Businesses Measure Profit, What Do Social Ventures Measure?

It’s becoming more and more of a necessity to find a way to measure and compare the impact of social entrepreneurship. A few companies are making new headway.

Tracking performance in the for-profit world is simple; you have, well, profits. Plus tons of metrics and measurers and lists—from the Fortune 500 to the Forbes Rich list to further enshrine top performers. Without looking, you can probably name most of the top 10% of either of those lists. But which are the top social-good organizations? Who are the most influential leaders? What organizations have the most significant impact?

Where do you even start? Lives saved? Diseases treated? Laptops distributed? Trees not cut down? Parts-per-million reductions in pollution? It’s easy to measure effort expended, but much more complex to track impact directly attributed to your efforts. Even in situations where measurement and evaluation are core to a project, they remain that task you do after you’ve completed the project to fulfill the grant contract, not inherently valuable.

Even with good evaluation, the metrics used tend to be customized to the project—so they may not provide a point of comparison for benchmarking one project against another. The subjective nature of reporting social good is often because successful projects are more locally focused in nature. Models that do distill impact into dollar figures still rely on diffuse values of impact based on local costs. Adding tools to better standardize these figures tends to also add confusing and increasingly complex calculations to address cost of living and opportunity costs. Mention the word externalities or total-cost-of-ownership and just watch as eyes glaze over.

That’s not to say that these are done in bad faith, or even that they are inaccurate—neither are true; they are merely complex. While in reality, profit numbers provide a deceptively simple proxy for a complex ecosystem. From tulips to energy to high-risk mortgages, we’ve seen a fair share of misleading indicators. Regardless, the clarity that this one proxy provides is amazing, and the social sector struggles with matching it.

Actually assigning credit to any one project for a national change in the economy is, you might guess, not a simple task. Certainly development institutions both old and new presume that improving lives improves the economy. The World Bank loans countries money for infrastructure projects, working under the model that these projects will raise the GDP and the country will be able to pay back the investment. The Millennium Challenge Corporation, established in 2004, evaluates all of its projects based on their economic rate of return as reflected in per-capita income and changes in the GDP. Being able to track this for anything short of a country-wide project, however, is a challenge. Worse, such longitudinal measurements could be a millstone around the neck of a social entrepreneur who may be rapidly adjusting to an emerging trend, and needs to pivot their model without being dependent on the success metrics of their old model.

Reputational currencies provide one non-financial approach to creating a measure of impact or success that crosses sectors, and can even begin to be compared head-on with the corporate world. This moves the conversation towards a more individualistic narrative of progress. Tools like Klout tackle one’s influence across common social platforms. Or new initiatives like the Post Growth Institute’s (En)rich list are built as direct answers to the Rich list, and measure key figures of social change using Google hits as their proxy for influence. Are Google hits a good proxy? The Institute responds, "We use this arbitrary measure of ‘success’ to highlight the equally arbitrary nature of other measures, such as dollar figures." We certainly can’t argue with that logic.

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  • Sfenske

    It seems to me that the authors are confusing "outcomes", i.e. how a person's life circumstance is improved as a result of his/her engagement with your efforts, with "outputs", units of activity that can be measured.  Outputs, of course, should not be confused with indicators, either; indicators are well-defined measures that clearly tie back to the desired outcomes and that can be tracked to determine if your efforts are driving the outcomes you expect.

  • Flory Wilson, B Lab

    Just to add to Cameron's comment -
    The Impact Reporting and Investment Standards (IRIS), an initiative of the Global Impact Investing Network (the GIIN), has developed a common framework for measuring social and environmental inputs, outputs and outcomes.  Learn more here:  http://iris.thegiin.org/homepa...
    Further, two inititatives spearheaded by B Lab help to recognize social ventures.  The first is the B Corp, a LEED-type certification that recognizes for-profit businesses that use the power of the private sector to address social and environmental problems.  Learn more here:  http://www.bcorporation.net/
    The second initiative is the Global Impact Investing Rating System (GIIRS, pronounced "gears"), a set of standards that measure the positive impact of social enterprises and sustainable businesses.  Both GIIRS and the B Corp Impact Assessment have incorporated the IRIS taxonomy into our measurement framework.  Learn more about GIIRS here:  http://www.giirs.org/
    There is a lot of work to be done in the field with regard to impact measurement, but these tools are an effective starting point for measuring impact performance beyond financial performance.

  • cameron burgess

    I'm curious as to why the essential work of GRI, GIIRS and IRIS hasn't been mentioned here ... seems like quite an oversight to not talk about them in the context of this conversation.

  • Kiel Berry

    Brian, def agree with you on the concepts discussed in Uncharitable. I think the shift toward for-profit social ventures is def a step in the right direction. Triple bottom line and one-for-one models are a way to begin. I think the other discussion also needs to be on how to create a return for investors/donors. If one could buy stocks in social ventures, then there could be a huge influx of investors and ultimately $$$ to help this sector...a social stock exchange of sorts. 

  • Alexander Mark

    I don't think it is as complicated as you suggest. For instance, One Hundred www.100apparel.org, a company that donates 100% of its profits to help people get clean water, does it simply enough: they measure their influence by number of people they gave clean water to. Just like everything this scales. A small company making 1 mil in profit is great, but a large company making 1 mil in profit is terrible. A small social business giving 1000 people clean water is awesome, a large one like TOMs, maybe not so much.