risk of actions that improve one dimension of the impact triangle but strain the other. As a service-focused organization, the National Equity Project’s value is provided by highly trained professionals—typically one of the hardest types of organizations to scale. Historically, the NEP team had been extremely deliberate about maintaining the quality of the learning experience, investing heavily to ensure its own staff had sufficient time apprenticing under more experienced facilitators. That initial investment paid off after Covid eliminated the possibility of immersive in-person retreats, as it enabled the team at the National Equity Project to rapidly pivot all its programming to be completely virtual without losing the essential qualities of the participant experience. The experienced team was creative and purposeful in every aspect of the remote-only program design and facilitation, enabling participants to build a sense of community, be vulnerable, and have authentic dialogue even over a video call. This has created a pathway for the organization to expand its virtual programs, which both provides a financially self-sustaining earned revenue stream and reaches many more educators with a compelling learning experience.

Evaluating Trade-offs

Sometimes there is no way to lessen the tension, and leaders must choose to prioritize one dimension of the impact triangle over another. The KIPP Through College program was created after the renowned charter network found, in 2011, that 31 percent of KIPP alumni graduated from college within six years—a much higher rate than the national average for low-income students but a rate that was still very disappointing to KIPP leaders (for information on US college graduation rates, see Rob Urstein’s discussion in chapter 12 of this volume). They reworked their college counseling program, created partnerships with colleges that had a track record of providing effective support to first-generation college students, and increased outreach to KIPP alumni. All this came at a cost of $850 per alumnus, which required the organization to raise more donations to supplement government per-pupil funding. However, the investment in this program enhancement paid off: “summer melt” (when students have been admitted to college but subsequently do not attend) decreased from 35 percent to 2 percent, and the graduation rate for KIPP alumni has been steadily climbing ever since.

Creating Mutually Reinforcing Strategies

What every social entrepreneur strives for is an approach in which the activities of the three dimensions of the impact triangle are mutually reinforcing, so an investment that increases one dimension also benefits the others. Creating this “virtuous cycle” was the reason the Alder Graduate School of Education prioritized securing approval to grant teacher credentials from the California Commission on Teacher Credentialing (CCTC). With this important milestone, teacher “residents” were able to secure FAFSA loans to pay tuition to Alder, whereas many teacher residency programs rely heavily on philanthropic subsidies to operate the core teacher training program. Alder GSE graduates could then almost double their income by becoming a fully credentialed teacher. School partners could provide a career pathway for their instructional aides and after-school staff and pay a living stipend to residents during their training period. Alder GSE was then able to focus philanthropic resources toward resident support and statewide expansion. For Alder GSE, securing this approval was the key to increasing efficacy, sustainability, and scalability.