At Agora Partnerships, we work exclusively with social businesses, which is to say businesses that have a positive social or environmental impact at their core. As part of our three-month Growth Program, we help organizations get ready to scale their businesses and prepare for impact capital raises. In addition to supporting companies to clarify their growth strategies, build financial models, and create pitch decks, we also work with companies on their impact measurement strategies. This includes helping entrepreneurs to define the theory of how they will create their impact, identifying the right indicators for their measurement strategies, and helping them find a compelling way to communicate the positive effects of their work to impact investors and other external stakeholders.
As part of that work, it’s clear that many social entrepreneurs are confused about what it means to measure impact and how to do it as a growing business. Many are uncertain about where or when to begin, how to develop the right impact metrics, and how to incorporate impact measurement into their way of doing business. Others are unsure about how to leverage the impact measurement process to drive the growth of both their business and their overall impact. Below I’ve listed out five of the most common myths I hear about impact measurement in hopes of clarifying how the different pieces of impact measurement fit together and making it easier for your organization to measure your impact more effectively and deepen your work.
Myth #1: You ́re working towards an impact, so you must be having one!
This is a common assumption, but it’s a dangerous one. Social and environmental problems are complex and while good intentions are a requisite for working in the impact space, they are nowhere near enough if we are serious about making a dent in the problems we’re working to solve.
To make this simple, consider the following example:
You care deeply about education. You believe in the power of great teachers and think that the best way to make a difference is by developing workshops for teachers, so you launch a business focused on professional development for educators and hire experienced teachers to develop and deliver content. You’re very successful in your first year and reach 5,000 teachers.
Perfect, right? You’ve supported 5,000 teachers! You can rest assured that your impact is on track.
Wrong. Yes, you can feel good that you’re starting to get traction. That’s great! This could be a good sign that your product is effective, but it’s not a guarantee. If you don’t check in to see what happened after your service is delivered, you won’t know if it’s changing behavior and ultimately leading to better outcomes. What if you think your content is effective, but in reality, teachers go to your workshops, but then decide not to implement any of the strategies presented? You’ve reached 5,000 teachers, but your work hasn’t gotten you any closer to the impact you want to have of changing teacher practice and improving educational outcomes.
In other words, just wanting to have an impact or delivering a service isn’t enough. You’ll need to measure your impact to really understand if you’re moving the needle towards the change you want to see.
Myth #2: If you just look at standardized metric sets and choose an indicator to measure, you’re all set.
This is another common misconceptions we see. Many entrepreneurs have heard about the Sustainable Development Goals or IRIS metrics or some other standardized metrics set, and with the best of intentions, they head to the relevant website and choose an indicator that looks good and run with that.
There are a few issues with this approach. Take the hypothetical example of an organization that is focused on increasing income for smallholder farmers and offers them a subscription to an online marketplace to help them increase their sales. This organization might go and look at Agricultural indicators and choose one that looks relevant, such as the number of unique smallholder farmer individuals who were clients during the reporting period.
Does this measure the change that the organization wants to make? Yes and no. It does measure an aspect of impact – the reach of the impact, but it doesn’t actually look at what change the organization is having on smallholder farmers ́ lives. Most of the time, organizations taking this approach to identifying indicators stop at indicators that measure reach, but not impact.
To overcome this, we believe that organizations need to develop theories of change. A theory of change is a logic model that lays out a causal path for how an organization’s actions will lead to the impact they want to have. In other words, it’s your best-thought argument for why what you’re doing will cause the change you desire. Most impact measurement experts, including the Global Impact Investing Network (the GIIN), who created the IRIS impact metrics, agree and recommend having a theory of change before selecting impact metrics. This allows you ensure that what you’re measuring is aligned to the changes you hope to see.
Myth #3: If you define the change you want to see, you should just measure it at the end of your intervention to determine if you were successful or not.
This is one way of looking at impact measurement and it’s not wrong. Funders who invest money in specific interventions will often support impact evaluations to determine whether or not the intervention worked. This type of impact measurement certainly has a place in the field, particularly when it helps build a bank of evidence of what works and what doesn’t. The only issue is that the results often come at the end of the intervention.
Most organizations who look to implement formal impact evaluations of specific interventions don’t see them as a replacement for ongoing learning during implementation. When we talk about impact measurement for social enterprises, we are focused on how to set up measurement frameworks that let you see if you’re on track to the impact you hope to have and that let you gain insights about what is working, and adapt what is not working.
This approach is not different than that the approach of an entrepreneur creating and launching a new sales initiative. When you set up a sales cycle, you don’t just measure the number of sales closed at the end of the process. Instead, you monitor progress throughout the whole cycle, measuring leading KPIs at the beginning of the process, such as number of leads and number of calls. You use that data to learn and change course, if necessary, and at the end of the cycle, you evaluate your success by analyzing lagging indicators, such as the number of closed sales and revenue generated. You use learnings from this cycle to adapt and launch the next cycle to keep growing.
Impact measurement works in a similar manner. Let’s look at another hypothetical example of a company focused on helping individuals develop more of a financial safety net through a program with automatic savings for every purchase they make at affiliated stores. If this company only tried to measure their final outcome, they might wait three to five years (or longer) to understand if their program really enabled their clients to build savings.
It’s possible that it did, but even if it did, the company missed out on valuable learnings to help them refine their product and deepen their impact. Instead, this business could look at early outputs, such as number of clients and savings accounts, as well as earlier impacts that could predict that they are on track to their broader intended impact, such as savings generated per purchase and average monthly savings. These indicators help the business understand their progress towards their impact, but also give them insights to refine their product and continue growing their business.
Rather than waiting until the end to determine if your intervention was successful, it is important for entrepreneurs to identify key indicators at each step of the process that will help them to see if they’re on track to reaching the bigger impact that you want to have and change course, if necessary.
Myth #4: You’re early stage and focused on growing your business, so you don’t have the time or resources to measure impact right now
So, you’re on board and agree that impact measurement is important, but in your mind, it still seems like something that is for other organizations, those that already have their sales processes in order or who have scaled their team to have the capacity to have someone dedicated to impact measurement. This is wrong! Impact measurement should be part of your organization from the start. A theory of change reflects that you’ve thought about what impact you want to generate and lays out why you think your actions will lead to that impact. As a social entrepreneur, your business goals and impact goals are inextricably intertwined, and thus this strategic thinking about impact is directly relevant for your business growth as well and helps you be more intentional in your actions.
If you still need more instrumental motivations to believe that you should think about impact measurement from the start, here are two compelling reasons:
- There is evidence suggesting that impact measurement can help you grow and strengthen your business. This makes sense. As part of many impact measurement processes, you’ll need to better understand the experiences of your clients. This helps you better understand the problem you’re trying to solve and ultimately deepen the value that you’re able to deliver. Increased value is good for business.
- If you’re looking to raise impact investment at some point, many investors will want to see your impact measurement strategy and see your baseline data to understand your impact to date as part of their initial due diligence processes.
This doesn’t mean that this needs to be deeply time-consuming, particularly for small and medium businesses. You’ll need to dedicate some time up-front to develop your impact theory and measurement strategy and to collect data. As you continue to test your theory of change, you should build in time to take stock of what you’ve learned and make adjustments as necessary to push your organization towards its mission and the impact it wants to have. When your impact and business goals are aligned, many entrepreneurs find that their key impact metrics complement the sales and product metrics they are already measuring, and in some cases, are the same.
Myth #5: Once you finalize your theory of change and indicators, you’re good to go!
Just like your best-laid business plans, things change! You cannot predict the future, except for that there will be inevitably be surprises and that things will change. Spend your time measuring what will give you the best information to learn and improve your approach and then make time to reflect on what you’ve learned, update your working theory of change, and prepare for the next cycle of impact and learning as you work towards deepening and growing your impact.
About the author: Jen Timm is Head of Consulting at Agora Partnerships. She has consulted with social businesses and nonprofits across the Americas on their growth strategies, financial models, fundraising approaches, and investor communication strategies. Jen believes that businesses have a tremendous potential for driving impact. Over the past several years, she has run impact workshops for more than 120 companies from across the Americas and trained nearly 20 consultants on impact measurement strategies that also help drive business growth. Jen holds a master’s degree in Quantitative Methods for the Social Sciences from Columbia University.