Theory of Change and Measuring Social Enterprise

Social entrepreneurs face countless challenges. Meeting social goals through business principles, accomplishing social interventions, respecting cultural norms and environmental goals: the list of business objectives is long and complicated  After designing a business model to address these goals, the next biggest challenge for social enterprises is measuring and demonstrating their success.

Social enterprises are both businesses and social change agents, and intrepid entrepreneurs measure their success against both threads. As a result, there are two broad metrics for measuring success of a social enterprise:

  1. Is the enterprise profitable?
  2. Is it generating social returns on investment?
The former is easy enough to measure (a simple financial statement should do the trick) but the latter requires serious evaluation.Too often measuring social ROI falls into the pattern of sharing anecdotal evidence or sharing only the actions taken by the entrepreneur (e.g. “we distributed 2,000 mosquito nets”). A successful social enterprise is measured not only by the actions of the entrepreneur, which are easily controlled and counted, but by measuring the change in behavior, situation or outcomes of the community where the enterprise is engaged.


The Theory of Change model is used by nonprofits and social change organizations to plan and target their programs. It also offers a helpful model for planning and measuring social enterprise.

Theory of Change and Generating Metrics

Before beginning implementation of a social enterprise, entrepreneurs should create a theory of change, beginning with an analysis (baseline data) of the situation of the people or community where they are engaging. The baseline data should measure the status or situation of the community. For example, if you will be purchasing agricultural products in a rural area in the U.S. and reselling them in an urban area, you might decide to measure complex factors that might change over time, including:

  • The average income of the rural community
  • Children’s success in school
  • Employment (and underemployment)

The next step (and the most powerful one) is to create a model describing how your enterprise will change that situation, and how. For example,

By purchasing produce from small family farmers in our hometown, we will increase average income from X to Y because we will invest new cash in the community, purchasing directly from community members. Currently, 10% of the population of our town is unemployed. By increasing demand for products from small farms, farmers will to hire 100 new employees over the next five years.

Finally, we will donate 5% of proceeds to the Schools Foundation, enabling the local schools to provide additional science and arts education. As a result, we will expect to increase school attendance by 10%.

Note that your theory of change should include a specific measurement model in addition to a narrative concept. For example, “success means more children would go to school” is a concept. “Success means school attendance will increase by 10%, across genders and age groups because our business will effect change in X, Y and Z circumstances” is a specific, measurable model of change.

Mind you, all of this theory of change is only as good as the baseline data – which is only in turn as good as your knowledge of and connection to the community you are working with. Designing interventions from afar or with only superficial knowledge of targeted communities is ineffective.

The theory of change, once articulated, provides the metrics of your success. You will know you have succeeded in generating social return on your investment once you can demonstrate the uptick in the metrics you planned to address through your theory of change.

In turn, investors, customers and funders bear a responsibility to ensure that the organizations and efforts they support are making demonstrable, measurable improvements in their targeted communities.


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