A confluence of impact and scale

I spent last week at the annual meeting of the Global Impact Investing Network (GIIN), and I was struck by three trends that could take our sector to the next level.

The first is around taking impact seriously. The second is how different the impact measurement challenge looks depending on where you sit. The third is the acceleration of the rate at which mainstream financial capital is entering our space.

Throughout the GIIN conference, impact — the role it plays in defining our work and how to improve the quality of our impact data — was front and center in a way that I’ve not felt before. For example, one of the first panels kicking off this year’s event was on market segmentation. While segmentation is not a new topic in impact investing, the panel was titled “Market Segmentation through an Impact Lens.” The panelists — from Skopos Impact Fund, Tideline, Athena Capital Management and Omidyar — discussed their research and client-facing efforts to make sense of impact investing from the perspective of impact objectives.

This shouldn’t be brand new, but it is. An orientation to start segmentation with an impact lens runs against the natural tendency to segment investors by asset class or sector strategy, and it’s certainly a far cry from accepting that “intentionality” (as in: my intention is to make such-and-such happen with limited accountability on the data to figure out whether or not real change is happening) is a high-enough bar to set for the sector in terms of impact.

If we could pull off organizing ourselves, as impact investors, by the change we’re trying to make in the world rather than by the investing strategies we’re using to make that happen, that would be a big step forward.

Second, we need much better impact data AND we need to help people who are drowning in too much indecipherable, low-quality data.

I had the chance to participate in two panels focused squarely on advances in impact measurement. What I learned from these panels is that better impact data isn’t enough — there’s a huge desire for simplification too.

At Acumen, our Lean Data work has focused relentlessly on going directly to the low-income customers we aim to serve so we can understand what they have to say. Our objective is to improve the quality of impact data we have by scaling up our capacity to listen to the voices these customers, so we and our investees can better serve them.

While I’m convinced that this kind of listening must to be the foundation of everything we do as a sector, it’s not enough. Listening to my fellow panelists — from Goldman Sachs, Zurich Re, Abraaj Capital and Leapfrog — I heard that big institutions with large, diverse portfolios of impact investments not only desire better impact data but they also need help simplifying and clarifying the reams of impact data they already feel they receive.

Ironically, these large institutions have too much data coming in and most of it’s not very good. Our job is both to improve the strength of the signal and also lessen the noise.

Lastly, it was impossible not to notice that more and more big-name financial players are coming to the table.

The simple fact of having an impact measurement conversation between Acumen and Leapfrog on the one hand (two organizations that are essentially growing startups, with between $100M and $1B in capital under management), and Goldman Sachs, Zurich Re and Abraaj Capital on the other means that there are innovations in impact management happening across the spectrum of impact capital. That’s hugely positive.

Then, at the end of the day, we got to hear Former Governor Deval Patrick and Deborah Winshel discuss the impact investing strategies they began implementing in the last year at Bain Capital and Blackrock. Both articulated their goals to fully integrate impact into the global practices of these uber-blue chip firms, firms that collectively represent more than $4.5 trillion in assets. While it’s early in the journey for both Bain and Blackrock, it’s clear that their actions could have a huge influence with other mainstream financial players and beyond.

As I left the conference and made my way back to New York, I was struck with the feeling that we are entering a new phase in our sector. Having passed through the teething pains of our early days and our loud, sometimes impulsive childhood, we’re ready to start growing up a bit. This means harnessing — rather than just shouting about — the increased momentum building in our space, thanks to the entrance of major new players, while also taking a much more sober and serious look at the ultimate goal of this work, which is to make a real, large-scale and lasting difference in the well-being of people and the planet.

If, in this next chapter, we can find a way to have impact investing go deeper on impact and bigger in terms of scale and reach, we will truly be in a position to take this work to the next level.

[Note: you can also follow the conversation about this post on Medium]

Raising the bar

10 years ago, if you wanted to get into the social impact/social enterprise sector, it was enough to say “I think I want to find ways to take a business approach to solving social problems. That makes so much sense!”

5 years ago, if you wanted to do this work you needed to show that you had some direct, relevant experience, a spike of some sort that allowed folks to connect the dots between things that you’ve done and the work you’re proposing to do now.

Today, the expectation is significant direct experience that matters.

If you want to work with social enterprises in the developing world, the expectation is that you’ve spent real time in the developing world doing related work – a couple of years, not a couple of months.

If you want to be a marketer for a great cause, the pool of applicants shooting for that job have been in the great cause marketing business for a while already.

If you want to invest overseas, the expectation is that you have both investing chops and a direct understanding of the markets and businesses you’d like to invest in.

The great news is, unlike 10 years ago, when you had to a make a giant leap, there are countless opportunities for smoother, more gradual transitions.

To start, it’s never been easier to form a group and take free online courses for social changemakers. Our +Acumen courses are designed for just this, and in the next month you can learn about Lean Data Approaches to Measure Social Impact, Storytelling for Change (available in English or Spanish), and Social Entrepreneurship 101.

Or maybe your path will take you to a mainstream firm that offers a rich set of pro-bono opportunities—like those offered by Bain, Ernst and Young, and PWC—or you’ll go to one of many progressive nonprofits that work with big companies—including Taproot Foundation, TechnoServe, Bankers without Borders and MovingWorlds.

Or you could work directly for a social enterprise: right now Burn, Esoko, and Seed Schools are all hiring.

And of course nearly all the top MBA programs now have social enterprise offerings, including Kellogg School of Management, Stanford Graduate School of Business, The Wharton School, Duke Fuqua School of Business, Yale School of Management and Harvard Business School.

This is what happens when a sector goes from “brand new” to “adolescent.”

Today, the bar is higher, but so are the opportunities to help you get over it.

 

(Big thanks to Duda and Ashley for helping me get this post over the line)

A New Epistemology of Solving Complex Problems

I’m in India, spending the week with the Acumen team and with the Acumen India Fellows for their fourth seminar. Last night, at the end of the first day of seminar, we were joined by Vijay Mahajan, one of the most esteemed social sector leaders in India. Vijay is the founder of Pradan, which he ran from 1983 to 1993, and was then the founder of BASIX which grew to be one of the largest microfinance organizations in India prior to the microfinance crash in 2010.

Vijay is a truth-teller, who speaks plainly and without adornment about his experiences. Our conversation was an intimate one – just us (20 India Fellows, me, Jacqui Papineau and Bavidra Mohan, together with Vijay and his colleague, documentary film-maker Girish Godbole), with Bavidra interviewing Vijay before an open Q&A.

Upon hearing Bavidra’s first question, around lessons about leadership, Vijay paused and thought hard for what must have been 20 seconds before responding. Just watching such an esteemed individual, who must have been asked a similar question hundreds of times, really stop and think before giving an honest answer was a display of humility and respect for our group that itself spoke volumes.

From that moment on, everyone in the room was silently hanging on Vijay’s every word, with most scribbling furious notes of Vijay’s pithy insights. My single biggest takeaway stemmed from a comment Vijay made early on in the discussion, when he said:

Anything that could be solved with single variable maximization was solved in the 20^th century…we need to create a new epistemology of complex problems for the 21^st century.

I’ve always felt that impact investing and social enterprise are something brand new. If this work is going to realize its true potential, we are going to need to think about two-variable approaches – or, better stated, leadership that embraces opposable mind thinking and sees potential where others see only contradiction.

I must admit, until last night I had not aspired to creating a “new epistemology” but I think Vijay is on to something. Ultimately we need a strong theoretical and analytical grounding to explain what it would mean to take truly new approaches to solving centuries-old problems, problems that are based as much on caste, social exclusion, geographic marginalization, and politics as they are on simple microeconomics. And, as Vijay reminded us, such a theoretical underpinning is not entirely new. Indeed, in 1956 economist Herbert Simon developed the notion of “satisficing” rather than “maximizing” behavior as being a more accurate description of how individuals and firm managers behave. Perhaps we need more satisficing firms of we are to solve this new batch of problems.

Indeed, the more I think about it, the more it strikes me that Vijay’s statement summarizes the core fault line within impact investing and social enterprise: is impact investing just about extending the market, a chance to extent single-variable (profit) maximization to areas where it hasn’t yet reached? Or is single-minded profit maximization (versus profit achievement), as a binding constraint, anathema to the real task of tackling social issues?

There’s no doubt that there is work to be done on both sides of this fault line. It is an overstatement to say that all single variable maximization problems were solved in the 20^th century, and there are huge emerging swaths of the population – hundreds of millions of people – who are optimally situated to benefit from the extension of 20^th century approaches to them. However, I believe that impact investing will fall far short of its potential if it limits itself to this approach (indeed, isn’t it just “investing” to find businesses that fit age-old criteria and invest to help them grow)? What I am seeing after nearly eight years doing this work is that that, outside of narrow verticals (e.g. financial services on mobile platforms), the social sector leaders who are working to reach marginalized populations do not act as if single-variable maximization is enough.

By the way, it bears mention (lest anyone jump to conclusions) that just because one agrees that a narrow profit-maximization mindset is not enough does not predetermine anything about what business models need to look like, what form an organization should take (for-profit, non-profit, or some other form), or even about financial returns. Rather, this is a conversation around what sort of problem one believes one is working on, and an assessment up-front of whether the tools that we created in the 20^th century are up to the task of tackling the problems of the 21^st century.

Vijay’s closing thought, with which I heartily agree, was that “we cannot build great theory if we keep on reporting practice wrong.” Our challenge, from the outset, is to have the audacity to imagine the world as it could be, and the humility to share the real lessons of what it takes to create large-scale social change. Vijay certainly shared his real lessons with us, and I know that I and the Acumen India Fellows will follow his lead in continuing to take problems head-on, and honestly share what we are learning with other practitioners, so we can all build a better future.

(And maybe, just maybe, we will eventually find a way to develop a PhD 21^st in the Epistemology of Solving Complex Social Problems…)

Fazle Abed and Thulsi Ravilla – Learning at the Feet of the Masters

The other night I had the chance to witness a remarkable conversation between two of the true pillars of our space: Dr. Fazle Abed and Thulsi Ravilla.

Dr. Fazle Abed is the founder of BRAC, a Bangladeshi organization that began with a focus on microfinance and has expanded organically in a massive way, now employing 130,000 people with a budget of more than $700 million. In addition to being one of the world’s largest microfinance organizations serving tens of millions, BRAC has provides livelihoods, maternal care, and nutrition, including now growing and providing 80% of the improved rice seed and 30% of the improved maize seed in Bangladesh.

Thulsi Ravilla is the President of Aravind Eye Hospital, the first truly scaled social enterprise outside of the microfinance space. Aravind has performed more than three million eye surgeries, two-thirds of which are to patients who do not pay. Its doctors perform 2,000 eye surgeries a year compared to 120 in the United States. They are the world’s largest manufacturer of intraocular lenses, selling these lenses for $3 versus the $200 they used to pay to buy them. And 15% of all ophthalmologists in India have been trained by Aravind.

Abed and Thulsi were being interviewed by Acumen’s founder and CEO (and my boss) Jacqueline Novogratz, as part of Acumen’s annual Advisory meeting – Abed serves on our Advisory Council and Thulsi on our Board of Directors.

I didn’t have a notebook for the conversation, so will share impressions of what really stuck in my mind and not the blow-by-blow:

• This has been a life’s work for both of these men. They have each been at it for 40+ years in Abed’s case and 30+ years in Thulsi’s case. While it’s possible that the new funding mechanisms we have created around impact investing could accelerate this path today, it’s also completely clear that this is what a life’s work looks like, and there’s no way we will create massive, lasting and sustainable change in 5 or 7 years time, no matter how we finance it. This is about building enduring institutions.
• Both share a relentless focus on poor customers. These men, and their organizations, know deeply and inviolably who they are serving. Poor customers (most of whom are women in BRAC’s case). That customer is known and fixed, and they have built the culture and logic of their organizations in answer to the question: what will it take to serve this customer in the most efficient, most dignified, most impactful way possible? And how can we build a sustainable organization so we can be here for decades to serve that customer?
• A notion of service. Abed had been working at Shell and had been part of the Bangladeshi independence movement (in its separation from Pakistan) when he founded BRAC. To fund it, he liquidated all of his assets including selling his home. When asked in the conversation if this was hard to do he said, simply, “After you have been a freedom fighter, after you have witnessed life and death, these sorts of questions become less important. I had a home which I sold. I thought, ‘What is this change that will happen if I live in another home? It is still a home with four walls.’ The sacrifices I had to make were not that big.”
• Building culture globally. Whenever talk came to culture, both men became especially focused and clear, as if they were about to utter their most serious and important truths, the wisdom that comes after decades of work. “The systems are easy to build and to transfer, and they do build efficiency,” said Thulsi. “But the culture is what makes the system work. It is the interaction of the culture and the systems that make our work possible.” Thulsi said that 90% of Aravind’s hiring is about culture and fit, literally asking questions like how much the bus fare was to the interview to get underneath what kind of person the interviewee is. If you’re hiring someone to do a job for a few years, perhaps the yield on short-term skills is higher, but to hear Thulsi describe it, it’s all about the culture. Some of the most interesting conversation was about how you build culture at scale, and while I didn’t leave the discussion with a clear “how to guide”, I was left with a renewed sense of clarity that for any scaled organization, culture is the most important thing to get right and that it requires constant investment and renewal.   This in addition to building the systems and other institutional underpinnings that allow for efficiency.
• With time, persistence and endurance, anything is possible. Both of these organizations have moved into adjacencies that are far from obvious at the outset: Aravind as a major supplier of intraocular lenses – because they were a big expense line they wanted to address – and BRAC a huge supplier of seeds – because, in Abed’s telling, he discovered a group of 300,000 women whose repayment rates were relatively low, and rather than change policies or squeeze them he went to investigate and discovered that they were using low-quality vegetable seeds whose yields were low. So BRAC started manufacturing its own seed. While I am sure both organizations tried lots of new things that didn’t work out, it’s also clear that when these organizations got their core right they were strong enough to take on new business lines that, at first glance, would seem to be far afield.
• Need versus demand. The recent Monitor/Delloitt follow-up report to Blueprint to Scale talks about “push” versus “pull” products, a point that Thulsi made using different words. “Need” in his definition is clinically defined – reduced or no sight – but even though Aravind offered free surgeries, many people with need would not show up. What they learned was that if they could go to the village – using telemedicine (which an Acumen grant 12 years ago helped facilitate) and other technology – they would, within 24 months, have treated 100% of their target market and 90% of those would follow through on recommendations from Aravind (to get glasses, to have surgery with Aravind, or go to a specialist hospital).
• Scale. When asked about the importance of scale both men found the question almost trivial – the need is big, the solutions have to be big, we have no choice in the matter.
• Urgency. When asked about whether he would have liked to have gone faster, Abed said “absolutely.” “A child,” he said, “can get stunted from malnutrition as early as age 6, at which point that child has reduced prospects for life.” Abed said he is always in a rush because the clock is ticking for that boy and for everyone like him, so we must always move with a real sense of urgency.

These are just the big pieces that stuck with me from a conversation that could have gone on for many more hours with everyone on the edge of their seats.   We were sitting at the feet of the masters, getting pearl after pearl of wisdom, hard-earned in a life’s work.

Just as the conversation was wrapping up, Abed jumped in to close. He told the story of Mahatma Ghandi, who interrupted a conversation by saying, “Excuse me, I have to go. My people are going over there and I have to follow them, for I am their leader.”

Indeed, what picture of leadership could be more powerful, or more relevant for today, than this?

My toothbrush was good enough

My toothbrush was good enough.  In fact, it had been good enough for a while.  I didn’t need the Colgate 360 toothbrush, and I doubt you did either.

Admittedly, it’s an impressive toothbrush.  Look at all the features packed into this baby: a tongue and cheek cleaner, multi-function bristles, polishing cups, a raised cleaning tip to “tackle those hard-to-reach places at the back of your mouth,” and (of course) those handy-dandy “raised rubber grips for better grip, and wide thumb grips for better control.”

I’ve got nothing against good oral hygiene.  Please brush and floss daily, with whatever toothbrush works for you.

My point is that it’s obvious that we are WAY down the curve of declining marginal benefits for innovation on the toothbrush as a product.  Do we need a no-slip handle with gel and little knobby bits?  No. I don’t think toothbrushes were flying across bathrooms across America, causing anger and frustration for millions, and leaving mouths full of unsanitary plaque and gingivitis.

Even if the handy-dandy Colgate 360 is demonstrably better than the straight-handled, one-type-of-bristle toothbrush I got for free from the dentist in the 70s, you’ve gotta believe that we are, today, somewhere near the pinnacle of how much better the manual toothbrush can get.

Yet the world is set up so that it makes good sense to keep on tricking out our toothbrushes.  On the back of the 360, Colgate’s share of the toothbrush market has jumped from 28% to 36% in the last two years.  The better brush is paying off for them, for now.

But what will the next 50 years bring?  How much better can our toothbrushes get?  We’re hitting a wall in terms of improvements here, yet that won’t stop armies of our best and brightest from fighting over toothbrush market share for the next few decades and beyond.

So the question becomes: how do we shift the frameworks and the incentives so that more of our massive ability to innovate gets applied to things that – we can all agree – matter more and are harder to tackle?    Because I for one am betting on the power of innovation, much more than more money, as the greatest lever in accelerating the fight on poverty and social exclusion.  Yes, the rise of social enterprise, the entry of the Gates Foundation on the scene, more progressive philanthropy and the overall improvement in the quality of analysis and thinking in our space are all encouraging, but we’re still getting lapped by the toothbrush-makers, the razor-blade improvers, and the folks rolling out ever-more-clever financial products.

So when I’m asked whether I think the social enterprise space has gotten too “hot” for its own good and whether there are too many people chasing too few jobs, I think nothing of the sort.  My hope is that we’re at the beginning of a generation-long trend in which our best and brightest feel a sense of calling, of responsibility, and of service that will fundamentally transform our labor force, how we live our values, and, ultimately, the societies we build here and around the globe.

A big piece of this will be a shift in incentives, in what we value, and in who we hold up as heroes.  The faster we can make this shift, the better, because I for one am not looking forward to the inevitable wunder-razor that no doubt will dominate supermarket shelves in 2050 (thanks Russell!!):