Why Is Measuring Social Impact Becoming a Necessity in the Nonprofit Sector?

Let me begin with a question. If you were a Social Impact Investor, how would you measure the outcome of the ventures you invested in? Would you have weighed the lives saved against the dimes spent? Would you have measured the paths built against your donations? Would you have asked for complex monthly reports depicting the good deeds done versus the money spent? As for today, there are no metrics and standards set in stone to measure the social impact of non-profit organizations and public benefit ventures.

In order to make progress, and enhance the outcome of the nonprofit organizations, the need arose for determining the social impact of such ventures. Once the managers and donors understood how much the organizations were affecting the betterment of society, they began to take even better steps to widen their scope, boost impact and increase the number of people benefiting from their efforts. Soon, it became a necessity to measure the social impact, and take even more effective steps to benefit more people. Measuring the social outcome of a nonprofit organization helps the donors and managers in understanding exactly what needs to be done to make their work and efforts more influential and positive for the community.

Now, let’s focus on the obstacles and barriers faced when measuring the social impact of such organizations. As we all know, for-profit endeavors can easily promise an outcome and subsequently convert the outcome into money, revenue and profits. However, the same can’t always be done for nonprofit organizations.

Institutional investors, either Venture Capital firms or typical Angel Investors, are often very much involved in the ventures they fund, and require monthly or quarterly stat reports on performances and general KPIs. This level of accountability is emerging in the nonprofit sector, where donors want the same level of measured responsibility. Demanding performance excellence and measuring the impact of their donations on social betterment is now almost mandatory when it comes to raising money for a new social impact initiative.

When the affiliated partners and investors want to understand the social impact of this app, they can only do so by reviewing the feedback and the number of downloads/users, along with the metrics generated by platform use. There is no definition by which we can measure how many people the app benefited, how their lives improved, or how much economic development it generated in a specific demographic. We can only count the number of users who downloaded the application, but we cannot evaluate the impact of the app on their personal and social lives.

Hundreds of users will improve their literacy skills through this application on a daily basis, but the developers and the managers find it very difficult to quantify how many people are actually benefiting from this, and whether or not the social impact and economic development goal was achieved.

You can count the number of companies graduating from Startup Home, but it is hard to determine their impact on their surrounding neighborhood. It is seemingly impossible to accurately determine whether or not a graduated company achieved their goal and helped the community. Since the pool of clients is diverse, it becomes even more difficult to grasp the true social impact created by these companies. Measuring the general economic development remains a nearly impossible task.

We need to set hard-and-fast rules for determining the social impact of nonprofit and social ventures. These rules will help such ventures in generating positive and fruitful reports for concerned investors. Rather than treating the nonprofit sector as a for-profit sector, the investors need to understand that social ventures have a different definition of achieving success.

Instead of relying on KPIs, quarterly profits and numbers, the investors should focus more upon the affected audience. Yes, economic development should portray the success of social ventures, but we are still years away from developing such tools which can monitor and summarize the social impact of the nonprofit sector. Until then, investors need to realize that social ventures are not run for profit, but for the betterment of our society. Until the marketing experts create precise methods to categorize the social impact of social ventures, investors should be content with the traditional methods of measuring success for social ventures.

#SocialImpact #Investing #Entrepreneurship #Startup

(disclosure: I am a cofounder of the Public Benefit Venture English for a Song, and the Executive Director of the Social Impact Initiative Startup Home)

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