A New Lexicon: Impact Engine’s ‘5P Framework’ Reveals a Smart Way to Measure Impact
As humans, we're hardwired to hesitate when we’re facing the unknown, however great it may look.
Jessica Droste Yagan knows this resistance. As CEO and managing partner of Impact Engine, an impact-focused venture capital and private equity firm, Yagan has heard many excuses from those she’s encouraged to get involved in impact investing. Things like, impact is too hard to define, or the metrics are unclear. Whatever the hold-up may be, she believes it’s important not to complicate things. “Just start,” says Yagan. “Start small, start simple.”
This straightforwardness is evident in how Yagan and her team approach measuring impact. They’ve created a framework called the 5Ps, which designates People, Place, Product, Process, and Paradigm. Each of these tenets stands for a critical way in which a business can drive good. In turn, the 5Ps offer an investor a marker to help better quantify positive effects and understand the what, why, and who behind the impact. For instance, ‘process P’ focuses in on a company’s management practices and its consideration of ESG factors. (Impact Engine’s story outlines in detail each P and the direction it offers.)
The framework is enlightening for the innovative lens it offers to help people unveil new ideas around impact investing. But perhaps the most compelling component of the 5Ps is how it offers anyone a new vocabulary to better understand the potential of a new venture—whether it’s an investment, a philanthropic donation, or perhaps a new job—and more confidence to move forward, even in the face of resistance.
A Conversation with Jessice Droste Yagan
How did Impact Engine’s 5P framework originate?
There are two places, both high-level, where it came from.
Since being an early player in the impact investing space, we were always trying to follow how people were talking about impact investing, and how people were explaining it. A lot of people find it overwhelming or confusing. So we thought: How do we use terms or organizational structures to describe it and help people process it? In general, we’ve always tried to create our own framework that made sense to us. This particular framework was inspired by Brian Trelstad, and that sparked our directions. We fleshed it out internally and then we thought we could solidify it more and share with others. We have found it very useful to share with people.
In considering the 5Ps, how do you define impact?
At Impact Engine, we’re specific. We invest in products that improve education, health, economic empowerment, environmental sustainability. We look mainly at product-based impact—looking at the 5Ps—and we look at four specific impact areas. I think it’s very important that when you’re raising money from other people, you have to be very specific about what impact means.
My personal definition of impact, and how I think about my investments, my philanthropy, et cetera, is much broader than that. It cuts across all five Ps, all the UN SDGs. I’m really interested in levers and systems change. Where do you get the most bang for your buck? Regardless of which P or which impact area, how do you change the underlying problem? How do you scale a solution?
A third lens on this is how do I define it extremely broadly, outside of my own brain. I always tell people, either when I’m talking about impact investing or starting philanthropy, to pick whatever you want. Whatever impact is to you, even if we have a hundred definitions of impact, if everyone had one and was acting on it, we’d all be in a much better place. I don’t get too hung up on having to agree on what is impact. It’s helpful to have a framework about it and to use the same language, like the SDGs or the 5Ps, but it’s okay if we all come from different positions.
Have any new theories about your investing strategy been born from using the 5P framework?
Since we launched our first venture fund in 2015, we’ve been extremely focused on product-based impact. But once we really fleshed out this 5P framework, we discovered we do sometimes get drawn to paradigm P companies.
For example, for a typical company we would invest in, an impact venture would have a very clear direct impact between the product and the outcome. We would be able to see it and measure it over time. But with Measurabl, a company in our portfolio, they’re doing more of the infrastructure for the ESG and data analytics in commercial real estate. When we started digging into it, we couldn’t draw a straight line between more businesses using their software and lower carbon footprints in buildings. But we came to believe in order for commercial real estate to lower its carbon footprint, they had to have better tools to measure and track data. It became that that toolset, that infrastructure, became a critical piece for that industry to evolve. So we think of Measurabl as more of a paradigm shift, a Paradigm P, meaning. we can’t point directly from A to Z with just their software, but their software is one critical piece in the steps needed to get to Z, which is lower carbon footprints. So the framework did help us in fleshing out our own thinking and broaden it a little bit in that regard. However, we are still extremely focused on product.
Being able to articulate how people, place, and processes are different hasn’t really changed our strategy at Impact Engine, but it has certainly given us a clearer vocabulary to speak to our community. It is a very helpful way to walk people through how to think about it. And personally, it has helped me frame lots of different ways I can invest, make donations, or any other way I can leverage my dollars. It was never so well organized in my brain before, and now it’s a framework I can use personally.
How has it unveiled other opportunities to make or view impact?
One example of where this has really prompted a broader way of thinking for my personal way around impact investing was around people. This idea of being very intentional of who you are investing in, who is creating wealth. Having been a woman-led firm trying to raise capital for first-time funds, which is really difficult, this hit home for me. We’ve been thinking of investing our personal portfolio with a lens toward product and process, like ESG screening and how you run your business, but we really hadn’t been intentional in tracking, counting, or improving gender or racial diversity; in who owns or runs those funds and firms. It doesn’t have to be an either or. In addition to caring about the underlying impact of the firm’s strategies, we can also measure and try to improve on the people side.
You could imagine using that with your time, too. You could ask about the genders and race of the board members in the nonprofit world. There’s a lot of ways you could look at it. It’s about intentionality.
Having been in the impact space since its early days, what has been one of your biggest learnings as an impact investor?
Don’t let perfect be the enemy of the good.
Over the years, I’ve heard many things from so many people that I’ve tried to convince to do impact investing. Things like: How can I get into a field where people don’t agree on the definition of impact? The metrics aren’t clear. I can’t start until I have my whole strategy for all my asset classes. Whatever the hold-up, I say to people: Just start. Start small, start simple. Start with imperfection. Learn. You’ll start to be part of the solution because you’ll be drawn to the types of things that resonate.
It will probably never be perfect. The planet is probably easier to quantify in terms of environmental changes, but humans are complicated. Things around education, health, economic empowerment, inequality—chances are that we’re never going to have a perfect system of I did this, and it led to that. My outcomes are tied to a hundred inputs as a human. My health is tied to where I live, what I eat, and all these things. So similarly, in terms of impact investing or philanthropy, we can’t hold out for a set of perfect metrics or measurements or comparisons.
So don’t wait for perfection. Start now.
To learn more about Jessica Droste Yagan and Impact Engine, visit: theimpactengine.com.
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