How spin-offs in the social sector can unlock impact from within

At a recent climate meeting in Jakarta, the leader of an Indonesian environmental organization put things bluntly: "We're getting old, tired and cynical – someone new needs to pick up the torch to do this work much better than us."

This is a harsh truth the social sector needs to face in order to successfully deliver positive social and environmental change, and it demands that we ask ourselves: How can the next wave of social-impact organizations be created?

From climate change and biodiversity loss to poverty and political polarization, every sector and community faces pressing, interconnected challenges. The UN reports that the world is on track to deliver just 12% of Sustainable Development Goal targets, with progress on 50% deemed “weak or insufficient”.

Tackling these challenges head-on requires new strategies. We need to make room for fresh thinking, fresh leaders and fresh organizations.

This is not to say the social sector has not evolved. Over the past decades we’ve seen the rise of social enterprises and organizations combining social and financial returns – as well as new funding models – from venture philanthropy to impact investing and blended finance. Yet major gaps remain.

In 2020, the Global Impact Investing Network reported that 82% of impact investors face “significant or moderate” difficulty in finding strong impact-driven investment opportunities. The nonprofit landscape feels stuck. The social sector hasn’t seen the same level of churn as in the corporate world, likely because it doesn’t have an immediate market feedback loop like the stock market, and risk capital such as venture capital is not readily available.

When new players aren’t entering consistently, there’s a real risk the social sector will stagnate. Given today’s complexity, we need a new cohort of leaders and impact-first organizations that can shake things up.

Like the business sector, accelerators and hackathons have become popular methods for generating and supporting new ideas and start-ups in the social sector.

One successful example is Save the Children backing an accelerator aimed at identifying and cultivating solutions to enhance child immunization in Nigeria and Ethiopia. Similarly, the UN Development Programme and Food and Agriculture Organization jointly conducted a hackathon engaging young external innovators to come up with technology solutions for climate resilience in Asia and Pacific region.

While this approach is valuable, it overlooks initiatives that already exist inside organizations. Many run numerous initiatives simultaneously and some show real promise, but never receive the dedicated attention or resources to scale. This is where “spin-offs” come in.

In this context, a spin-off is a new, independent entity that builds on a high-potential project or initiative that was developed in an existing social sector organization. Instead of staying in-house, it’s spun out into an autonomous entity with its own leadership, own legal structure and the freedom to adapt its model.

In contrast to nurturing and scaling successful initiatives within an organization, spin-offs offer various advantages:

Tight focus: A spin-off zooms in on one specific venture and with all effort and brainpower dedicated to that single initiative, impact can accelerate. Vera Institute of Justice in the US provides a compelling illustration. Renowned for its criminal and social justice work, Vera created more than 16 independent nonprofit "offspring" organizations between 1967 and 2007. This enabled these new entities to align their organizational capability more specifically to a specific mandate and political context, thereby establishing themselves as experts in the niche fields. BRAC has similarly embraced the spin-off model, particularly in the form of social enterprises. The BRAC Silk Enterprise started as a donor-funded project in the 1970s and spinning it off enabled it to evolve into a revenue-generating enterprise singularly focused on silk production and income generation. It now works with approximately 6,000 people.

Fresh energy and leadership: A new leadership team, often drawn from the original project team, brings passion and commitment to the spin-off. This renewed setting allows them to more freely iterate on the model, adapt to changing circumstances and pursue impact with greater agility and autonomy. This dynamic is illustrated by Kopernik, an R&D lab in Indonesia addressing social and environmental challenges, which has spun off four institutions in the last six years. Spin-off Perfect Fit is a social enterprise focused on reusable sanitary pads, now led by two former Kopernik staff members. When Perfect Fit was a project within Kopernik, its team operated under multiple layers of management and liaised with internal units such as operations and human resources, whose resources were divided among other initiatives. This internal structure limited their speed and decision-making ability. Once spun off, however, Perfect Fit founders were empowered to make decisions more freely, and move things more rapidly.

Reduced risks of failure: Spin-offs emerge from projects that have demonstrated promise, thereby significantly lowering the risk of failure. The pre-launch validation provides another key advantage. For example, Vera Institute of Justice uses rigorous demonstration projects to assess an initiative’s potential impact and operational viability under the parent organization before deciding to spin it off. Only the most promising projects achieve independence. Similarly, Kopernik employs lean experiments to test initiatives first, and only promising ones are considered as candidates for becoming separate entities. This built-in testing process before spin-off is key in reducing the risk of failure.

Upward mobility: While a parent organization can accommodate only a limited number of C-suite positions, spinning off new entities creates new leadership opportunities that wouldn’t otherwise exist for emerging talents. Kopernik spin-off Magi Farm converts food waste into high-quality protein using black soldier fly larvae. One of its co-founders was a recent graduate when he started his career at Kopernik and became CEO of the new social enterprise – highlighting how a spin-off can fast-track leadership pathways.

Financial incentives for social entrepreneurs: If a spin-off decides to transition from a nonprofit project into a social enterprise, founders may hold equity. This can provide additional financial incentives for the new team, complementing their drive for social impact. Two co-founders of Perfect Fit hold majority ownership in the company, and they can enjoy both social and financial returns as they grow.

The Indonesian environmentalist's call highlights the urgency of reinvigorating the social sector with new approaches and leaders. Spinning off promising initiatives into independent entities can be a viable solution.

This approach unlocks significant advantages, such as laser-like focus, reduced risk through built-in testing, fresh leadership and energy, additional financial incentive and benefits of parent clout – all contributing to their potential to scale solutions and deepen impact. By creating more focused and empowered entities, the social sector can be collectively reinvigorated, tackling problems with greater agility and effectiveness

While spin-offs may inherit their parent organization’s challenges, and perhaps uncover their own ones, granting them the autonomy to refine, pivot and chart their long-term trajectory in a fresh setting can yield more impact.