The next topic that we're going to be talking about is performance criteria. And this is going to be short, but it's really going to set the tone for your entire enterprise. Because the key issue is how are you going to judge this really difficult project and know whether or not you're doing well? In an environment where there's a huge amount of uncertainty about outcomes. And the way to do it is you start off with being pretty specific in what you're going to measure and how you're going to measure it, and then you know if necessary you might come back and shift the criteria, but you need criteria from the get go. Not a vague hope that I'm going to do good. But to think about the whole concept of social entrepreneurship. We're going to create businesses that make some money, not necessarily a lot of money. Solving a social problem, and the reason we want to make money is that we want to help people in a sustainable way, and not have to keep on coming around with a tin cup in hope that somebody will fill it. So let's have a look at the importance of performance criteria. Firstly, you use them for judging yourself. You make some fundamental decisions about whether you're going to use the right criteria, that they are appropriate and that you feel good about and you feel that it's going to make your whole energy and effort worthwhile. And then the second thing is, having set those criteria, thinking about how am I going to get those criteria right. In other words, how am I going to perform and how am I going to measure my performance to whatever plan I might put in place. So here, if you think a little bit about you getting the right criteria. We're looking at how are we helping people? How are we going to measure whether people are being helped? What am I going to measure and feel comfortable that I'm doing help in the right way and I'm doing help in an efficient way. The second reason why it's important is that you can use these same criteria for going out and setting up so that others who you need can judge you. The people might be providing financing, people might be providing support, people might be providing funding, are comfortable that you are doing the right things in their opinion and that you're doing them right by delivering the performance that you set up to do in the first place. So those are kind of the two reasons why you need to have performance criteria. And they need to be quantified. None of this, we will eventually do something that helps people, but let's talk about who we going to help, how much we're going to help them and how are we going to test whether in fact we're doing it? Now the selection of the criteria is another important topic. They fall into two buckets. The first one is the non-financial. How are you going to measure social impact? And here you might have a direct measure like, how many people were vaccinated? How many people were fed? How many people were able to read at a third grade level when they left the school? Just basic specific measures that you can see that is a measure of the direct impact on the outcome on the person who is the beneficiary. You might also feel that you have to use an indirect measure. So let's go back to Zambia feeds one more time and think a little bit about the problem that Ilona was addressing. What she wanted to do was reduce the level of malnutrition in a part of Zambia which was seriously underfed. There just wasn't enough protein. It would be very difficult for her to go out and actually measure the amount of food that people were eating that contain protein. Her indirect measure was to say, if I produce a certain amount of feed, I can expect reasonably that that feed will produce a certain amount of meat and that amount of meat will result in people being fed. So she's not going to go out and measure whether people are being fed and nourished adequately, what she said is, I'll measure how many pounds of chicken feed is being sent out of my factory, indirectly, be able then to assess the amount of protein that is being produced and consumed in that part of the Zambian society. Now, that indirect measure is a little bit more difficult to articulate and to convince people that you are in fact doing well. But sometimes it's the best you can do. The direct measurement is just too difficult and complicated. What I'm trying to do is sort of say, here's how I am going to measure social impact. And people who are supporting you, people who might be providing you with funding, need to agree that that's an appropriate measure of social impact. Once you've got that in place, you can begin to look at your performance in relation to what you said you would do. So now that we've decided on the unit of impact, let's have a look at the next and very important performance criteria, which is the definition of the Unit of Business, which you'll then you use to decide what revenues you're going to be generating. This is the unit of output for which you decide on a price. So, if you think a bit about it, you need to have a price for something in order to get revenues and the unit of business is what you kind of looking at what you're getting a price for. Putting it somewhat differently, it is the unit of business for which you're going to charge a price. And you use this unit of output and the price per unit of output to estimate what the expected revenues are going to be. And it's really important because it provides the skeleton on which you will hang and build your revenues, your costs, and therefore your profits. Well, let's have a look at a couple of examples from the book. First is Ikotoilet, if you remember right, what happened is that we were building toilets where people would pay a fee for a visit. And so your revenues are going to be the number of visits that people make, which is your unit of business, times how much you're going to charge per visit. In the case of Zambian Feeds, a learner was going to sell 20 kilogram bags of feed. And so your unit of business was the number of bags and your revenues are the number of bags times the price per bag. If we have a look at the AIDSAid program, where we were treating patients HIV infected, the revenue generated there or unit of business was a patient visit. And the way you determine revenues is to pick the numbers of places that you treated and the fee that you were charging per visitor. With Khaya Cookies the unit of business was a box of cookies. So, your revenues will be calculated as the number of boxes, that's the unit of business, times the price per box. And finally, the Hippo Roller, what he decided to do was put an advertisement on each roller, and charge the people who placed that advertisement a fee. So, your unit of business now would be the advertising charge per roller, and your revenues he would calculate as the number of rollers that were being used times the advertising charge per roller. So once again, think about the unit of business, which is what you're going to charge the price for. And that gives you the basis for generating what your income statement and your profit calculations are going to be. Now, the setting up of multiple criteria. There going to be times when there's attention setup on which criterion will receive the most emphasis. And in some cases, what you'll be tempted to do is say, I'm going to increase my profits and profitability because it gives me more in the way of sustainable surpluses. But at the same time what you might be doing is cutting back on the unit of social impact and the impact you're having. So this tension is going to take place and sometimes these tensions can be quite heartbreaking, particularly if your business is under some kind of unexpected pressure. So let's take the case of chronic disease. I can spend more money on medicines and painkillers and other kinds of medical services to treat more people and to treat them more aggressively. But at the same time what this is going to do is put great pressure onto my costs. So there may be times like we've seen with cases of heavily HIV infected societies, or sections of society that the people who are really suffering may not be able to get the full treatment that might make them comfortable, and this is not fun. This is heartbreaking. But the whole idea of making and creating social enterprises is to go out there and slowly over time reduce the amount of outbreak. The second kind of challenge you face is that there are various stakeholders who are looking to your business and it's performance, will put you under pressure to emphasize what they want rather than what someone else would want. And this is a challenge that we call mission drift. But in the beginning you might say what I'm going to do is get out there and make very minor profit and take all my surpluses and feed it into expanding the number of people I'm trying to save. But you might come and appreciate from your banks or your bankers to increase your profits and profitability. And if you're not careful, over time what you find yourself doing is more and more focus on profits and profitability and less on the social impact. So when you have multiple criteria, beware of what we call mission drift. And then the last thing to begin to worry a bit about is what I call this sort of smoke and mirrors problem. And that is that you go to people for funding, they say, well, I'm going to provide you with funding if you do a little bit more in one direction than in the other. And what we want to see, what we want is evidence that you have matching funds. So we'll give you money as long as you can show us that somebody else has given money. And now you start getting caught in this trap of trying to satisfy many people making demands and they don't realize that what this is doing is moving you away from the original mission. So those are some of the things that you need kind of really think about as you think about your criteria. The point I'm trying to make here is that these things happen. So what you need to be doing is thinking about before it happens, can we anticipate what's going to happen and how we going to handle it rather than get drawn in a direction that you hadn't really thought about.
