Articles by Katie Hill

Katie Hill, India Portfolio Manager at Acumen Fund, wrote the following post for Beyond Profit, as part of their series on track leaders in advance of  the Khemka Forum on Social Entrepreneurship, to be held in Hyderabad, India on December 8-9, 2009.

I recently visited rural Uttar Pradesh and met with a number of customers in off-grid villages who had purchased a D.Light Design solar lantern to replace their kerosene burner. D.Light strives to deliver both a financial and social return; Acumen Fund, my employer, invested in D.Light based on the hypothesis that this light will bring a higher standard of living—improved education from evening study hours, cost-saving from reducing kerosene expenditure, enhanced livelihood from adding more hours of productivity to a general store or tailor. Speaking with the customers in the village, the social impact seems obvious – literally in front of your eyes. But, aside from anecdotes, has D.Light or Acumen Fund “proven” that this impact exists?

Today, I sifted through the quarterly performance data for GEWP, a business selling low-cost drip irrigation products to small-holder farmers across India. Working for a social venture fund, my job involves not only tracking the financial viability of each company we invest in—monitoring revenues, profits, cash flows, and expected exit values—but the social value being generated. Even more, we hope to demonstrate the “social return on investment”—for every dollar we invest in GEWP, how many smallholder farmers double their incomes from precision agriculture? Taking this even further, how do I compare the impact of the GEWP drip unit to the impact of the D.Light solar lantern? These are only some of the many challenges social investors face.

The social entrepreneur’s challenges are different than those of the social investor. Any entrepreneur (social or otherwise) struggles with data collection when he or she has a small team, a limited budget and rudimentary systems. The social entrepreneur has similar issues which are compounded by the need to collect social impact data, not only to track her double bottom line and to answer to her stakeholders, but also as part of good business management. Consumer data is crucial to identifying growth opportunities or knowing where your business may be going astray. One must understand the customers’ demographics, what motivates them and what they value.

In this short post, I hope to share some of the impact measurement trends Acumen Fund has seen in the last decade, as well some thoughts on solutions to the toughest challenges.

Why Measure?

Why measure? It’s costly. It’s often muddled, and difficult to really “prove” anything. But I would argue that the future of the social enterprise sector—this idea (and it is still only an idea) that enterprises may be a more efficient means of improving the lives of the poor—rests entirely on our ability to get this right.

Social enterprise seems to be reaching a tipping point—new investors and enterprises are popping up everywhere, buzz words are flying. With excitement comes scrutiny. Social enterprises and investors had better be sure that they can answer tough questions:

• “Have your products/services actually reached the ‘poor’ (Related: How do we define poor?)?
• Are your investments drastically improving lives or only marginally?
• Is the business approach actually the most cost-effective means to reduce poverty or is this hype?”

You can take a little sigh of relief. A lot of extremely intelligent people have already put their brainpower towards these issues. I only have space to name a few.

• The “social return on investment (SROI) framework” has contributed a compelling theory for social investors.
• The essay “Measuring Innovation: Evaluation in the Field of Social Entrepreneurship” by Mark Kramer synthesizes a range of ideas around how to develop practical and balanced measures of impact.
• The recent framework, “The Base of the Pyramid Impact Assessment Framework: Enhancing Mutual Value Creation” by Ted London suggests how to account for the positive and negative impact of social ventures.
• The “Catalog of Approaches to Impact Measurement,” by SVT Group, offers a number of useful tools.

Clearing the biggest hurdles

The challenges of impact measurement may seem infinite. I am just going to name a few biggies.

1. Getting the data

The sheer logistical challenge of data collection is often overlooked. Bootstrapped social enterprises often don’t have big budgets or extra staff to complete wide customer surveys. So, we need to use what we’ve got. GEWP, for example, can use their 1-yr warranty cards to collect impact data. LifeSpring Hospital, a maternity hospital chain targeting low-income families, can use its registration process for new mothers to collect pertinent data, such as education backgrounds or household income levels.

From the investor seat, Acumen Fund experienced data scarcity challenges in our early days, and we’re still making improvements here. Simply collecting 5-7 meaningful data points every quarter, let alone the 30 we strive for today, at first seemed like a Herculean feat. Now, we get monthly data from our investees.

2. Inconsistency of metrics in the field

It seems like every new organization is reinventing the measurement wheel and, therefore, each investor is using slightly different metrics. One solution is IRIS. Evolving out of the Global Impact Investor Network (GIIN), a small group of stakeholders came together to think about a taxonomy of consistent metrics for social and environmental impact. The result has been Impact Reporting and Investment Standards (IRIS), which is an open source of common terms and indicators for financial, operational and social metrics on initiatives ranging from agriculture to education to healthcare. This common language is the first step towards truly building an industry.

3. Analyzing the data

There is no point in collecting numbers unless you’re learning something from them. So, how do we go about calculating meaningful indicators from a slew of data? It doesn’t have to be fancy. Use a pencil and paper, Google spreadsheets; use whatever works. As companies scale up, with high volumes of data and multiple locations, more sophisticated tools might be necessary. These could be standard MIS systems like Tally or Salesforce.

As investors, we faced similar challenges of moving from bulky spreadsheets to something more functional; we could not find an appropriate off-the-shelf software tool. So, we co-developed Pulse with Google.org. Pulse is a web-based platform for tracking and managing social investments. Pulse has already been used by a number of peer investors and is now being taken to the next level with the support of Skoll Foundation, Lodestar Foundation and Salesforce.com.

4. Correlation vs. causality

One of the trickiest points on impact measurement is whether we can ever have confidence that our initiative caused the intended outcome. For example, if patients from LifeSpring Hospital demonstrate improved health indicators in mothers and babies, is it because of their visits to LifeSpring (causation) or is it because of another aligned factor—the family cares about their health, so they both visit LifeSpring and engage in a number of other healthy activities, like drinking safe water (correlation). Randomized control trials, through players like MIT’s Poverty Action Lab, are the “gold standard” in proving causality.  In India, IFMR is also making great strides. These evaluations can be costly and are very time-intense. They should be used strategically and will require additional resources, as most social enterprises with thin margins can’t afford this line item.

5. Cost-effectiveness of measurement

To the point above, there is a general sentiment that social and environmental impact measurement is expensive and social enterprises don’t have an endless budget. It may be helpful here to distinguish between social outputs and social outcomes. For example, if SKS Microfinance distributes HUL’s Purit water filter to its borrowers, the “output” is X number of homes with access to clean drinking water. The “outcome” is the demonstrable impact—reduced incidence of water born diseases that results in healthcare cost-savings, higher school attendance, etc.

So, until the cost of doing these rigorous assessments fall, we think it is our responsibility to count the outputs as consistently as possible. The conclusions you can draw from these outputs may not be made with scientific rigor, but can inform businesslike decisions and raise important questions on impact.

Start Somewhere

We would argue that the lack of precision in social impact measurement is no excuse for not trying. Accurate impact measurement will only emerge if we start making imperfect calculations today and constantly improve upon them. There are a handful of impact measurement tools/methodologies out there. Each one in isolation may be problematic, but combined and cross-checked, the effort could lead to collective accuracy. And we need this collective accuracy if we hope to ever demonstrate that the social enterprise hypothesis holds water.

Global Easy Water Products (GEWP), an Acumen Fund investee in our Agriculture Portfolio in India, is currently recruiting a qualified Corporate Strategy Intern to help the company build a new 5-year business plan and financial model. This is an exciting opportunity to work directly with the Managing Director and Board of Directors of the company to shape its future direction.

GEWP is the exclusive distibutor for KB Drip, a line of micro-irrigation products that drastically increase yields and incomes for small farmers, as well as reduce water and energy consumption by 30-70%. The company currently distributes through over 600 dealers in seven states in India, as well as exports across Asia, Africa and Latin America. GEWP has witnesses remarkable growth over the past two years and has proven that enterprises can operate profitably, while having a tremendous impact on poverty. The company is, therefore, revising its 5-year business plan and financial model to account for new growth opportunities.

The intern would be based in Aurangabad and/or Hyderabad for a period of eight weeks. To apply: Check out this position description, and send a cover letter and CV to khill@acumenfund.org, with “Application for GEWP Corporate Strategy Intern” in the subject line.

We wanted to share a notable and amusing article in today’s Wall Street Journal—“The Infomercial Comes to Life in India’s Remotest Villages.” In the article, reporter Eric Bellman captures the creative approaches that many major consumer products companies are using to reach the rural Indian consumer. He shadows one of the army of salesman that global advertising agencies are dispatching to promote products by staging dances, skits, music, demonstrations and game shows in remote villages of 100 houses or less. Bellman also aptly highlights that rural markets in India (and many other low income countries) have been relatively insulated from the global recession and that India’s rural consumer spending is actually increasing.

This article really captures the cardinal rule of understanding your customer. The methods include everything from recognizing the cultural context—first approaching the village elders for permission to perform—to using alternative media like live entertainment to grab the new customer. These lessons translate to social enterprises in obvious ways.

Some of our investees have already mastered these creative marketing strategies. Global Easy Water Products’ (GEWP) parent organization, International Development Enterprises – India (IDE-I), has produced a number of short Bollywood movies featuring their KB Drip irrigation products. KB Drip salesmen will arrive at a village market, set up their projector and let the crowd form. Here are two examples of these masterpieces (with English subtitles):

KB Drip video 1

KB Drip video 2

Of course, the devil’s advocate to this article might argue that this type of advertising could be exploitative and persuade poor families (who have limited access to information) to buy things that they do not actually need. Aneel Karnani, a professor at the University of Michigan, has accused our sector of “Romanticizing the Poor” and of exploiting the poor’s “bad choices”. But, it is food for thought on whether you believe a rural poor consumer in India deserves the freedom of choice and whether they are adequately informed to make appropriate consumer choices for themselves and their families.

Acumen Fund has long admired the TiE - “The Indus Entrepreneurs” network - an impressive and fast-growing community of top Indian entrepreneurs, venture capitalists, lawyers and management professionals. TiE demonstrates the power of community with 53 Chapters in 12 countries, spread across 5 continents.

We are excited to share that D.Light Design, one of Acumen Fund’s portfolio companies, has been nominated as a finalist for TiEcon 2009’s 50 “Hot Emerging Companies” award. From among 1,200 nominees, finalists have undergone a rigorous screening process by TiE’s industry judges. D.Light Design’s mission is to deliver safe and affordable lighting and power solutions to households that lack reliable energy supply. It is exciting to see a social enterprise be considered as a peer among fast-growth commercial companies. This is evidence of the potential to for companies to achieve scale and profitability, while having a material impact on the quality of life of the poor.

The TiE Awards will be decided by collective voices. Voting closes tomorrow on May 7, 2009. We encourage our community to get involved-vote for D.Light Design and other innovative new Indian companies.

By Katie Hill and Biju Mohandas

The Acumen Fund India team is spending the day with three of our healthcare investees LifeSpring, 1298 and VisionSpring thinking critically about how to better understand and serve their customers through customer relationship management (CRM) strategies. In this case, the customers we are talking about are diverse — an expectant mother earning daily wages in Hyderabad; an accident victim on the streets of Mumbai who urgently needs medical care; a tailor in rural Andhra Pradesh who can no longer see her thread and, therefore, no longer earn her livelihood. For these social enterprises, understanding and delivering value to their customers is vital not only to achieving profitability, but also to ensuring social impact.

This two-day workshop is being led by Dr. Dipankar Chakravarti, the Ortloff Professor of Business at Leeds School of Business, University of Colorado, Boulder. He has generously dedicated his time and expertise to introducing frameworks for understanding various aspects of customer relationship management to these companies. Today, he led the group in real-time exercises that should result in a more strategic incorporation of CRM into their activities be they maternity & child healthcare, emergency ambulance services and the provision of quality eyecare products for low-income communities. Meanwhile, the Acumen Fund India team is fervently absorbing lessons that may be applicable to our other portfolio companies.

We will have much more to share in a few days, once we have seen the outputs of these CRM exercises. First, let me share a few initial insights:

Marketing Entropy
Dr. Chakravarti began with the provocative notion that, left to themselves, most firms priorities and processes tend to deteriorate toward treating their customers badly. Without even trying, firms put their priorities first and, in return, erect customer acquisition barriers, lower customer exit barriers, and dehumanize relationships. If this is indeed a trend, then our social enterprises need to be aware of this as they scale.

How is CRM different for social enterprises?
Traditional CRM strategy looks to measuring the lifetime economic value of a customer (through the net present value of the profits you will earn from that individual) and prioritize the highest value customers. Dr. Chakravarti challenged us to think about whether this is applicable to social enterprises that may have other priorities beyond profit maximization.

Anant Kumar, the CEO of LifeSpring, emphasized that we need to apply this same level of rigor to social enterprises, but evolve the analysis to think differently about the traditionally unprofitable customer. An expectant mother who cannot afford even the significantly reduced cost of childbirth in LifeSpring may be unprofitable by this analysis, but, has to be cared for by Life Spring and she may even lead to many profitable customers.

Are BoP customers different? Yes and no.
The CRM exercise rests entirely on understanding your customer. At Acumen Fund, we often emphasize that, in many ways, a base of the pyramid (BoP) customer is no different than you and me, in terms of what they value. They are aspirational. They value quality, status, and aesthetics. But, how is consumer psychology different when we are targeting the poor?

A few examples emerged today. First, BoP customers’ time-oriented thinking can be completely different, and he may not be able or willing to pay more today in order to save tomorrow (e.g., buy higher-quality, durable VisionSpring glasses and avoid paying for replacements in the future). Second, in BoP markets, the customer can be different from the person paying for the good/service. For LifeSpring or 1298, payment is often rendered by a husband or the collective family unit, which changes the dynamic of how the company targets its customers. These are two of many examples that should keep us thinking about what is universal to all consumers and what is a result of socio-economic and cultural factors.

In the next 36 hours, as LifeSpring, 1298 and VisionSpring go through rigorous exercises designed to understand and satisfy their customers better, we at Acumen also hope to learn and share some exciting insights. Watch this space for more.

At Acumen Fund, our focus on metrics has become an integral part of everything we do. Understanding the social impact and financial performance of our investments is critical to informing our portfolio decision-making process and providing support to our investment enterprises. Over the past few years, building on other established approaches, we have worked to develop a methodology for assessing our investments that is practical, understandable and useful to our ongoing work. This concept paper outlines an analytical tool we affectionately refer to as BACO (for best available charitable option) that helps us to understand the social impact and cost-effectiveness of our investment, as compared to other charitable options that address the same issue. It continues to be a work in progress and is not without its limitations, but it does provide a framework for how we think about delivering critical goods and services in health, housing and water to the poor.