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]

GiveDirectly – What’s our baseline?

I recently had the chance to catch up with Michael Faye, one of the co-founders of GiveDirectly.   I first wrote about GiveDirectly in December 2012 after meeting with co-founder Rohit Wanchoo and being so impressed both by the approach they are taking as and by how they were going about building the company: a core great idea, being smart about leveraging technology, have a big focus on transparency and accountability, and run the organization with four volunteer founders and extremely lean staff (they were just hiring their first employee).

I met them early enough that my blog post was one of the first published pieces about their work.  Since then GiveDirectly has justifiably captured a ton of attention, including receiving a major grants from Google and from Facebook co-founder Dustin Moskovitz and being covered in The Economist, on NPR, and in the New York Times.

GiveDirectly is a platform for giving unconditional cash transfers to the extreme poor in the developing world, primarily in Kenya.  Their target clients make about US$0.67 a day and they receive cash directly from GiveDirectly via mobile cash transfer.   A typical grant in Kenya of $1,000 is equivalent to two years’ income for a recipient.

The most intriguing part of the GiveDirectly story (and, naturally, the focus of all the press they’ve received so far) is whether giving cash directly to a poor person works.  Like most people, you probably have a gut reaction to the question of whether a typical recipient will spend the money productively or squander it.  Interestingly, the data show that, by and large, the money is spent productively: in a random selection of households in 63 villages receiving cash transfers, according to The Economist, “the number of children going without food for a day has fallen by over a third and livestock holdings have risen by half.”  Perhaps most intriguing, these one-time cash transfers appear to create both short- and long-term improvements in well-being.  That’s a big deal.   (the Economist has lots of great additional details on all of these data).

What’s interesting from a marketing and storytelling perspective is that the fact that cash transfers work isn’t new, it’s just new to the mainstream.  As Michael is quick to point out, more than $100 Billion is already being transferred by governments to poor people through both conditional and unconditional cash transfer programs around the world.  The biggest and most-studied cash transfer programs are the Bolsa Familia in Brazil (which is directly credited for 1/6th of the reduction in poverty in Brazil over the last decade, at a cost of just $12 per child – about 0.5% of GDP) and Oportunidades in Mexico.  These have been in place for more than a decade and have helped tens of millions of poor people.

What IS new about GiveDirectly, beyond the fact that the cash transfers are unconditional, is that they are creating a platform that makes the entire transaction – from funder to end recipient – cashless.  This creates huge potential efficiencies in a massive global money transfer system that is ripe for evolution, and if GiveDirectly can serve as a leverage point to begin to transform a $100 Billion industry, allowing more of the money that goes into these programs to end up, safely and conveniently, in the hands of end recipients, then they will have significant global impact.

It strikes me that there is yet another important leverage point for GiveDirectly that I don’t hear people talk about, and it’s around how to benchmark impact.  The typical benchmark, whether for a large-scale, rigorous randomized control trial or for simple observational analysis of an intervention, is a control group with “no intervention.”  Put another way, this means that when we study whether a $10 million program worked, our question often is: “was there a quantifiably discernible impact relative to a group that received no intervention?”  Put more simply: did our $10 million do more than nothing?

That’s a dispiritingly low bar.

Wouldn’t it make much more sense to demand that we show that our $10 million created more impact than we would have created if we had directly handed $10 million over to end customers?  To show that, for example, $10 million put into a seed company or a solar lighting company or a sanitation company created $100 million in value – in terms of savings or increases in productivity?    This thinking is what led Acumen to develop the Best Available Charitable Option (BACO) methodology, and it feels like it is high time that we all use this higher benchmark to assess our work.

Surely our goal must be that we can do better than, figuratively, dropping money out of a plane.

No, it’s not too much trouble to measure impact

As impact investing goes more mainstream, there is a growing chorus suggesting that impact measurement might be the providence of academics and idealists.

(as in, “…we have spent too much time and too many resources discussing impact measurement and trying to measure outcomes. Is an individual who needs eyeglasses better off if she has access to them? If you are wearing a pair while reading this article, you know the answer. There are myriad basic products and services such as eyeglasses to which the majority of the world’s population does not have access and which, if they did, would allow them to live significantly improved lives. So let’s move on and not overburden those initiatives focused on underserved communities with academic questions. They already face plenty of challenges trying to deliver what they promise.”)

Now, the argument goes, the real investors have arrived, so we can do away with all of that impact measurement mumbo-jumbo.  If companies succeed and grow, if capital is getting deployed and returned, and if more capital is coming in, then we know that we are succeeding.  The rest is just noise.

That argument would make sense if impact measurement is undertaken as an academic, ex post process  in which those on the periphery of the system peer into its beating heart, extract data, and attempt to define whether or not those at the center are creating sufficient impact.   Who are they to judge?

Indeed, let’s avoid a scenario like that at all costs.  In fact let’s avoid any measurement system in which the main goal is to produce data that isn’t, at its core, useful to operating companies in their interactions with end customers.

However, let us also avoid quick, easy caricatures about what measurement is and could be.

To walk through an example, let’s begin with the assertion that any company that qualifies as an impact investment is creating some sort of direct benefit for end customers or other key stakeholders (e.g. creating jobs).

So, we might ask, who wants to know if this hypothetical company is creating impact?

Sure, a wonky social scientist would love to know.  She’d hope to understand if someone who buys a solar light or who hooks up to a mini-grid stops spending money on dirty, dangerous, expensive kerosene.  If she doesn’t, then there’s less impact than one would hope.

The good news is that while the academic would love to have answers to these questions, we wouldn’t and shouldn’t answer these questions primarily for her.  Because the same questions she has are core questions driving the success of the business.  Any company that has an iota of sales and marketing DNA will need to understand answers to a basic set of questions:

  • Are customers buying solar lights as a replacement to kerosene or as a supplement?
  • How much less do customers spend on kerosene as a result of having a new source of light?
  • Are lights are used primarily late at night in homes, for kids to study, or out in the fields?
  • And on and on….

Similarly, a company selling drip irrigation kits has no choice but to find out whether end customers achieve the 2 to 3x yields that the company gets on demonstration plots.  A company selling drinking water needs to understand if customers are contaminating the water before they consume it (which means that a marketing message around better health ultimately won’t deliver).  And of course a company offering vocational training and job placement will definitely need to know how many graduates they place, how graduates’ incomes compare with the money they made before the program, and which training programs have the highest yield on job placement rates and salaries.

All of which is to say that understanding impact is a key driver of business success for any company selling a new product or service to an underserved market.  And the companies that are first to realize this will be best positioned to meet the needs of their customers and deliver products that create the most value.

Put another way, understanding impact starts with questions like:

  • Who are we serving?
  • Why are these customers buying this product? (what problem does it solve for them)
  • How are they using the product?
  • How does this product compare with what they did before?
  • What benefits do they hope to realize when using this product?
  • Are they realizing those benefits?
  • Why or why not?
  • Etc.

If we recognize that conversations about impact start and end with the end customer, we will sort out the way forward.  Whereas we will continue to stumble out of the gate if they we miscast these efforts as pitting investors’ priorities against those of companies.  Companies will increasingly need this data, and, recognizing that this data must and will be collected, we as a sector will miss an opportunity if we don’t agree at the outset to use a common set of standards – so that as the data is collected, it can be aggregated in ways that allow for easy comparison.

The idea that we have the option to opt out of understanding impact is akin to arguing that we can build large-scale, successful new enterprises without understanding our end customers in any real way.   It’s absurd.  Our opportunity is to understand, in a much deeper way, the intersection of a company, its products, and a customers’ well-being.  The better the customers are served, the better the company will do, and the flywheel will start turning.  If we lack data on impact, we’ll never start walking that path.

Our benchmark

The other day I had the chance to visit with Rohit Wanchoo, one of the three co-founders of Give Directly.

The idea behind Give Directly is so shockingly simple that you can’t help but feel, at first, that it can’t possible work.  The model is: donors give to GiveDirectly; GiveDirectly gives cash to poor households in northwestern Kenya.  Done.

Now here is some of the surprising information: this kind of giving (when you get fancy you call it either “conditional cash transfers” or “unconditional cash transfers”) is being practiced at a huge scale.  According to Rohit, it’s received by nearly 1 billion people globally.  In Mexico, it is called the Oportunidades program and it reaches about 5.8 million families, or 30% of the population.  In Brazil it’s called Bolsa Familia, it reaches 50 million Brazilians, and the program is much of the reason why, according to the NY Times, the incomes of the poor in Brazil grew seven times faster than the incomes of the rich from 2003 to 2009.

It’s not just that paying money increases incomes – how could it not?  Study after study has shown significant improvements in well-being, everything from improved childhood nutrition, increased birth weights, decreased HIV infection rates, increases in schooling and decrease in child labor. Also, the evidence shows that cash transfer programs do not increase spending on things like alcohol and tobacco.   And these are not just initial findings.  In fact, DfID, the UK’s main aid agency, recently published a comprehensive summary of the evidence to date, and DfID notes that cash transfers are “one of the more thoroughly researched forms of development intervention.”  Put another way: it’s widespread and has been studied a lot, and by and large the evidence is really positive.

So how does it work in practice?  At Give Directly – which is a new, small startup, though they just won a $2.4 million Google impact award – they go to a poor community in northwestern Kenya, survey households to determine which ones are the poorest (mostly by seeing whether houses have mud floors and thatched roofs – those that do qualify), and, for those that qualify, they give those households $1,000 over the course of one year, using cellphone-based money transfer powered by M-PESA.  There’s also a bunch of verification to check identity and protect against fraud.  And households can only receive funds for one year.  It sounds like a lot of steps, but all of this costs just a few cents on the dollar.  And from day 1, GiveDirectly has been opening up its to rigorous analysis to understand impact – not surprising since Rohit and his co-founders have Masters and PhDs in economics or development studies.

Just as a standalone idea, in terms of its direct impact, it’s interesting and important to understand this model.

But the big idea that really caught my attention was Rohit’s statement that what they really want to accomplish is to have direct cash transfer be the benchmark against which other poverty-alleviation interventions are measured.  Meaning, the development sector as a whole spends a huge amount of effort to demonstrate impact, and the benchmark is to show a positive impact relative to no outside intervention.  But couldn’t we, shouldn’t we, raise that bar?  Shouldn’t we be asking ourselves whether a given intervention (buying a cow, delivering food, or a vaccination or leadership training or anything) is more effective than the direct cash value of the program itself?

That sounds like a low hurdle to clear, but it’s higher than the hurdle the development sector is trying to clear today.

I haven’t studied the literature on cash transfer enough to really understand what is and isn’t known, what are the best ways to design the programs, what are the pitfalls.  Still, it seems like a very fair question to ask ourselves, to ask the big aid agencies, to ask the government: would your beneficiaries be better off if you just handed them the money?

Your job, and leverage

If your life is one of service, then the one question to ask yourself when figuring out where you are and where you’re going is:

What role, what organization, what situation allows me to maximize the impact I’m having on others?

Most organizations find good people and ask little of them them.  Some organizations, sadly, even find great people and ask them to do mediocre work.

The best organizations take great people and help them be extraordinary.

It’s possible.

And the best part is that extraordinary feeds on itself.  Extraordinary creates more extraordinary.