Ecotone Analytics is creating a new industry of accounting – accounting for the businesses’ impact on its community ecosystem.
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Episode Summary
- What is the mission and vision of Ecotone Analytics?
- How did it start?
- How you measure impact?
- What is the IMP framework?
- What’s your call to action for those looking to raise capital?
- Can you share the business model of Ecotone?
- Can you share more about the App your building?
- How do the algorithms work?
- What are the biggest challenges you’ll have to overcome to scale?
- How can impact accounting and measurement forward the Sustainable Development Goals?
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Full Post
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What is the mission and vision?
We’re doing social and environmental impact accounting as we like to call it, a generally helping people prove the impact that they’re having, whether it’s a social entrepreneurship nonprofit, done some stuff with the government even.
How did it start?
My business partner, Tim Roman and I started this about three years ago. He was researching environmental impact measurement, and we started getting beers and talking about how to make that data useful for funding and management.
You can’t manage what you don’t measure, right. So today, a lot of the good that has been done in the world has been set aside. So we’re trying to pull that research from academia and turn it into something operational that the management team or the people on the ground can actually use to make better choices or to understand what the best practices.
That data also simplifies the world of social entrepreneurship and startups who are trying to get funding.
How do you measure impact? What are some of the models?
At the highest level, the UN sustainable development goals are probably the most widely used at this point and highest level as far as like 17 different areas to just categorize what you’re working on. B Lab, Iris, and Gears existed before that.
So Ted, can you share with us a little bit more about the framework that you guys use on how you specifically measure impact?
We use the term accounting because we are trying to attain for the industry. I mean, it took 40 years for the generally accepted accounting principles to be put together and we’re probably on year 10 on that process. So what we’re going for is global best practices and standards,
Share a little bit more of the results. So for example, the Better Futures Minnesota. So what is the input of what they do in the community and then what’s the output available?
They do what’s known as demolition deconstruction. Better Features takes all the different parts apart, recycles the things that it should be recycled in the right way, but also resells the different materials depending on their quality or wear and tear through their warehouse.
They also employ men just coming out of prison. So they use what’s known as the stacked intervention. Which basically has cognitive behavioral therapy, a health home, two years of housing and then work training.
We were tasked with trying to figure out which of those different intervention types has the largest effect. Statistical rules get involved, so they’re both doing a social and an environmental impactful social enterprise.
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How it works
- They are a nonprofit, but they have a revenue stream coming in from the sale of the services they provide. So we go through all that different research to figure out what the effects of the intervention types.
- Then we also look in their internal financial information to figure out what it costs for a participant to send everybody through this system.
- Then we figure it out what the effect on society is in our county in Minnesota.
- Through all that you come up with a ratio that’s normally referred to as the social return on investments.
You could check out that report on the site where you can see that if a dollar and a half or so is invested into better futures, the economic output is several dollars.
What I like about what you’re doing at EcoTone is that you not are only sharing with people, hey listen, it’s important to measure impact, but it’s important to measure the granular components of the impact.
Can you talk about the IMP framework you use?
Sure.
- What: what are you trying to do?
- Who: who are you trying to impact?
- How much: How effective and how much of this change are you providing for your target community?
- Contribution: The research and economics of your impact
- Risk: The risk of the endeavor against the theory of change model.
What’s your call to action for business owners to measure their impact?
If you want to get a leg up on everybody else describing your impact in the same way as your financial opportunity, then measure your impact. So don’t throw away all the marketing materials you have, but this is a succinct way to describe what you’re doing.
For investors, there are more data points for them to choose with when they can see your impact quantified. More information is better, especially in a sorting mechanism. It also helps them know what they’re investing in and what it will look like over time.
Measuring the impact shows how effective your investment is – so if your $1 million created $10 million of value and impact where my $1 million created only $1.5 million… we know what’s worth investing in.
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Can you share with us just a little bit more about the Ecotone Analytics model and how your business works?
As organizations are more able to describe their impact in this way, it becomes an arms race on some level as everybody wants to be able to speak this new language. So that’s exciting.
We’re also developing an app (because what would a startup be without an APP?) We see the potential for this to integrate into every business that exists.
Can you share with us more about the APP that you’re building? What is it going to do?
As you create equations to measure certain kinds of impact, you can create a “rate card” that you can pull out again for later measurements. The app will help people test ideas out, not necessarily to do a full impact analysis.
How does the math work to process that much data?
We do research, use existing formulas, and create new ones to solve for the needs of the company. Then we deliver this impact value map, which is the visualized version of what we’re talking about. It’s 20 pages or more of technical documentation that further goes through our methodology and the logic behind why we chose this number and said that number. I always liked to have other people look at this stuff and tell us what they think. We don’t pretend to be omniscient beings in this field!
At the end of the day is that the future of this industry would just be, “oh yeah, of course, you measure impact because you have to understand how your business is integrated into an ecosystem. Like you have to know your accounting!
What do you think are some of the biggest challenges that you’re going to have to overcome as you look to scale over the next couple of years and to make this vision a reality?
Education is the big one right now. Just getting people familiar with the language.
The impact management project was kind of dubbed at the last SOCAP as like the Rosetta Stone of impact… and it has really been a global collaboration between practitioners.
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How do we go from knowing nothing about the quantifiable impact to a consistent laser pointer for a business?
More case studies, more trial and error. Fail fast. Let’s just do a bunch of it. Right now it can be cost-prohibitive. Trial and error has just been that there’s no real market out there to bounce off of.
And I think that when it can become a laser, it changes the conversation of, “Oh, you know, what does your company do?” When investors are asking, what are the financial returns it comes to? What could you do with $1 million and how many people would have an impact? Is that what I resonate most with? If I’m investing, I’m trying to find the company that can get the best output of the impact. And I don’t care how the machine works, I want the results.
How do you think the impact measurement industry will help us tackle these audacious sustainable development goals by 2030?
Allowing people to better manage what they’re doing so that they can make decisions. It’s all those little decisions that are really gonna make that big change.
So giving managers the power to make better choices, I think that’s how our industry will help hit those goals.
It really challenged my own perspective of how we measure impact. I’m realizing that we’re pretty early in the process of measuring impact because there aren’t a ton of standards out there.
My question for the audience is: what will it take for all of us to measure impact within one ecosystem as a planet, to have a standard, and to measure it as just part of doing business?
