Pyarali Jamal '05SIPA
ESG & Sustainable Finance Specialist
The Importance of Validating Demand and Measuring Outcomes
Importance of Validating Demand and Segmenting Customers
In my experience, most social enterprises (and traditional for-profit companies) fail because their founders believe they have a great idea/service/product, but they haven't sufficiently assessed the true demand for it. This is because they usually haven't (or sufficiently) segmented the market to identify their main customer segments and the customer "buying criteria."
Sometimes, the investors they approach for funding will recognize this gap in their business plans and therefore won't provide funding. But sometimes, the investors will overlook this. Either way, the social venture founders will spend a lot of time, effort, and money on sub-optimal product or service development initiatives and go-to-market activities. As a result, the social venture's likelihood of success and survival is greatly reduced.
My advice to all early stage social ventures is to properly validate demand. There unfortunately is no "crystal ball" to provide the answers, but there are sensible and market-tested approaches. For example, speak with a sample of target customers about their needs, their internal decision making process, their buying criteria, etc. Those organizations that do a good job of validating demand have a much stronger and better chance of success.
Measure Outcomes: It's Very Difficult to Have a Sustainable Social Enterprise if you Don't
It is essential to measure social and/or environmental outcomes and not only outputs if you're serious about running a successful social venture. Generally speaking, outputs measure what was implemented and/or how many were served (e.g. how many trees were planted, how many solar panels were installed, how many people were trained, etc.). On the other hand, outcomes measure how people’s lives actually improved (e.g. how much CO2 was avoided or mitigated, how many people found long-term employment as a result of the training that was provided, etc.). Such distinctions are sometimes obvious, and at other times less so. To properly and efficiently measure outcomes requires early consideration and planning.
I've worked with many small and large social enterprises over the years, and not enough of them measured outcomes. Many do measure outputs, but outputs usually don't tell us if the organization has improved lives and/or the environment. I have found that many organizations don't measure outcomes because they usually don't know the true difference between outputs, objectives, outcomes, and impact. It's difficult to measure something when you don't have a clear understanding.
Just as for-profit companies cannot survive in the long term if they don't generate profits, social ventures cannot survive in the long term if they don't produce meaningful outcomes and impact (even if they produce profits) because their investors and other key stakeholders will want to see outcomes achieved.