For many companies, sales are the benchmark of a product's success. But when you are a philanthropic venture, success is measured in social as well as economic terms.
Take toothbrushes, says Acumen Fund CFO Brian Trelstad. If a social venture was in the toothbrush business, the real measures of success would be the number of children brushing, and whether the incidence of cavities is falling. Effective measurement of the right impacts is critical to understanding success or failure of a project, but it is difficult work, he told Harvard Business School's Social Enterprise Club last month.
As nonprofits struggle to create greater accountability, new models of giving have emerged. Acumen Fund is an example: It's a venture philanthropy, where donors invest in deeply vetted start-up ventures and the return is a well-managed social enterprise.
Founded in 2001, Acumen Fund backs entrepreneurs who deliver essential services such as water, housing, and health care to the billions of people worldwide who live on less than four dollars a day. Investment prospects are screened based on their ability to generate sustainable and scalable social change.
As Acumen Fund has grown, the company has learned lessons that may prove valuable to other social enterprise organizations.
| It costs money to give money away. |
One lesson learned has been the importance of management support. Originally a grant-making venture, Acumen Fund leaders quickly realized that business plans they funded weren't always well executed, and that entrepreneurs in far-flung regions needed more support to be effective. So the company shifted its primary focus from grant making to providing loans and equity for entrepreneurial ventures. The company now operates like a venture capital firm, claims Trelstad, investing philanthropic resources in innovative, socially responsible entrepreneurs, while providing them with management support and advice.
A detailed approach
Much of the management support is hands-on, Trelstad said. Acumen Fund helps companies develop business plans, offers interns and other resources to refine MIS and financial reporting systems, and provides troubleshooting advice. With Saiban, a housing investment in Pakistan, Acumen Fund had an intern-analyst help conduct a programmatic evaluation and then design, build, and implement a system to track customer payments, measure default rates, and improve the collections process.
"Moving Saiban toward a more data-intensive system will help us measure and improve the social and financial return of the project," said Trelstad.
Similar support was offered to Nadim, a furniture manufacturer in Egypt that Acumen Fund backs to develop a women's employment initiative. Acumen Fund conducted a study on how Egyptian furniture manufacturers could enter the U.S. market, and arranged meetings with two of the largest purchasers of furniture in the U.S., a hotel chain and a retail furniture chain.
In the quest to ensure that money is being used to its greatest effect, Acumen Fund does extensive work in terms of financials and accountability.
"It costs money to give money away," says Trelstad. "So we focus on how to keep those numbers down."
Trelstad and his team use time-tested best practices including variations on the Balanced Scorecard and monthly risk assessments to track the Acumen Fund's investments and the Fund's financial health.
Once a year Acumen CEO Jacqueline Novogratz or COO David Kyle makes site visits to assess the work being done and ensure that the money invested is making a tangible difference in people's lives. Acumen Fund also deploys summer interns from MBA programs at Harvard Business School and other educational institutions and management companies.
According to Trelstad, Acumen Fund seeks to connect serious philanthropists with some of the world's best social innovators in the areas of health, water, and housing. The current emphasis is to learn and apply knowledge across these three areas and to understand the common challenges of pricing, distribution, financing, and marketing of critical goods and services to the poor. 