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].


Resources

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.


[I] - Sustainability - low time demand. The United Nations "Sustainable Development Goals" (SDGs) are a helpful guideline for identifying and communicating sustainability. Consider how your activities influence these 17 goals. A startup is likely to cover several SDGs. It is important to note however, that due to "unintended side effects", having a positive impact on one SDG, may result in a negative impact on another SDG.

[II] - Sustainability impact - medium time demand. "The impact compass" describes 6 dimensions (see page 4 in the document) that are relevant when considering sustainability impact. Dimensions include "value to society" (i.e. how important is the problem you address?), efficacy (i.e. do you know whether your activity will really contribute to solving the problem?), impact magnitude (i.e. how much of the problem can you solve) or scalability (i.e. how many people benefit from your activities?). From our experience this is a valuable approach to conceptualize the impact a startup might have.

[III] - Sustainability Impact - medium time demand. In a similar approach to the resource above, the impact management project has summarized sustainability impact in 5 dimensions, consisting of "what", "how much", "who", "contribution" and "risk". The website provides useful explanations and links to further resources, if you click on the 5 icons for the 5 dimensions.

[IV] - A systems view - medium to high time demand. This document shows the importance of a systems view tackling sustainability aspects and ways how you can achieve large impact, without scaling an enterprise. Often we think in impact measurement as "scaling" a venture that solves social or environmental problems. This is one very important way to achieve impact. However, this document shows that "changing" a system can be done in ways that do not need a startup to scale and it helps to remind you of a "systems view" on sustainability. You may want to read the preface (page 4), or the five lessons for systems change starting on page 9.

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.


[I] - a) Scorecard approach - low time demand. Building on the concept already mentioned above, the "Impact Compass" has 6 dimensions. You can rate a startup directly on the website and create a visual report. The dimensions include "value to society" (i.e. how important is the problem you address?), efficacy (i.e. do you know whether your activity will really contribute to solving the problem?), impact magnitude (i.e. how much of the problem can you solve) or scalability (i.e. how many people benefit from your activities?). From our experience this is a valuable approach to conceptualize the impact a startup might have.

[II] - a) Scorecard approach - medium time demand. One of the few approaches that has been specifically developed for startups: This Pdf manual covers the aspects a) business context, b) startup team c) business concept and d) product and services and allows creating an overall score. It allows for flexibility to be adapted to the needs of the user (startup, investor) and is conceptually a very good and comprehensive document and approach.

[III] - a) Scorecard approach - medium time demand. The B-Impact Assessment is very helpful in identifying many areas of sustainability. It is probably the leading sustainability impact scorecard approach. In early phases of a venture, some questions may not yet be relevant.

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.


[I] - b) Theory of Change - low time demand. This short video provides a 2:25 min overview and explanation about the theory of change.

[II] - b) Theory of Change - low to medium time demand. See page 34 in the EVPA document "a practical guide to measuring and managing impact, for a graphic showing the typical value chain Inputs, Activities, Outputs, Outcomes, Impact (free registration required for document download).

[III] - b) Theory of Change - medium time demand. The social reporting standard provides and interactive learning module around the development of a theory of change.

[IV] - b) Theory of Change - medium to high time demand. The Phineo social impact navigator is a pdf document that explains well the theory of change and provides valuable exercises, checlists and tools at the end of the document.

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)


[I] - Medium time demand. This document provides a valuable overview about impact assessment from the investor's perspective.

[II] - Medium time demand. In the document "a practical guide to venture philanthropy and social impact investment" (free registration required), you may see the role of "theory of change" and "impact measurement" from the perspective of venture philanthrophy and social impact investment.

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.


[I] - Start here. A short overview (3:30 min. time demand). This video presents to you three key principles that make impact measurement more feasible for startups and how you will proceed with the Lean Impact Measurement approach for startups.

[II] - Request access to your free impact measurement tool. You may sign up on the startupimpactbenchmark page to request access to a spreadsheet that guides you through the following steps 1 to 8.

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.


[I] - Status quo solution and business model differences (3:35 time demand). This video helps you understand the perspective of how your business model "adds" sustainability compared to the status quo solution.

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.


[I] - What stakeholders are most affected and what changes for these stakeholders? (3:47 min. time demand). This video helps you to understand who benefits/suffers from your activities, what changes you achieve for these stakeholders and how to select the three most important ones

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.


[I] Industry specificities - low time demand. The SASB materiality map provides important impact areas for different industry sectors. Check this map for your industry. Is there anything you have not considered so far?

[II] Relative vs. absolute impact goals - low time demand. You now have a feeling of the impact that you generate. Especially for questions concerning "emissions", it is important to understand that you need to reduce emissions in an absolute level. If you reduce emissions on a relative basis, but your startup leads to an overall increase in production/consumption of your product/service, you might contribute to more emissions than if your startup would not exist! Read this short document to understand what this means.

[III] Science based targeting - medium to high time demand. For a further understanding of what it means to commit to absolute targets, rather then relative targets, you may want to have a look at our curriculum on science based targeting here on shift.tools.

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.


[I] Online metrics database - low to medium time demand. An online database of over 30.000 social impact measurement metrics. Some of them with suggestions for financial value (monetization).
Socialvalue

GVE 2.0

Website | Free

[II] A short overview about the IRIS indicators - low time demand. The IRIS indicators from the global impact investing network (GIIN) are the leading indicators for impact measurement. This is a "how to" guide

[III] The IRIS indicator database - medium time demand. This database may take a short time to get used to, but it is an extremely valuable resource to find relevant indicators. Note that you can adapt indicators, if you do not find one that fits your needs.

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.


[I] You may use the spreadsheet from startup impact benchmark to link your theory of change and corresponding indicators to your sales. Check back soon. We will link an additional video helping you with this step!

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.


No resource for this step/see resources above.

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.


[I] You can register on the website of www.startupimpactbenchmark.org to get your personal google spreadsheet version that will help you go through the 7 steps described above.

[II] The B-impact assessment is currently one of the leading impact assessment tools for social enterprises, using a scorecard approach. It helps identifying some key aspects of sustainability and for this reason can be a very helpful tool for startups. It was originally designed for corporates however, startups can only receive a "pending" certification and we have received feedback from startups that for many questions asked, startups do not have data/or the questions are not yet perceived as relevant. We still recommend the use of this.

[III] Sinzer provides good solutions for impact measurement. Amongst other frameworks, Sinzer provides Social Return on Investment, not however the "simplified" version that we have described in this curriculum and that we recommend for startups.

[IV] Sopact is a software tool that is "in development", that we have not seen and reviewed in detail. It may however be a valuable resource for your impact measurement. Once again it is however not specifically addressed at startups, but could still be helpful in your impact measurement process.

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.


[I] The social reporting standards provide an overall valuable framework for reporting social change.

[II] SASB is one of the three leading standards for incorporating impact into corporate reporting.

[III] Most widely accepted standards for sustainability reporting; reporting economic, social, environmental and governance performance. Targeted especially at corporates and medium sized enterprises

[IV] Integrated reporting is the third of the three largest players in impact reporting.

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.


[I] The Dow Jones Sustainability Indices (DJSI) launched in 1999, are a family of indices evaluating the sustainability performance of the largest 2,500 companies listed on the Dow Jones Global Total Stock Market Index.

[II] This resource provides an overview about the Morningstar sustainability rating, including a description of the method used to rate corporations.

[III] Aggregation of existing sustainability ratings. See tab "how we rate companies"

[IV] See a current research project looking about problems of sustainability ratings and ways to improve sustainability ratings