Better Impact Measurement for Climate Startups and SMBs
If you’re a climate entrepreneur, generating impact is inherent to your business – and tracking it can open up a wealth of opportunities. But impact reporting is uncharted territory for many startups - so where should you begin?
Dana Cotter is Managing Director of Impact at ImpactAssets, a nonprofit impact investing firm dedicated to changing the trajectory of our planet’s future and improving the lives of all people. We chatted with her to discuss how climate startups can start their journey of measuring impact, and how you can leverage the insights you uncover to accelerate your business.
Getting started with impact reporting
Make sure impact is at the center of your business
Impact reporting shouldn’t be done for its own sake - to be effective, impact needs to be tied to your core business metrics and growth. Impact is about having a meaningful influence or effect—something that can be measured. For example, your impact could result from the products and services you offer, and the value it brings to specific communities, and how your work is advancing global goals. Think about the outcomes and ultimately the impact you could measure that would help you assess and drive business goals. If your impact reporting requires a significant effort outside of your core business, then it’s very likely that impact will fall by the wayside over time as you grow.
The core pillars of impact reporting
Impact reporting for startups begins with establishing a framework for communicating your story and purpose as a business. Work backwards and think about why you started the business—what's the problem your business is trying to solve? Then look at how your business is addressing the problem through the products and services you are offering.
Next, build a deep understanding of the customers you are serving both now and, in the future. A lot of powerful information can come from segmenting your existing customer data. For instance, look at geography, types of customers, and any relevant demographic information. These insights can help you understand where your business is succeeding and dial into the value and impact it is creating—providing a roadmap for continued expansion. Customer insights and stories can also be powerful drivers of impact storytelling.
The last step is to identify the meaningful metrics and ways you will measure, over time, how your business is working to solve the problem and therefore generating impact. Remember that these metrics should be core to effectively communicating your business activities and integrated into work you already do.
Best practices for measuring and sharing your impact
1. Build on a base of core metrics
Make sure the effort you’re expending on tracking your impact feels appropriate for a business of your size and capacity. To start with, focus on tracking your company’s critical core activity or output metrics, which you’re likely already reporting to your board or investors. These metrics will likely include the number of products sold or the number of customers you have, overall revenue and revenue per customer, etc. If impact is at the core of your business model, then these metrics are effective baseline measures at the early stage of your business.
As you scale, investors and other key stakeholders will still want to see consistency in the data points you report on, but you can also incorporate different types of impact metrics moving from output or activity-based reporting (# of units sold or customers served) to results or outcomes ($ savings over time, reduction of GHG). As your measurement and reporting practice evolves you can also start setting impact targets and measuring progress against those. If decarbonization is a big part of your story, check out our Insight with Mia Diawara for more insights on how to handle measurement and reporting for carbon.
2. Weave data and stories together
While data and metrics are critical to demonstrating the scale of your impact, storytelling is what will truly bring your data alive. Balancing the two is how you’ll connect with potential customers and investors. Collect testimonials and case studies that will showcase your impact. Share stories of your customers and the value your product provided for your customers and how it impacts the broader world. Real stories and examples can go a long way in connecting your audience to your impact in emotionally resonant ways. Engaging with your customers will also deliver valuable insights around how your offering is serving them, and what could be improved.
3. Put it in perspective
When you’re communicating your company’s impact, show how it’s changed or grown over time – quarter after quarter, year after year. This context will put your progress in perspective with your business’ growth. It’s also a good idea for companies to put their impact in the context of their industry. Make it relevant and approachable. Consider sharing your data in ways that can make otherwise complex information more familiar. For example, if you are tracking the reduction of GHG, that data could be conveyed as equivalent to taking a certain number of cars off the road. If you’re concerned your impact looks small in comparison to the entire market, you can put your contribution in context of the greater goal without sharing specifics about the actual percentage you’ve contributed.
Still, be prepared for some stakeholders to ask for very specific, time-bound reporting. The more frequently you capture core business metrics, the easier responding to these requests for details will be. Be sure to communicate whether your reporting is lifetime or time bound, and lay out all of your assumptions and calculations.
4. Know your capacity
If you’re exploring a potential funding opportunity and the investor asks you to start tracking an additional impact, think about whether you have the operational means to do so before you agree. If it’s not feasible, be candid about that fact. Ask the investor if the metrics you already collect are sufficient, and be clear if you’ll need technical assistance or more funding to execute on their request. Different investors will have different expectations from your impact reporting– check out our Insight with Jo Brickman for more on this. Finding a middle ground is important - after all, you are entering a partnership - and they may be willing to fund the extra capacity to bridge the gap.
5. Don’t overlook internal opportunities
Impact isn’t just about the external results you’re producing as a company - it also encompasses other ESG considerations, including the way you're utilizing your own resources to advance the sector’s diversity, equity, and inclusion. Consider the make-up of your team and your decision-making practices. How can you drive inclusion and make room for diverse voices? Are there internships and fellowships programs that you could implement to build the sector’s talent pipeline from underrepresented communities? Weaving equity into your company shouldn’t be an afterthought– check out our Insights piece with Tiffany Foo for more on this. Your internal practices are just as important as the impact you have with your customers, so be prepared to demonstrate them to investors.
Dana is the Managing Director of Impact at ImpactAssets, where she leads impact programs, product strategy, and reporting. With a deep focus on climate, racial equity and gender equality – she works to build client and product strategies that enable more funding to flow to these and other issue areas.