A big difference between social enterprises and completely profit-oriented enterprises is their key metrics. They have the same metrics to indicate financial sustainability – revenue growth, costs etc.
But, a social enterprise has other key metrics — social metrics.
For example, a social enterprise that exists to solve bullying might measure the number of kids who experience bullying per year — this will be a key metric on whether the social enterprise is achieving its purpose.
Another example, a social enterprise that wants to increase the purchase of sustainable products, might measure whether their users increase their spending on sustainable products, and lower their spending on non-sustainable products.
Although, in the examples above, the metrics are not tied to the financial success of the business (at least not measurably; in the short run), they have everything to do with measuring the result relative to the purpose. And, the purpose is an important aspect of every social enterprise
If every charity, every government organisation, and every social enterprise measured the real impact of their solutions, we might find that some are effective, and some aren’t; and we might choose to continue the effective ones; and discontinue those that have no impact.
Good question. Thanks Justin! I completely agree that the we need to have a process that shows us clearly the benefit that our venture is creating (and we need to have done some pretty serious thinking and testing to show that this is actually a benefit and also isn’t creating major unintended negative consequences).
My feeling right now though is that this accounting should take place in the Social/Environmental Benefits section of the canvas. Just as the Revenue Model component, in this and in the standard Lean Canvas, is where you place and test assumptions about how and how much money your venture will generate, I think we need to do the same for the Benefits section – what benefits do we assume the venture will produce? How do we validate that this will actually happen? How do we pivot when it turns out we are wrong?
For the Key Metrics section, I would follow Ash Maurya’s advice for the standard LC and aim to isolate the one or two metrics (e.g from Dave McClure’s AARRR metrics) that really tells us whether the business model as a whole is succeeding.
I agree that this does fit under the Benefits section. But, then I also feel that social/environmental benefits actually is part of the key metrics section.
For me “key metrics” are the important variables around your business. They are “key” to your success. In a social venture, I almost think the most vital metrics are the ones around the social/environmental benefits. If a business is not fulfilling on it’s core social purpose/mission, then it’s not a social enterprise, it’s just a normal for-profit startup.
When applying for the Unreasonable Institute (http://unreasonableinstitute.org/) years ago, this was the most outstanding question in the application process: “Do you have evidence that your solution actually works in solving the problem that your target population faces?”
We’d been running our businesses for almost a year, and we still had no way of measuring whether it was actually making an impact, nor did we (at that time) have an intention on measuring it. We just assumed our solution would have the desired impact. After reading that question, my mind was completely shifted, and, ever since, this metric (and its measurement) is the most important aspect of every social enterprise we’re involved in.
Thanks Justin, you are on to something really important. I hear what you are saying about the importance of these metrics and am completely with you on this. One of the key components of the SLC is to make us rigorously account for the benefit that we are creating. But for me Key Metrics does not mean the numbers that are most important to us, the things that matter most about what we are doing and why we are doing it. Rather, Key Metrics are the one or two key data points that tell us whether the venture is succeeding.
To illustrate using your Bullying example; if our solution was an app that we thought would in someway stop kids being bullied – we would have already defined our purpose (the social benefit we want to achieve + any financial returns we wanted as well). We would then go through the canvas and validate our assumptions about Problem, Customer Segment, UVP, Solution and Channels. Then we would get to Financial Sustainability and Social/Environmental Benefit. In order to validate the revenue component of the Financial Sustainability section we need to show that customers will pay for the app (or we can monetize in some other way). This has to be done qualitatively as well as quantitatively (at scale). Without this we can’t say that revenue has been validated. For Benefits, I think we need the same process. We need to show that for every kid that uses the app we will see x decrease in bullying (or some other behaviour that we have proved will generate the benefit we want to see). We need to validate this qualitatively (talking to people) and at scale as well.
We should be working towards the certainty that if people use the app then bullying decreases by x amount.
For Key Metrics, the question is – once we are confident that our solution will deliver the results we want (Social and Financial), how do we work out whether we are going in the right direction? Eric Reis talks a lot about “vanity metrics”. Those numbers like “total number of users” or “total revenue” that seem important but don’t actually tell us anything valuable about the business (I would think of “number of kids spared from bullying” as a kind of vanity metric). The challenge is to find the metrics that actually give us useful information. So for our bullying app, with the confidence that if people use it that it will deliver the results we want, what metrics matter? This is where Dave McLure’s pirate metrics (AARRR) are really useful. Depending on the product there will be one or two of these components that likely really matter – maybe it is a passive app that runs in the background and Customer Activation is the most important metric for us. Maybe it is a social network and Customer Retention matters more than anything else etc etc. Either way we are looking for the numbers that if we move them, then everything else moves too.
Obviously this never goes smoothly or to plan. but in an ideal world this is how I would see the process working. I hope it makes sense.
Cheers Ro. I think our perspective differs most around the nature of purpose-related metrics. I do not consider “number of kids spared from bullying” to be a vanity metric in the case of a bullying-related social enterprise. Perhaps this is the simplest discrepancy in our perspectives.
If one were to believe that this metric were vanity it would make sense to leave it under “social/environmental impacts”. If one were to believe this metric to be vital in determining the value of the business, it would make sense to have it under “key metrics”. Perhaps, a wider perspective is required to resolve this question.
I’ll spread this conversation through some of my social entrepreneur friends, so that we can expand the scope of the discussion.
Thanks Justin, definitely the more perspectives we can bring in the better. This is very much a work in progress.
I think the misunderstanding is around the goal of the Key Metrics section. I agree that the measures of social/environmental impact (number of kids spared from bullying in the case of our fictitious anti bullying app) are the most important metrics there are. They are the fundamental reason for the venture existing and like you say “determine the value of the business”. However the way I would use the Key Metrics section would not make these measures “Key Metrics”. For me Key Metrics are not there to measure the most important impact of the business (the impact/success of the business is validated and measured in Social/Environmental Benefits). They are there to measure the business itself.
The term “vanity metrics” sounds harsh but what it refers to are the metrics that make us feel and look good but that don’t give us any useful information.
For example – if Facebook were to measure whether their business model was working by measuring “numbers of users” or “profits” – they may feel great about themselves but it wouldn’t actually tell them anything useful about how the business model was functioning, or help them work out what to do next. For them Key Metrics might be to measure the “rate of increase in customer acquisition” or “increase in retention rate for new customers” (I am guessing here). These numbers mean something and allow them to propose and test hypotheses about how to improve them. This is what makes them Key Metrics. And because they have confidence in their business model, they know that by improving these metrics they will subsequently improve user numbers and profits.
Likewise – with our bullying app, measuring the “number of kids spared from bullying” might make us feel good and be good for motivation and morale (as this is what really matters to us), but the number is not useful. We need to drill down to find the core metrics that we need to move to drive the business model itself, metrics that we can impact that will in turn impact the business model and produce the benefit we want to see in the world
For me this definition of Key Metrics seems to be consistent with Ash’s original definition in the work he has done with the Lean Canvas.
Completely agree with your key metrics statements and with Ash’s definitions. Normally the key metrics would fit in some way with Dave McClure’s AARRR metrics as you mentioned previously.
Would you entertain an advancement of the bullying example?
Hypothetically: What if an app was created that asked people to report bullying they experience or observe in action. And, when a new report is received, a notification was sent to a local “activist” who would then attend to the situation. What if we used the measure “number of bullying reports in Area_X”. And, we noticed that this app decreased bullying reports by 40% after six months.
Now, imagine that we change the solution. Instead of sending a local activist to the scene, we asked the app user to record the situation and publish it online with location information. Now imagine that this solution decreased bullying reports by 60% after six months.
These examples indicate that by changing the solution, we’ve improved the impact of our app. And, arguably this indicates that we can perform testing or experimentation and affect a key metric.
Would, in the example above, you consider that “number of bullying reports” as a key metric? Or would this still lie outside of the definition?
In my view the scenario you describe is one of validating business model components – i.e does the solution deliver the benefit we assume it will? If it doesn’t and we pivot the solution to another solution idea that we think will deliver more benefit, then this is just another cycle of validation.
For me each solution idea we present would lead to a different version of the business model and likely have different key metrics.
However when you add another layer of detail to the “number of kids spared from bullying”, to become “number of bullying reports” (plus the degree of change in a defined area over a defined period of time), it starts to become a lot more useful. I would still want to know what was generating the increase in reports, i.e. is it the same people lodging more reports? is it better customer acquisition? etc. Usually there are one or two metrics that matters more than the others and moving them is the key to the business succeeding. And these are the Key Metrics.
Just for clarity, I am not saying that the Key Metrics can’t be connected to the Benefit, just that it is not important whether they are or not, what is important is, do they tell us something useful and can we act on them?
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