Not long ago, I was speaking to a group of sophisticated impact investors from across the spectrum: everything from fully liquid, market-beating financial return expectations to market builders focused on creating social impact who are open to a broader range of financial returns.
The focus of my talk was Acumen’s work on Lean Data, which is our industry-leading approach to gathering customer data at scale. We’re cracking the nut on using technology to give voice to tens of thousands of customers in ways that allow companies to serve them better. I believe that this will, over time, help the sector as a whole deploy more capital to more opportunities that have more social impact. It’s exciting.
But before digging in to the details of Lean Data, I started the talk with an assertion:
The seriousness with which you work to understand impact should be uncorrelated with your expectations around financial return.
I actually said this twice, because we’re so used to talking about correlations (positive or negative) between social impact and financial returns that I wanted to be very clear what I was, and was not, talking about.
My point is, if you say you are in the business of creating impact, then, irrespective of the instrument you use, the financial returns you expect, and the risk you’re willing to take, you’ve got to be serious about understanding impact.
Interestingly, I heard some resistance on this point. The resistance mostly took the form of “I know impact when I see it” or, “why would I waste time on this, it will just distract me from doing the real work?”
I believe there are some cases in which we really understand impact, but I believe those are the exception. Indeed we are so quick to say “we know enough” in a world in which we know shockingly little.
For example, take the $800 billion spent annually by the U.S. government. Peter Orszag, and Jim Nussle, who successively ran the U.S. Office of Management and Budget, write in Moneyball for Government that “Less than one dollar out of every $100 the federal government spends is backed by even the most basic evidence that money is being spent wisely.”
Less than $8 billion of the $800 billion spent annually by the U.S. government is backed “by even the most basic evidence?” Wow. Color me unpersuaded by the argument that we generally know enough.
I think what’s really going on is that we:
Overestimate how much we know
Overestimate the cost of getting great data – because approaches that came before Lean Data typically cost 100x as much
Create an artificial distinction between “creating customer value” and “creating social impact”
Assume that, no matter what anyone says, this is about marketing and dealing with funders, not about learning
Underestimate the value of what we can learn.
On top of this, I worry that we say too lightly that we’re in the business of creating social change, or we assume that this “caring about impact” stuff should be left to the folks who are on the frontiers of solving tough, challenging problems in innovative ways.
The truth is, we are quick to celebrate and advocate for more money walking through the “I (also) want to create social impact” door and then get awfully timid talking about whether that impact is getting created or, more broadly, how much we understand about the connection between the investment, the intervention and the impact it creates.
Caring about impact doesn’t mean you don’t understand how to make money. It doesn’t mean you’re not a serious investor. It doesn’t mean that you’re giving something up.
It’s simply saying: this is who I am, this is what I do. I’m in the business of creating massive positive change in the world. And I know how to do that better than anyone.
You can say all of those things and not blink for a second when someone asks you what your financial returns are going to be.
If we are in the business of change, then we have to be in the business of understanding how change happens.