According your experience, what are the key impediments for social entrepreneurship growth?
A social venture needs to manage numerous bottlenecks all along the stages of their journey from developing the right solutions the market needs to accessing adequate funding to scale up. But right from the start, social entrepreneurs should have on their radar to not disconnect between their vision and the impact investors’ requirements as otherwise a divergent understanding will occur, in other words, both sides should establish a very close communication to clarify the expectations they have from the collaboration. One big challenge to be addressed by all the players who seek social impact is how to create a common ‘language’ that can facilitate the collaboration and accelerate the desired outcome.
Another challenge is the disjunction between the types of funding that are available compared to those that are required. Social ventures need to be able along the way to identify when and with whom to pursue synergies. Bottom of the pyramid entrepreneurs tend to have a good understanding of the challenges on the ground and can execute their models effectively, but most of the time they face difficulties to design the total value creation potential and performance (whether nonprofit, for profit or hybrid) and how best to maximize the total performance of capital (whether philanthropic, below-market or market-rate risk adjusted capital; with returns which are financial and social/environmental). when investments are needed to secure their sustainable growth.
Finally, when social entrepreneurs move from grant seeds to for-profit social enterprise, setting up the right governance, practices and impact measurement framework, that bring transparency on the capability and capacity, will obviously increase the confidence of the strategy effectiveness and operational control in the eyes of interested funders. This is also an opportunity for the social entrepreneurs to be equipped with additional tools to map the clear relationship between impact and business value, the Non-Profit GIIN, B Lab are providing solutions based on IRIS metrics (IRIS is the catalog of generally accepted performance metrics that leading impact investors use to measure social, environmental, and financial success, evaluate deals, and grow the credibility of the impact investing industry).
Why do you think impact measurement is paramount?
Going bigger is not an easy trip. Social entrepreneurs will face new issues and they need to be equipped from a management and governance perspective to be as much as possible both confident and self-reliant to their growth strategies.
From the investors’ perspective, it is paramount as it demonstrates their commitment to the social and environmental progress of their investments. It also allows them to feed the knowledge gained back into the business to fuel data-driven decision-making. Social entrepreneurs should now also master new skills as the social and environmental performance is often linked to governance, human resources, streamlining deal sourcing, or improving interactions with important stakeholders. Measuring such performance can be quite useful for identifying areas in which to strengthen investee social and business operations.
This helps impact investors determine the most effective forms of non-monetary support to benefit their portfolio companies. Impact measurement from practice to social impact is particularly relevant for those investors who are able to influence investee operations, whether because the structure of their investment permits it (i.e., a majority stake or loan terms) and/ or because hands-on engagement with investees to improve their operations is part of their funding strategy.
In the context of the Sustainable Development Goals, I see an increasing need for creating accountability that gives funders the ability to monitor entrepreneurs’ impact even when it may involve an explicit trade off with financial value. To attract more investments into reaching these goals we need increased trust among the players and independently verified assessment tools.
Requiring transparent reporting of overall social and environmental performance by a credible, independent third-party process should become the norm across the board. It is a natural step for social entrepreneurs to look at the B Corporations movement when turning from non-profits to for profit, as they are setting a higher standard for social and environmental performance, accountability, and transparency. The primary motivation for measuring impact should not be to prove whether or not you’re impactful for funders —though that’s important too. This data should be used to continually learn about social venture capacity and capability to improve their impact. When independently reviewed, impact measurement becomes gold for the various types of funders.
Our capacity to identify the different aspects of performance of a social venture has improved and there are new tools, like the ones B Lab designed to give impact investors the right metrics to make their decisions and to the entrepreneurs themselves a chance to measure and communicate a more holistic reflection of their venture’s value.