Here’s the Best Case for Taking Major Risks

As Peter Drucker asserted decades ago, any effective nonprofit must have an eye to innovation.

That’s one reason grantmakers often speak of taking chances and trying new approaches. However, as Gabriel Kasper and Justin Marcoux observe in Stanford Social Innovation Review, in recent years, in dicey economic times, “many funders have lost their appetite for experimentation and risk, even as they trumpet their desire to make big bets.” In the end, some foundations “are willing to support only safe, established programs.”

The trouble with going small or safe is that it doesn’t get you far enough. As the authors note, “In many cases, existing approaches are proving insufficient to truly crack the intractable social and environmental problems that we face.” Instead, they argue, funders must steel themselves to “take risks on less proven approaches, open themselves up to exploring new solutions and recognize that innovation requires flexibility, iteration and failure.”

For that reason, the authors offer up eight ways for foundations and other funders to “inject innovation into grantmaking.” Among them is the practice of dedicating “10 percent of your grantmaking budget to support projects that seem promising but don’t fit neatly into your strategy.” Another one: “Use your special opportunity fund” to “explore a new area that is tangential to your primary strategies but shows potential.”

Drucker would have been all for these ideas. In fact, in Drucker suggested that organizations have two budgets: “an operational budget for the things that are already being done, and an opportunities budget for proposed new and different ventures.” While the opportunities budget would be much smaller than the operations budget, “both should be given the same amount of top management time and attention.”

As for the size of such budgets, Drucker was right in line with Kasper and Marcoux, suggesting that “the 10% or 12% of annual expenditures needed to create and maintain resources for the future—in research and technology, in market standing and service, in people and development—must be put into a constant budget maintained in years good and bad.”

Perhaps even more important than the specific size of an opportunities or “futures” budget is the mindset behind one. Drucker pointed out that budgeting is commonly thought of as a financial process. “But only the notation is financial,” he explained in Management: Tasks, Responsibilities, Practices. “The decisions are entrepreneurial.”