I was speaking to an impact investor recently, and he was saying that investment decisions are ultimately based on an intuitive sense the investor has about the company: the deal, the team, the market opportunity. And shouldn’t we just use our intuition to assess impact?
This is the most common unspoken premise used by impact investors to justify not collecting impact data.
So, where does this intuition come from? And is there such a thing as good and bad impact intuition?
Intuition is subconscious pattern recognition. And patterns are the sum total of the information we’ve taken in. If that information, and our ability to understand and process it, is of high quality, then we develop good intuition. If not, not.
A good investor is awash in quantitative and qualitative data that inform her investment intuition. For example, on the quantitative side, she’ll know what she expected gross margins to be, the predicted length of a company’s working capital cycle, and how many years she forecasted it would take for the company to get to profitability.
But that original financial model will have a very short shelf life: after the investment, she’ll get reams of data to show whether her predictions were right or wrong.
But in the world of impact, she’ll handle things differently.
She’ll look at research and benchmarks to develop a thesis. And she’ll stop there and multiply products sold by those benchmarks [e.g. 10 lights sold * X predicted impact/light = 10x impact].
This is like creating a pre-investment financial model of a company and then, two years later, when asked how the company is performing, using the model’s original variables to answer that question.
Not only would this answer not be any good, but her impact intuition would never improve.
Why do we accept the idea that we can understand the impact we are creating in people’s lives by looking at comparables? Why do we nod when told that it’s hard to get better data (it’s not)? How can we say that “we know impact when we see it” if we don’t gather data to understand actual performance?
The only explanation is this: we are not the people whose lives are, or are not, improved by a given intervention; we are not personally affected by a positive or negative ROI on a “better” solution; and the difference between potential and actual impact doesn’t land on our doorstep, or in our pocketbooks, or in our child’s cough or the quality of the education he receives.
The only way we’ll create better impact intuition is if we apply ourselves seriously to the question of learning what does and doesn’t improve people’s lives.
We don’t settle for “it’s too hard” anywhere else but here.