Better by Measure: Leaning Into Materiality
1 like571 views
The document outlines a class focused on materiality in business, highlighting the importance of various key resources such as financial, physical, and human elements for startups. It discusses different sources of funding, including equity and non-dilutive grants, while emphasizing the need for companies to perform materiality assessments to identify relevant impacts on stakeholders. Additionally, it covers various sustainability measurement methods and frameworks, stressing the importance of selecting appropriate indicators and metrics for effective impact assessment.
Better by Measure: Leaning Into Materiality
- 1. BETTER BY MEASURE! LEANING IN TO MATERIALITY! Class 7 | October 16, 2014! ! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 !
- 2. OUTLINE! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 ! 2! BUSINESS SCHOOL: LEAN IN! ! SCIENCE LAB: MATERIALITY! ! ! ! ! ! !
- 3. LEAN IN! BUSINESS SCHOOL! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 !
- 4. BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 !
- 5. KEY RESOURCES! Financial! Physical! Intellectual! Human! ! ! ! ! ! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 !
- 6. KEY RESOURCES: FINANCIAL! EQUITY! • Friends Family! • Angel! • VC – growth! • Social impact investing ! • Equity Crowdfunding! ! CONVERTIBLE DEBT! • Debt that converts to equity! !! ! ! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 ! DEBT! • Small business loans! • Trade finance ! • Working capital debt! • Line of credit ! ! NON DILUTIVE GRANTS ! • SBIR, STPR grants! • Open Innovation prizes (XPRIZE, Kaggle) ! • Social impact foundations (RWJF)! • Project Crowdfunding! ! ! ! !
- 7. NEW SOURCES OF FUNDING – AMERICA COMPETES ACT ! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 !
- 8. NEW SOURCES OF FUNDING – SEC CHANGES ! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 !
- 9. OPEN INNOVATION– PRIZES AND PULL MECHANISMS! PUBLIC !! OPEN INNOVATION: Federal agencies encouraged to call innovators to a challenge, look for the brightest minds and the best ideas, seek a diversity of solutions, and incentivize those solutions with the highest performing outcomes. ! ! ! ! ! ! PRIVATE SECTOR OPEN INNOVATION: Companies are recognizing the complexity of business and that the best ideas lie outside their organization. Prizes and open innovation exercises are proliferating in all sectors. Often these are non-dlllutive, but beware those programs that are for marketing/branding reasons, or where there is IP or first right of refusal claims in the terms.! ! NGO OPEN INNOVATION: Foundations and philanthropic organizations are growing faster than for profits, and to incentivize the freshest ideas and solutions, “pull mechanisms” are used to bring forward the best ideas, and reward those that demonstrate the strongest outcome.! ! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 ! !
- 10. KEY RESOURCES: PHYSICAL! Office building/office! Factory/processing! Vehicles! Machines! Hardware ! Raw materials/ingredients! Components ! ! ! !! ! ! ! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 !
- 11. KEY RESOURCES! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 !
- 12. HUMANS: COMPANY! Co-founders! Employees! Contractors! Development firms, contract manufacturing ! ! ! ! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 !
- 13. HUMANS: MENTORS & ADVISORS! Mentors: make you smarter about your career! Teachers: provide specific subject matter expertise ! Coaches: help you achieve a goal! Advisors: help you make your company succeed ! Board members: help the investors succeed ! ! Surround yourself with people that give critical feedback, and help you through a major founder failure point – when you believe your vision is fact.! ! ! ! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 !
- 14. TALENT! Developer/engineer! Designer! Marketer! Scientist! Community manager! ! When do you need a CEO?! A CFO? ! An HR person? ! A VP of Sales?! A Chief Revenue officer?! ! ! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 !
- 15. BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 !
- 16. COSTS! • Income statement! • Balance sheet ! • Cash flow! ! Are these the financials you need to understand? ! Yes, because it’s the language investors speak, and it’s good to understand the flows of financial reporting – but this is a system used to compare financial performance for investors. ! These do not supply execution metrics to help you make decisions and formulate/test hypotheses. ! ! ! ! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 !
- 17. COSTS - EXECUTION METRICS! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 !
- 18. COSTS - EXECUTION METRICS! • Viral coefficient! • CAC! • LTV! • Conversion rate! • Retention rate! ! What are vanity metrics? ! ! Registered users, downloads, and raw pageviews. A mobile apps could have millions of downloads but only a few hundred thousand active users, or a freemium website might see exploding traffic growth but barely any conversions to paying users. They are metrics that make you feel good, bad for guiding execution. ! ! What metrics will drive you through MVP?! ! ! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 ! !
- 19. UNIT ECONOMICS! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 !
- 20. BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 ! 20 WHAT CAME BEFORE STEVE AND ERIC
- 21. MATERIALITY! BUSINESS SCHOOL MEETS SCIENCE LAB! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 !
- 22. TOOLS TO QUANTIFY & REPORT ON IMPACTS! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 ! 22! LEAN METHOD! (FOR MIDTERM)! 4. Foci! Hypothesize & test! Top of T foci with ! Consumer; Validate ! Base of T! 2. Impacts! Identify impacts ! using canvases! ! 3. Materiality! Perform preliminary ! materiality assessment! Refine! 1. Value Prop! Hypothesize & test! Base of T foci (sustainability value proposition) with ! consumer! It’s time to determine what’s material to your company, then to measure the opportunity space for addressing impact.!
- 23. WHICH IMPACTS ARE THE MOST RELEVANT TO YOUR BUSINESS?! DETERMINE WHAT’S SALIENT BY PERFORMING A “MATERIALITY ASSESSMENT”! This is a dominant framework used by corporations who have done a comprehensive assessment of their environmental and social impacts and risks.! ! Goal One: Help you determine where you should focus so you don’t waste valuable time and resources addressing negative or creating positive impacts which are of little concern or relevance to stakeholders & shareholders (i.e. non material factors).! ! Goal Two: Lays the groundwork for a plan you (your company) can take to address negative or create positive impacts.! ! Goal Three: To communicate the most material impacts to stakeholders and shareholders so that they can better assess your financial value, corporate values and risks now and into the future.! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 ! 23!
- 24. MATERIALITY: WHOSE PERSPECTIVE IS MOST IMPORTANT?! Goal Three: To communicate the most material impacts to stakeholders and shareholders so that they can better assess your financial value, corporate values and risks now and into the future.! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 ! 24! ! Who’s perspective is most important when determining materiality?! • Regulators?! • Investors?! • Stakeholders?! • The environment (the trees and bees)?! • Customers?! • Society?! ! !
- 25. MATERIALITY: REPORTING FRAMEWORKS! Who’s perspective is most important when determining materiality? This question underlies the assumptions made by each dominant sustainability materiality reporting framework, creating bias.! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 ! 25! ! Top sustainability materiality reporting frameworks: ! • Integrated Reporting (IIRC) - http://www.theiirc.org! • Sustainability Accounting Standards Board (SASB) - http://www.sasb.org! • Global Reporting Initiative (GRI) - https://www.globalreporting.org! • CDP - https://www.cdp.net! • Corporate Water Disclosure (Via UN Global Compact) - http://www.ceowatermandate.org/disclosure/! ! ! !
- 26. MATERIALITY: REPORTING FRAMEWORKS! Who’s perspective is most important when determining materiality? This question underlies the assumptions made by each dominant sustainability materiality reporting framework, creating bias.! ! • IIRC, which is betting that investors will broaden their analytical horizons, proposes a framework that seeks to integrate financial and nonfinancial reporting by taking a broader and longer-term view on how value is created.! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 ! 26! ! • SASB, meanwhile, is betting that regulators will broaden their interpretations of materiality and is creating standards on how publicly listed U.S. companies should disclose material sustainability issues for investors in mandatory filings to the Securities and Exchange Commission (SEC), such as the Form 10-K and 20-F.! ! • GRI—the traditional authority for sustainability reporters—is betting that stakeholders should have an equal say in sustainability reporting, since reports are used by multiple audiences.! ! SOURCE: http://www.bsr.org/en/our-insights/bsr-insight-article/navigating-the-materiality-muddle! ! !
- 27. MATERIALITY: SELECTING THE RIGHT INDICATORS! For mature corporations: In the long term a company should align their materiality assessment with one or multiple frameworks, but should also be inclusive of stakeholder views not represented in the frameworks. ! ! For entrepreneurs: The leading standards can serve as a cheat sheet for identifying material impacts (though exclude impacts which are not of concern to the specific audience of the standard – i.e. regulators & investors).! ! ! ! ! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 ! 27!
- 28. MATERIALITY: SELECTING THE RIGHT INDICATORS! SOURCE: http://www.sasb.org/materiality/sasb-materiality-map/! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 ! 28!
- 29. MATERIALITY: SELECTING THE RIGHT INDICATORS! Via standards:! • Sector & impact list guidance from SASB & GRI! • Sector specific indicators (differ depending on sector – ask for guidance)! ! Via comparables (competitors):! • Corporate reports via Amee, individual company’s CSR reports, Financial filings, press releases, CSR Hub, Dow Jones Sustainability Index, Corporate Responsibility Officer! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 ! 29! • Product comparables via Good Guide! ! Via outliers: Look for opinions of NGO’s, news stories, trends etc.; this can also be obtained through interviews with experts! ! Via pending legislation: Or legislation from leading states, i.e. California Supply Chain Transparency Act ! ! Via academic research: Database of scientific reports can be accessed via http://www.researchgate.net/! !
- 30. TOOLS TO QUANTIFY & REPORT ON IMPACTS! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 ! 30! LEAN METHOD! (FOR MIDTERM)! 4. Foci! Hypothesize & test! Top of T foci with ! consumer! 2. Impacts! Identify impacts ! using canvases! ! 3. Materiality! Perform preliminary ! materiality assessment! Refine! 1. Value Prop! Hypothesize & test! Base of T foci (sustainability value proposition) with ! consumer! Measure the opportunity space for addressing impact. After performing a materiality assessment, the next steps are to prove out your sustainable value proposition (base of your T), and to identify other potential impacts which may shift your burden (top of T).! ! By prove out we mean:! • Define the scale of the opportunity (magnitude of impact)! • Define the scope of the opportunity (boundaries)! !
- 31. WHAT DO YOU WANT TO MEASURE?! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 ! 31! WHAT YOU’RE MEASURING! • Product! • Service or activity! • Company performance ! • Facility & building! • Suppliers & supply chain! ! FOCUS OF MEASUREMENT! • To the Environment! • Society! • Human Health!
- 32. SUSTAINABILITY EXECUTION METRICS! Unlike business metrics, the metrics that matter for sustainability are predominantly sector/industry specific, and/or specific to the category of impact when measuring positive and negative Social, Environmental, or Health impacts, and often not universally accepted. The exception to this rule is for Greenhouse Gas measurement & reporting.! ! In this class we’ll narrow down the universe of metrics & measurement systems to a few select system which will allow you to calculate your impacts. We’ll learn by doing and teach each other as we go, due to the idiosyncrasy of each method.! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 ! 32!
- 33. SELECT IMPACT MEASUREMENT METHODS! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 ! 33! • Life Cycle Assessment: Methodology for determining the varied system-wide environmental impacts associated with the creation, use, and disposal of a product or service. PAY ATTENTION TEAM NEST!! • Footprinting: The amount of resource produced or consumed by performing specific human activities (by a product, corporation, service etc.). Examples include: carbon footprint, water footprint, and energy footprint. PAY ATTENTION TEAMS UBER & AIRBNB!! ! • KPI’s & metrics: Sector and industry specific indicators, which allow companies and other stakeholders to track the performance of products, services, activities, etc. over time along key attributes. Examples include Energy Return on Investment eROI. A comprehensive list of KPI’s can be found via IRIS: IRIS.thegiin.org/metrics. PAY ATTENTION ALL TEAMS!!
- 34. SELECT IMPACT MEASUREMENT METHODS! • Risk - benefit analysis: Qualitative and quantitative assessment of potential risks (financial, social, and/or environmental) in relationship to potential benefits of taking an action, manufacturing a product, enacting a program etc. PAY ATTENTION TEAM BLUE APRON!! ! • Sector specific methods of evaluation: In each industry and impact category there are often industry-led coalitions which define the key attributes and impacts a firm should be concerned with in that sector. Examples include supplier scorecards and sector specific rating systems like the HIGG Index for apparel. PAY ATTENTION TEAMS NEST & UBER!! ! • Standards and regulations: In each industry and impact category there are often globally leading standards and regulations which provide guidelines for how to design products or services (usually stemming from the EU or the US). Examples include certifications like Energy Star or Organic, regulations like REACH it OSHA etc. PAY ATTENTION ALL TEAMS (ESPECIALLY TEAM FITBIT)!! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 ! 34!
- 35. SELECT IMPACT MEASUREMENT METHODS! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 ! 35! Environment! Society! Health! Product! • Life Cycle Assessment! • Ecological Footprint (carbon, water etc.)! • eROI! • Certifications! • KPI’s & metrics! • Social hotspot identification! • KPI’s & metrics! • Industry specific standards! • California Supply Chain Transparency Act! • Certifications! • KPI’s & metrics (for efficacy)! • Clinical trials! • Regulatory standards/approval! ! Service/Specific activity! • Life Cycle Assessment! • Ecological Footprint (carbon, water etc.)! • Environmental Assessment! • Risk/benefit analysis! • KPI’s & metrics! • Industry specific standards! • Risk/benefit analysis! • KPI’s & metrics (for efficacy)! • Clinical trials! • Risk/benefit analysis! Company performance! • Ecological Footprint (carbon, water etc.)! • Reporting: SASB, IIRC, GRI! • Industry specific standards! • UN Global Compact standards! • Reporting: SASB, IIRC, GRI! • Reporting: SASB, IIRC, GRI! • OSHA standards! ! Physical facilities! • Ecological Footprint (carbon, water etc.)! • Emissions standards! • OSHA standards, ! • Emissions standards! • Industry specific standards! • KPI’s & metrics! • Supplier scorecards! • OSHA standards! • Supplier scorecards! ! Suppliers & supply chain! • Ecological Footprint (carbon, water etc.)! • Industry specific standards! • Industry specific standards! • KPI’s & metrics! • Supplier scorecards! ! • KPI’s & metrics! • Supplier scorecards! !
- 36. SELECTING WHAT AND HOW TO MEASURE! 1. DEFINE THE GOAL AND SCOPE OF YOUR STUDY! • Time & resources you have available to complete the study! • Goal of the study (why are you measuring what you’re measuring)! • Determine your research hypothesis! • Audience (This is where your materiality assessment is really useful) ! • Scope (boundaries) & limitations (what doesn’t the impact method tell you)! • Unit of measure and/or functional unit (what EXACTLY are you measuring)! ! 2. DETERMINE TEST FOR YOUR STUDY! • Research potential ways to complete the study: what aligns best with your above goals BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 ! 36! and resource limitations! • Identify if there are leading standards/methods for the method of impact measurement: Are there ANSI or ISO standards, or other dominant standards (like the World Resources Institute for Greenhouse Gas measurements)! ! 3. REVIEW! • Get feedback (from instructors & mentors) for how to conduct your study! !
- 37. HOMEWORK – QUANTIFYING IMPACTS! 1. VALIDATE BUSINESS MODEL CANVAS! • Decide on value propositions (sustainable & business) & customer segments! 2. PREPARE TO QUANTITATIVELY TEST YOUR VALUE PROPOSITIONS! • For your sustainable value proposition, determine your goals, research hypothesis and scope for determining the scale (magnitude of impact) of the impact, which you hope to address through delivering your value proposition. How might you define the maximum opportunity for addressing this impact?! • For your business model, narrowly define customer segments and quantify these numbers. Consider how to calculate financial return.! • Come to Monday office hours to discuss your specific idea(s) for how to measure your impact! ! BETTER BY MEASURE | WEEK 7: OCTOBER 16, 2014 ! 37!