Impact Assessment for Startups
Our vision: Every [!] startup (for profit, non-profit, hybrid or other) considers sustainability impact during its (business model) development, whether for strategy decisions, its day to day operations or for an investor pitch.
What: This curriculum teaches an approach how startups can I. understand, II. measure, III. forecast and IV. communicate sustainability impact in a way that is suitable for startups. It shows how startups can dynamically incorporate sustainability considerations into their venture development, and provides resources that may be helpful during this process.
Who: The curriculum is primarily for those interested in the special circumstances of impact measurement for startups (from as early as the idea stage, to acceleration and growth). Many aspects and resources may as well be relevant for established social ventures, NGOs and those interested in impact identification and measurement.
Why: Measuring sustainability impact in a good quality is already very difficult. Startups additionally have the problems of limited time, financial and human resources and fast changing business models. This makes impact measurement an even greater challenge. It is exactly during this time however, when key decisions are being taken in the (business model) development. With this reasoning in mind it becomes clear, that providing resources to startups for impact measurement is very relevant. Just as you ask yourself "how will this decision impact my sales, or my customers?", you should be able to analyze "how will this decision impact your sustainability value added, i.e. the difference your venture makes compared to the status quo solution.
How: We first provide an introduction with 4 topics on the general background on impact measurement [Intro 1/4 - 4/4]. The curriculum will then focus on tools and methods centered around the concept of theory of change and impact identification [Step 1-4] and impact quantification [steps 5-8].
General background (1/4) What is "sustainability" and "sustainability impact"?
The Brundtland report defines the overarching goal of sustainability as ‘‘development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (WCED, 1987).
Probably the most widely shared conceptualization of sustainability today are the 17 sustainable development goals (SDGs) - (see resource [I] below).
Sustainability should never be an only social, or only environmental perspective, as there are often tradeoffs and interactions between these 17 goals (e.g. increased food security could lead to water scarcity). These need to be considered when you define your sustainability impact.
In general, it makes sense to ask yourself, how your activities influence the 17 SDGs (positively and negatively).
There resources below are helpful resources to help you clarify what sustainability is, and how you can achieve sustainability impact.
General background (2/4) Two main approaches in impact measurement
The in our view most dominant approaches in impact measurement are either "scorecard"- approaches or "process-based" approaches:
a) In scorecard approaches, startups gather KPIs to track their performance. They have the advantage that they are relatively simple and transparent. A disadvantage is that - if applied solely - they do not really lead you to think about "what do you do"? and "what do your actions change"? For this reason scorecard approaches are not the focus of this curriculum. As they do provide some benefit however, we present 3 resources below, sorted by increasing complexity.
b) In process-based/logic model approaches, startups use often the logic of Input-Output-Outcome-Impact (IOOI). They can be summarized as well as providing a "theory of change" and will be the core of this curriculum. This is a developing best practice in impact measurement. Sometimes it remains "qualitative descriptive", sometimes it is afterwards quantified with impact metrics. The rest of this curriculum will focus on process-based approaches with a theory of change.
General background (3/4) Gain a basic understanding how impact is measured via a "theory of change"
If you want to make a claim that your startup creates a positive or negative impact, you have to show that your activities lead to changes. In impact assessment, this is described as "theory of change". This was initially developed by social and non-profit organizations that needed to justify to their donors and stakeholders how they "change things to the better". This approach is spreading as well into the impact investing and impact measurement scene in general.
Before starting your impact measurement, it makes sense to gain a basic understanding about the concept of a theory of change.
General background (4/4) What will impact investors want to see if you apply for funding?
The requirements that (impact) investors might want to see vary greatly, standards & best practices are very heterogeneous and are developing quickly.
In some cases they might accept your own measurement approach, if you are able to show your impact in a convincing way. Often impact investors have developed their own methods and standards and will ask you to provide information according to their criteria and specifications.
This can range from reporting 3-5 key indicators of their choice, to developing complex models (often as part of the due diligence) that may need several weeks to develop with scientific methods and that are then used as well post due diligence to track performance.
In the vast majority of cases, you will have a large advantage if you have a clear so called "theory of change", which is what we have introduce just before, and which is what the following curriculum teaches (with a slightly adapted version however, so it is feasible for startup)
Step 1 [impact identification] Lean Impact Measurement for Startups. Welcome! See a 3:30 video and request access to your measurement spreadsheet [impact identification]
We now want to help you to actively start your impact measurement process. A team of researchers at the MIT Sloan Sustainability Initiative and the Technical University Berlin has developed a guided approach, that is iterative, flexible, suited for startups, and at the same time reflects best practices in impact measurement as good as possible.
To start, simply have a quick look at the "start here. A short overview" video and afterwards request access to your free impact measurement spreadsheet via the website linked below.
Step 2 [impact identification] Measure your value added only, i.e. the difference you make!
After you have gained access to your impact measurement spreadsheet, we now ask you to identify which changes you make to your business model, compared to the solutions that already exist.
As you will not have the time to measure all your impact, we help you to identify those areas, where you change something compared to the status quo! This information, the difference you make, is often an information that impact investors will want to know!
Only if you have identified clear differences, you can claim that you "add" sustainability value compared to what already exists.
Step 3 [impact identification] Identify who your stakeholders/beneficiaries are and what changes they will suffer/benefit
In a next step, you should identify how your business model creates change, and for whom. For this you will need to identify your beneficiaries (as well as those who suffer) and analyze what changes you generate for them.
Step 4 [impact identification] Verify your assumptions [and repeat step 2 and 3]
You have now likely generated several theory of change impact chains. The impact score will give a first indication about the importance of these impact chains.
- Take a step back and think which ones may be the most relevant ones (see as well resource I below)
- Take a steps back and consider relative vs. absolute impact (see resources II and III below)
- Take another step back and try to identify the most important negative impact that you could have. Often "negative" effects are forgotten during the measurement process.
Step 5 [Impact Quantification] Select Indicators
Once you have a rough understanding about your top 3 impact areas, you should consider how you can measure this impact. For this you select indicators.
Our experience shows, that for startups it is most valuable to focus on your top 3 key impact areas. This reduces complexity and allows focusing on your key impact areas.
Step 6 [Impact Quantification] Calculate your impact
You can now link your indicators to the current and/or projected sales that you have.
Optionally, you can as well monetize your impact.
Step 7 [Impact Quantification] Validate your impact [and optimize via steps 1 to 6]
You should now critically step back and look at your impact measurement system. The three following issues are useful to consider:
1) Are you sure you have accounted for unintended side effects?
2) We strongly recommend to go through the same steps again and try to identify the biggest negative impact that you have.
3) Are you sure, that as you increase sales, overall emissions might not be higher than what they are today? See again the resources from step 4, that may help you in answering these questions.
Looking forward (1/3) Software for impact measurement
There are more and more software solutions in development, that lead you through the measurement process and allow you to fill in may help you through the measurement process. We list here those that have either the highest traction (current users) or software solutions where we see the potential to achieve this traction.
Looking forward (2/3) What are "reporting standards"?
Reporting standards are designed to help you what you should report and how to report your impact. There are three key players that developed reporting standards. Note that these are targeted at large corporations (with long checklists of what needs to reported).
For this reason, they are in our opinion not yet relevant for startups. If you go through steps 1 - 7 of this curriculum, you will however identify impact areas and indicators that match with these three reporting standards. So we recommend to not be too worried about these standards. It makes sense however to have them in mind, once your organization grows.
Looking forward (3/3) What are sustainability ratings? Can I become rated in the future?
Sustainability ratings are usually targeted at large corporations and are not appropriate for startups.
Once your organization is large enough, some of these rating agencies might ask you to provide data relevant to their rating system, or they use publicly available data. They are however not targeting startups and are at this stage not a concern for startups. Seeing some players in the field however may help!
Due to the complexity of impact measurement, there is a large heterogeneity between these ratings even for the same organization. See as well resource IV linked below about a current research project at the MIT Sloan Sustainability Initiative.