Smith explains that a theory of change in the social sector is roughly equivalent to a combination of the business model and strategy in the for-profit world. You need to identify a change and have a hypothesis about how to make it happen, she says. This is more complex in the social sector because, in additional to market forces, you have to deal with regulatory forces, emotional forces, social forces, and political forces, she adds. A set of core beliefs are usually taken for granted in the business world, but in the social sector they need to be established. She believes the core beliefs are the basis of the theory of change and help you decide what to do--otherwise you could end up trying to change too much. Though there is always a need elsewhere, a social venture can only take on what falls into its focused mission.
Kim Smith lectures on Entrepreneurship for Stanford University students, October 19, 2003. Kim Smith is co-founder and CEO of NewSchools Venture Fund, which she established in 1998 to transform public education by supporting education entrepreneurs. In NewSchools, Kim created a new "hybrid" approach to investing in social entrepreneurs. NewSchools uses grants, loans and equity investments to support a portfolio that includes nonprofit and for-profit entrepreneurs who are building sustainable, scalable education ventures. In this Stanford lecture, she talks about venture philanthropy, fixing problems in K-12 education and how entrepreneurs must lead people from radically different sectors.