Burgess COMMENTARY

Peter Burgess

Cliff's Notes to SoCap: Thoughts from the Trenches

Look forward to seeing lots of you at SoCap next week! Lewis Hower and I were reflecting on what we've learned, and wanted to send a 'Cliff's Notes' in advance of next week:

1. 1. Talk isn't cheap, it's incredibly expensive;
2. 2. Marginal impact is better than doing nothing;
3. 3. Broaden 'impact investing/social entrepreneurship' by taking a problem-solving approach.

A Cliff’s Notes to SOCAP 2013: Lessons from the Trenches - Village... vilcap.com In advance of SOCAP13—the premier annual gathering of the social...

Comments: 5 comments

Folks--excited to see lots of you at SoCap. Lewis and I have gone more into each thought in separate posts. Point #1: Talk isn't cheap--it's incredibly expensive.

“Talk is cheap,” the old saying goes. But talk also involves an opportunity cost. A lot money has been spent over the past half-decade not directly on trying to build innovative solutions to major social problems—but on “advice” that primarily serves the purpose of telling someone what they should be able to deduce through simple inquiry and observation: impact investing is risky, there are currently a shortage of investable models and therefore reliable exit opportunities, and institutions and people need greater comfort and transparency. Otherwise summarized: this work is really, really hard.

Talk is incredibly expensive. The generalizations above—which have been repeated through advisors and reports until the day is long, have yielded large amounts of money spent not on direct innovation, but on reports regurgitating what we already know. People spend a lot of time thinking about why innovation is risky—but rarely consider the line item budget of de-risking (people’s salaries, time, and, yes direct investment in ventures that fail) necessary to build a larger sector.

For more, click here http://www.vilcap.com/talk-isnt-cheap-incredibly-expensive

Thought #2: Marginal impact is better than doing nothing.

'Ours is a critical age, not a creative one.' –Paul Elie

When people stop talking and “decide to do,” they often suffer from analysis paralysis. Many would-be impact investors are letting the perfect be the enemy of the good.

Progress towards impact is better than no impact at all, as long as all parties involved are honest with each other and are always learning—and sharing their findings. People want 'home runs,' and home runs require lots of at-bats.. We need lots of entrepreneurs to have the space and fuel to test hypotheses, and funding mechanisms and support systems to allow a wide variety of learning to take place and be shared.

Current fund structures prevent true iterative learning for both social enterprises as well as impact investors.

Yet we can’t underestimate the opportunity cost of inaction, given the size, speed, and immediacy of the world’s problems. The risk of no action is infinitely bigger than acting on only things that are cookie cutter, which impact investing is becoming defined by.

For more, click here: http://www.vilcap.com/marginal-impact-better-nothing

Finally, thought #3: Broaden 'impact investing/social entrepreneurship' by taking a problem-solving approach.

Impact investing is, by far, too input-defined. Often, organizations measure what they’ve done by inputs—consulting hours given (yes, but to what end?) or dollars deployed (great, better than nothing, but to what end), or enterprises served (but how well?). Metrics are hard—and we are guilty of this, too, sometimes.

The world would do well to understand that the greatest entrepreneurial successes weren’t done under the umbrella of “impact investments” – but probably made a greater impact than any “impact investment” to date. Find a problem, start a business that addresses (does not have to solve) the problem, and make it into a model where someone is willing to pay you for the value that you are creating.

Impact investors must be willing to invest in infrastructure, as well as riskier businesses than they might personally like, to get quality. And entrepreneurs need to recognize that revenue comes from solving a problem so well that someone will pay for it--and is important when seeking investment ('patient capital' doesn't mean 'infinite capital').

Impact investing has been described as an “emerging asset class.” Yet if we continue to subscribe to the mantra of starting with the problem, we need to identify the clear system-level breakdowns that prevent an “asset class” from being possible, whether it be inefficient markets for start-ups, or the signaling effect of the way we talk about the social capital markets that turns off serious entrepreneurs and investors, or the misallocation of capital to reward risk aversion in a sector that requires risk-tolerant structures to grow big.

http://www.vilcap.com/broaden-impact-investing-social-entrepreneurship-taking-problem-solving-approach

Ross, I liked this post so much that I blogged about your blog. Not sure if there is a verb for that, but there should be. 're-blogging'? 'klepto-blogging'? www.i3impact.com

Looking forward to seeing you at SOCAP!

I wish I was going to be at SOCAP ... but that's life. However I will take the liberty of inserting my 2 cents into this conversation.

I subscribe to the view that:

• * ... You manage what you measure; and
• * ... If you change the way the game is scored, you will change how the game is played

The main measures in modern society and economics are what I refer to as the terrible trio: (1) money profit for business; (2) stock prices for investors; and, (3) GDP growth for pundits and policy makers ... and maybe I should add money denominated wealth. It is no wonder that the pattern of decision making over the past 40 years has ended up with something that is proving dysfunctional for people and planet.

Double entry money profit accounting is rigorous about money and profit but it is 400 years old and I would argue due for some serious rethinking.

First, accounting should take into consideration not only the internal money transactions but ALL the external impacts on people and planet. This requires quantification of valuadd which may be done using a system of standard value (rather similar to standard cost in cost accounting).

The primary entity for data collection, analysis and reporting should be an economic activity. An economic activity is implemented by and financed by organization/s. An economic activity is located in a place, and an economic activity processes a product.

Aggregation or roll-up should take place in 4 ways: (1) to the implementing organization; (2) to the funding organization; (3) to the place; and, (4) to the product.

Now the implementing organization can report on its profit and its impact, the funding organization can do the same, and the place can see what is working and what is not in its location, and buyers faced with a buy or not decision can look at the product not only in terms of price, but also in terms of trucost and impact on people and planet through its whole life cycle, supply chain, during use and in the post use waste cycle.

Is this practical? Yes it is. Maybe in the past it would have been difficult if not impossible, but there is already Big Data activity around places and products but mainly in the interest of some element of commercial profit. Getting the complementary data for people impact and planet impact is not a big technical step.

If it is true that multi-trillion dollars of social capital would be mobilized if there were really good impact metrics, I would argue that it is high time that something like this got deployed. Stay tuned. I have a passion for this, and the possibilities are huge.

Peter Burgess TrueValueMetrics