As impact investing goes more mainstream, there is a growing chorus suggesting that impact measurement might be the providence of academics and idealists.
(as in, “…we have spent too much time and too many resources discussing impact measurement and trying to measure outcomes. Is an individual who needs eyeglasses better off if she has access to them? If you are wearing a pair while reading this article, you know the answer. There are myriad basic products and services such as eyeglasses to which the majority of the world’s population does not have access and which, if they did, would allow them to live significantly improved lives. So let’s move on and not overburden those initiatives focused on underserved communities with academic questions. They already face plenty of challenges trying to deliver what they promise.”)
Now, the argument goes, the real investors have arrived, so we can do away with all of that impact measurement mumbo-jumbo. If companies succeed and grow, if capital is getting deployed and returned, and if more capital is coming in, then we know that we are succeeding. The rest is just noise.
That argument would make sense if impact measurement is undertaken as an academic, ex post process in which those on the periphery of the system peer into its beating heart, extract data, and attempt to define whether or not those at the center are creating sufficient impact. Who are they to judge?
Indeed, let’s avoid a scenario like that at all costs. In fact let’s avoid any measurement system in which the main goal is to produce data that isn’t, at its core, useful to operating companies in their interactions with end customers.
However, let us also avoid quick, easy caricatures about what measurement is and could be.
To walk through an example, let’s begin with the assertion that any company that qualifies as an impact investment is creating some sort of direct benefit for end customers or other key stakeholders (e.g. creating jobs).
So, we might ask, who wants to know if this hypothetical company is creating impact?
Sure, a wonky social scientist would love to know. She’d hope to understand if someone who buys a solar light or who hooks up to a mini-grid stops spending money on dirty, dangerous, expensive kerosene. If she doesn’t, then there’s less impact than one would hope.
The good news is that while the academic would love to have answers to these questions, we wouldn’t and shouldn’t answer these questions primarily for her. Because the same questions she has are core questions driving the success of the business. Any company that has an iota of sales and marketing DNA will need to understand answers to a basic set of questions:
- Are customers buying solar lights as a replacement to kerosene or as a supplement?
- How much less do customers spend on kerosene as a result of having a new source of light?
- Are lights are used primarily late at night in homes, for kids to study, or out in the fields?
- And on and on….
Similarly, a company selling drip irrigation kits has no choice but to find out whether end customers achieve the 2 to 3x yields that the company gets on demonstration plots. A company selling drinking water needs to understand if customers are contaminating the water before they consume it (which means that a marketing message around better health ultimately won’t deliver). And of course a company offering vocational training and job placement will definitely need to know how many graduates they place, how graduates’ incomes compare with the money they made before the program, and which training programs have the highest yield on job placement rates and salaries.
All of which is to say that understanding impact is a key driver of business success for any company selling a new product or service to an underserved market. And the companies that are first to realize this will be best positioned to meet the needs of their customers and deliver products that create the most value.
Put another way, understanding impact starts with questions like:
- Who are we serving?
- Why are these customers buying this product? (what problem does it solve for them)
- How are they using the product?
- How does this product compare with what they did before?
- What benefits do they hope to realize when using this product?
- Are they realizing those benefits?
- Why or why not?
If we recognize that conversations about impact start and end with the end customer, we will sort out the way forward. Whereas we will continue to stumble out of the gate if they we miscast these efforts as pitting investors’ priorities against those of companies. Companies will increasingly need this data, and, recognizing that this data must and will be collected, we as a sector will miss an opportunity if we don’t agree at the outset to use a common set of standards – so that as the data is collected, it can be aggregated in ways that allow for easy comparison.
The idea that we have the option to opt out of understanding impact is akin to arguing that we can build large-scale, successful new enterprises without understanding our end customers in any real way. It’s absurd. Our opportunity is to understand, in a much deeper way, the intersection of a company, its products, and a customers’ well-being. The better the customers are served, the better the company will do, and the flywheel will start turning. If we lack data on impact, we’ll never start walking that path.