Stake Your Impact

Social entrepreneurs need to project social impact alongside financial goals

Staking one’s impact is actually quite simple- just as social enterprises have financial projections, they need impact projections- yet often don’t have them. Most start-ups that I come in contact with share very detailed three to five year financial projections. I can tell when an entrepreneur has spent countless iterations forecasting revenue growth (typically over-estimated) and expenses for their business (always under-estimated).

When I ask to see projections on social impact, the answer is pretty unsatisfying, often quite general (“we help teachers increase their efficiency” or “we are improving soil health and worker safety”). Everyone has financial pro-formas, almost no one has impact proformas. The notion of specifying impact numbers over a multi-year period is simply not on the radar in most situations.

Why is this the case?

In my experience, there are a few reasons entrepreneurs don’t project and communicate their social/ environmental impact.

First, they don’t know. Granted, the forecasting process may involve many assumptions and variables, and while many entrepreneurs are clear on the general type of impact they want to drive, some have yet to choose the top 2 or 3 metrics they will to track.

Second, while perhaps they have completed some impact forecasting, they may believe they need to “keep it close to the vest” and not “turn off any investor” who cares less about impact, and is more financially driven. Many traditional investors work under the false assumption that if a company deliberately creates social impact, it comes at the expense of profits (corporate philanthropy).

Third, the entrepreneurs don’t realize its utility to others. Investors need open communication on goals and plans to help measure progress of potential and existing investments. Employees and service providers have a fuller picture of a company’s prospects- as well as social-emotional alignment- with specifics.

Why is this conversation important?

As the impact economy matures, and draws in additional investors, employees, and service providers, a new level of professionalism and sophistication is required of all players. While it may have been sufficient for legacy impact investors and professionals to hear about a general theme of impact, increasingly entrepreneurs need to treat their impact goals with the same level of rigor as their financial goals. The entire industry needs to increase its accountability and transparency (including investors).

So, How Does One Stake Their Impact?

1. ID METRICS

Determine key metrics that reflect how your organization is positively affecting society. While much has been written on measuring social impact, and the universe of models and frameworks seems to continue to grow, organizations should at a minimum identify the top 2 to 3 metrics that are aligned with their mission. According to Valerie Red-Horse Mohl, “Even though impact metric frameworks are not as formulaic as financial ones, social entrepreneurs have an obligation and opportunity to define those most relevant for their business.”

2. PROJECT

Forecasting is a tricky process, yes we know. As Brad Feld likes to say, “The only thing that we know about financial predictions of start-ups is that 100 percent of them are wrong”. Try your best to project at least a few years out. Reality test the figures. How are other organizations doing that have similar missions? Have you done both a “top-down” and “bottom-up” analysis? Share it with your Advisory Board and other key stakeholders for feedback before publishing.

3. COMMUNICATE

Communicate to your stakeholders. Include details in your newsletters, put it on your website (ONE WORLD has a dedicated Impact page), create a summary report at the end of the year, and put a slide in your deck. While you don’t need an extensive “Impact Report” that you might see from a Fortune 500, think about what you can learn from such reporting and make it your own (for example, consider Tesla’s impact categories of: Product, Operations, Supply Chain, and Employees).

And with any process, it is wise to periodically step back and evaluate: Are we hitting or missing our impact metrics, and what does that tell us? Are these metrics the best ones going forward? Etc.

And for private companies that often keep their financial projections close to the vest, when you do communicate (i.e. to investors and employees), integrate the financial and social projections rather than communicating the two sets as separate. Financial projections communicate how much gas will be in the tank (or how charged the battery), yet social impact metrics show how well the company is moving toward its destination (mission).

Keep in mind that impact investors believe that the best social impact companies achieve both social and financial impact; they want to hear how your business model leverages both in a synergistic way. If you find yourself not sharing your social impact, perhaps you are in front of the wrong investor.

Here’s to planting the stake, and making it a reality!