Seven Elements for Mitigating Impact Risk and Increasing Impact Potential

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June 27, 2013; Echoing Green


Led by Cheryl Dorsey since 2002, Echoing Green provides “seed funding to social entrepreneurs launching bold new organizations to generate positive systemic change.” How does Echoing Green identify budding social entrepreneurs who have ideas with social impact potential that can be attempted in ways that reasonably mitigate risks? That’s the challenge in social enterprise: articulating a due-diligence process for evaluating social entrepreneurship proposals the way an investor reviews a financial plan for more typical business investment decisions.

The Echoing Green report, funded in part by the Rockefeller Foundation, describes these seven elements (or risk factors) that social enterprise “investors should probe in order to mitigate impact risk and increase the potential for an investment to achieve its social targets.” The seven elements—social mission, evidence, social entrepreneur, impact measurement, potential for disruptive innovation, potential for scale, and governance—are encapsulated in a theory of change that Echoing Green calls an “impact blueprint” for “aligning investor and investee expectations around social impact and impact risk mitigation…Akin to what a business plan is to financial return, the Impact Blueprint is to social return.”

See if you think there are major insights in Echoing Green’s description of the seven risk factors:

  1. Social entrepreneurs: the “(s)trength of the entrepreneur plays a vital role in the success of early-stage companies.” The factors in this risk factor include the entrepreneur’s (and entrepreneur’s team’s) “unique qualifications” and “clear connection to the issue being addressed.”
  2. Impact measurement: “(m)easurement helps monitor the progress of the impact blueprint.” The report warns that data collection shouldn’t “impose [an] unnecessary burden.”
  3. Governance: “(w)ell-structured governance is key to successful social impact”—governance “should link revenue, profit, and impact,” the report says.
  4. Social mission: “A clear demonstration of the venture’s social commitment.”
  5. Potential for disruptive innovation: a “(u)nique or new way of solving a social problem.” The potential to be disruptive, according to the report, is “either through introducing an innovative product or service or introducing a new model that could transform sectors or markets.”
  6. Potential for scale: “Allows innovation to reach more people in more geographies, shows the revenue and size potential of ventures.” The key notions here are scalability, replicability, and an effective “expansion strategy.”
  7. Evidence: “Assessment of the strength of the causal relationships that are embedded within the entity’s Impact Blueprint.” The report explains that the evidence to be examined should show that the output of the enterprise “causes” outcomes, and the outcome causes impact.

Is this a useful new framework for gauging the risk factors of social enterprise, or just a re-articulation of basic business investment principles with an overlay of social good?—Rick Cohen