Scaling Social Impact: When Business Thinking Meets Passionate Purpose
Dr Gaj Panagoda, CEO Xstitch Health
Sarah Szabo, Board Director Xstitch Health
Photo by Michael Dziedzic on Unsplash
The Social Sector Today: Big Impact, Bigger Potential
Australia's social sector is an economic powerhouse hiding in plain sight. With nearly 600,000 not-for-profit organisations contributing 4.8% of Australia's Gross Value Added, it's comparable to the retail sector. These organisations employ over 1.4 million people and engage 3.2 million volunteers (Blueprint Expert Reference Group, 2023).
Yet despite this enormous footprint, the sector is chronically underperforming its potential.
Why? Because passion rarely translates to sustainable impact without proper business acumen.
The Painful Truth: Mission Without Management Fails
There is a recurring pattern in social sector companies. Founders launch with incredible passion and purpose, but stumble when it comes to fundamental business management. The results are predictable:
Organisations trapped in the "nonprofit starvation cycle" - desperately underfunded on indirect costs (Brown et al., 2022)
Short-term funding cycles that force leaders to spend more time chasing money than delivering impact (QCOSS, 2024)
Power imbalances between funders and organisations that distort priorities and prevent honest conversations (Langford & Webster, 2022)
As one not-for-profit leader told us: "short-term funding means you spend most of your life looking for money." Is that really the best use of social sector talent?
Bridging the Gap: Business Thinking Meets Social Purpose
The solution isn't complicated, but it requires a fundamental shift in thinking. The future of social impact depends on applying smart business principles to purpose-driven work.
Consider the evidence:
The real cost of doing good: Research shows the average indirect costs for not-for-profits is 33% of total costs, while funding agreements typically cap these at 10-20% (Brown et al., 2022). This isn't sustainable.
Short-term thinking, long-term problems: When organisations can't plan beyond their next funding cycle, they make compromises that undermine long-term impact (Blueprint Expert Reference Group, 2023).
Measurement matters: Without proper impact assessment, funding supports activities rather than outcomes (Porter & Kramer, 2011).
Organisations that embrace proper business models will outperform those that rely solely on passion. They're not "selling out" - they're scaling up.
What Smart Social Infrastructure Looks Like
The most effective social enterprises are building what Goyal and Sergi (2020) term "smart social infrastructure" - an ecosystem of supports that enable sustainable impact:
Access to proper incubation ecosystems
Availability of patient, long-term capital
Integration of digital technologies for efficiency
Adoption of circular business models
Strategic collaborations across sectors
This infrastructure is particularly vital when applying the "base of the pyramid" concept - a framework that views underserved communities not as passive beneficiaries but as potential customers, employees, and business partners within formal market ecosystems (Goyal & Sergi, 2020).
This isn't about turning social sector organisations into profit-maximising businesses. It's about recognising that profit serves as a vital metric of sustainability rather than the primary purpose.
A New Approach to Funding Social Change
For funders - whether government, philanthropic, or corporate - it's time to rethink how social organisations are assessed and supported.
Instead of asking only "Do they do good work?", consider:
Is their business model sustainable? (Teasdale et al., 2013)
Are they investing adequately in infrastructure? (Brown et al., 2022)
Do they have the management capabilities to deliver consistently? (Blueprint Expert Reference Group, 2023)
How are they measuring actual outcomes, not just activities? (Porter & Kramer, 2011)
The most impactful funders don't just hand out money - they invest in organisational capacity, provide multi-year funding and recognise the full cost of creating social change.
From Passion to Performance: The Path Forward
The evolution from pure philanthropy to sustainable social entrepreneurship isn't just nice to have - it's essential for addressing our most pressing challenges. Complex social issues require collaborative approaches that transcend traditional sectoral boundaries (Muir, 2022).
For social sector leaders, the path forward includes:
Embracing business thinking as a tool for amplifying impact
Investing in financial literacy and management capabilities
Being transparent about real costs and infrastructure needs
Measuring what matters - outcomes over activities
Building revenue models that reduce dependency on any single source
This isn't about choosing between mission and management. The most effective social organisations excel at both.
Business Models in Action: The Xstitch Health Approach
Xstitch Health represents an innovative approach to this challenge. By implementing a business-to-business model, Xstitch eliminates the typical activity-based funding constraints that often hamper healthcare initiatives in the social sector.
Applying the "base of the pyramid" concept championed by Goyal and Sergi (2020), this model recognises that underserved communities are not simply recipients of services but active participants in creating sustainable solutions. It leverages the knowledge and expertise of health professionals to build organisational capacity within the social sector. Rather than funding specific activities with narrow outcomes, the approach focuses on creating sustainable capability and resilience within partner organisations.
Interestingly, medical specialists have shown keen interest in this type of purposeful work. They seek meaningful application of their clinical skills in contexts that create broader systemic change. This linkage of medical expertise with business model innovation offers a promising path forward for addressing complex social challenges.
The Bottom Line
There's a choice between continuing an inefficient cycle of underfunded organisations chasing short-term grants, or embracing a new model where business acumen amplifies social purpose.
The path to sustainable impact is clear. The question now is: who will join in leading the way?
References
Blueprint Expert Reference Group. Not-for-Profit Sector Development Blueprint Issues Paper (2023). Dept of Social Services. Australian Government.
Brown, J. T., Thorp, S., Heard, C., Garrow, M., & Muir, K. (2022). Indirect costs in the Australian for-purpose sector: Paying what it takes for Australian for-purpose organisations to create long-term impact. Social Ventures Australia & Centre for Social Impact, UNSW
Goyal, S., & Sergi, B. S. (2020). Towards a Theory of “Smart” Social Infrastructures at Base of the Pyramid: A Study of India. Cambridge University Press.
Langford, R. T., & Webster, M. (2022). Misuse of power in the Australian charities sector. The University of New South Wales Law Journal, 45(1), 70-112.
Muir, K. (2022). Is systems change possible? How do we put it into action? PRF News, Paul Ramsay Foundation
Porter, M., & Kramer, M. (2011). Creating Shared Value. Harvard Business Review, 89(1-2), 62-77.
QLD Council of Social Services. State of the Sector (2024).
Teasdale, S., Bellazzecca, E., de Bruin, A., & Roy, M. J. (2023). The (R) evolution of the social entrepreneurship concept: a critical historical review. Nonprofit and Voluntary Sector Quarterly, 52(1_suppl), 212S-240S.
Thank you for reading Article 2 in our 5 part weekly series on health system innovation. Next week, we'll explore the intersection between the Health and Education systems.
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