What is our Investment Value and SROI? What we put in, is what we get out.
Social Return on Investment | People | Corporate Strategies and SDG’s
Corporates, individuals and impact investors strive to be first-movers and jump into the next lucrative opportunity. However, what we first need, is to understand what we define as a ‘good’ investment for ourselves
How to value an investment?
Fundamentally, it is about knowing what we consider good, and whether we are willing to spend our time, effort and resources inwards to it. The latin etymology of investment comes from vest, which I freely expand to mean life. As the money, time or resources that are poured into a company or a person enable a longer life expectancy. This follows nicely from the medieval meaning where to vest was to protect and guard someone’s life with troops. When you invest, you don’t simply roll a dice and throw money towards something ‘expecting it to stick’. You need to first value it — does this product or person have value for me?
“Investing, is believing in the value of a company or a person.” Christina Wehbe, partner at UrbanEmerge
Therefore, the critical homework to be made before exploring business strategies and market entry tactics, is to self-reflect and understand what it is we value, individually. Only then, can we start the quest of money making and returns. Knowledge, is the first step towards sustainable investments.
What is our notion of value
What do I consider ‘good’? These are our intrinsic interests, values and morals that drive our economic behaviours.
What do I consider a ‘valuable’ use of time and effort? This is the utility component — someone might consider putting 10 hours into fixing a car a valuable use of their time. However, this invested time can be a poor return if they do not know why they are fixing the car. Is it for technical learning, to drive to work, or to can those 10 hours be used for an activity that you may value more.
What is the ‘goal’ you want to achieve? Perhaps, 30 hours invested in fixing that car has an incrementally higher value for a family man or a family woman, who imperatively needs the vehicle to go to work or drive the children to school.
You might think we are going back to the basics of economics: opportunity costs. The same logic applies to opportunity of return. What is the return that you can achieve with your investment? What is the opportunity that this time and effort will achieve? For example, Person A is not a car mechanic but he puts a much greater value in the opportunity of return he will get from a functioning car. Person B can fix the car quickly, however he doesn’t consider this a priority — the value of his time is set on something else that same day, such helping his kid with English homework.
Don’t restrict yourself to the cost, turn the logic on its head and identify why you are prioritising this investment and whether it satisfies your longer-term personal aims. If you are certain it is, then you are on the right track. You looked at the return and set your goal. Of course, I’m not saying to ignore the cost in its entirety.
Opportunity cost is when you have foregone another opportunity that would have been more lucrative. It is important to remember that we are looking at expected returns and what we anticipate in the future.
“Look beyond the cost of your investment, understand what you are striving to achieve in return.”
I realised, we can never be certain of the future yield from our investment, unless we can tangibly value it at the present. Opportunity cost is used to build the capital structure of a company, for example. How companies are doing their own valuations is a topic for a subsequent GrowthView publication.
Time | take your time to be efficient. We find it simpler to fast-track, cut costs and look at operational efficiency as a priority. Quicker, better and faster. You cannot be efficient, until you have enough knowledge and self-awareness of your strengths & weaknesses. Probably you are thinking “oh yes, she means a SWOT analysis”. To be frank, this is in no way a priority. Start-ups do it once to provide clarity to investors, and then it’s buried into a virtual cloud drawer. Self-reflection for companies is not just a PowerPoint slide, it is an ongoing honest analysis of themselves. Knowing your company, is what will enable you to grow your comparative advantage, sustainably. What do I put value on and how can i get there step-by step?
Markets, governments and individuals tend to overcomplicate processes as well as decision-making and ignore the common-sense they inherently have. Metaphorically speaking, people walk one step at a time. We don’t skip or jump through our days. We walk, looking in front of us, keeping our destination in mind. Why can’t we do the same with our investments? Let’s pause and think before we jump into the next purpose-driven initiatives, or PPP investment, such as a multi-million ($) infrastructure project in East Africa.
Why do we invest?
What is your expected ROI? The truthful answer is, how do I know if I am not able to value the investment I put in. Investments are not limited to financial markets that generate monetary returns.
» In a financial product: investment of capital will yield monetary rewards
» In a marriage: investment of loyalty and patience will yield a lasting union
» In a company: investment of your time will yield job security
» In a child: investment of time and care will nurture growth
» In a government: investment in communication will yield diplomatic relations
Effort |what you put in is what you will get out. Therefore, when we look into impact investment and sustainable investment, we first need to identify, realistically, what it is we are willing to put in and for how long. How can we expect to have an impact in education without knowing why education is important and what we want value to teach our next generation?
Return on Investments have been purely measured by the increase in revenue generated, however, what about other metrics that are not monetary? How are those incorporated into your ROI? There is now the introduction of SROI — your social return on investment. For a social return on investment to be measurable, social variables should be defined based on a common denominator.
Social indicators are reflective of society’s mores. As Alexis de Tocqueville timelessly and brilliantly depicted in 1835, in his book Democracy in America.
De Tocqueville’s aim was to understand this “new” nation by looking closely at the people within it — mores being at the core of the sustainability and success to democracy. Freely read, it is rich in lessons for today as we return to our values.
The choices we make as individuals or as association of people, determine whether the investment towards liberty and well-being will succeed. The same applies today with impact and sustainability.
Without looking at people within the economy and their mores, it will be difficult to predict your investment and impact.
An analogy can be made with cooking and the produces we use: “how can you prepare a good meal without knowing the individual ingredients you will put in the dish? You might be lucky, and the ingredients might sync fabulously — but chances are, you won’t be able to cook that same dish over and over that deliciously.”
Societies are comprised of people. Similarly, companies are made up of people. This is almost circular thinking — how can we expect societies to develop their nation in parallel to companies developing their global economy? People fit within both nations and companies.It makes us question whether there is a logical fallacy in the way companies are building ecosystems and circular economies on global levels.
It is paradoxical to see a nation and corporate both operate without looking inward — having people and employees as mutually exclusive lacks logic.The concept of mores and effectively measuring them, has been often omitted from investment tactics and government policies.
Who invests | people or banks?
We intermix the notion of national with international, particularly in the way we communicate and view investments. People work and live in both worlds and are interchanged between national interests and international economies. Same applies with money-markets.
Frontier markets have tremendous potential for high value returns both in terms of SROI and direct financial ROI. However, it takes time and it’s not as easy as the media portrays it. Intermediaries overlook the investor values and can misunderstand the local context. CSR initiatives or Fund of Funds investing in emerging markets need to deeply comprehend the local needs, interest and skills — similarly how equity shareholders, should have knowledge of the company they invest in. Below are some examples of money-market topics, that these actors ought to look inward, to achieve sustainable growth.
» Private Equity firm: know your target market
» Corporate: know your people
» Venture Capital: know your self
» Fund of Funds: know the values you represent
» Hedge Fund: know what you want
» Ultra-High Net-Worth (UHNW): know your values
» Individuals in any society: know your investment aim
As moral investors (monetary or non-monetary) we should understand our values, why we invest, and what we tangibly want in return. When a mother invests in her child, she first understands the values she wants to pass on, to achieve the positive human development of the infant.
An example of this circular thinking, is when an employee of a global corporate, such as DIAGEO in Ghana (this is purely for presentation purpose, and without prejudice), is the same person that is working towards sustaining an income for his/her family locally. In many cases, putting tremendous effort to move up the corporate echelons for the well-being and needs of their loved ones. How is it viable for a C-level at DIAGEO HQ to anticipate that local employees will invest meaningfully in building the corporate empire while prioritising their personal well-being; until you know what your employee values? Notwithstanding, keeping also the country’s national interest at heart. Understanding employee incentives in their local market is key.
The values that are shared by a nation are often overlooked in company business strategies. And this is at the core of investments — people. Understanding the motivations for people and employees will contribute to sustainable growth for corporates and for investments by the CDC for example.
Employees invest on both a national and international level. It’s a difficult conundrum, in which citizens and their government relate most with their nation. Whereas, employees and their company relate to international structures. How do individuals within companies fit in this landscape?
We have over-defined the language between corporates and governments, making it difficult for individuals to know where they fit.
People need resources. Therefore, people within companies work to acquire these resources. On the same token, companies need resources to operate. Employees are the core investment that makes the company operate — with their skills. In conjunction, people’s debt or equity investments are what makes the company live and grow, thanks to the cash-flow it brings. In easiest terms, people are behind every investment. Cash or effort.
What if companies understood that the uniqueness of their market positioning, is in the individuality of each human-being that dedicates his and her time to the revenue growth of the enterprise?
Sustainable fundamentally means, long-term, and impact can only be valued once each individual knows what change the investment is aimed to trigger.
Want versus Need. Let’s shift the discussion towards our self-interests — considering these are categorically simpler to measure and identifiable by individuals.
What someone wants is not always what they need, and vice-versa. As per Maslow’s Hierarchy of Needs, where the basic and elementary goods first need to be met, before a person can discuss “morality or personal-growth” as part of the self-actualisation. Moreover, what we want is in constant transition and quite volatile — making it difficult to predict over time. Needs are tangible and measurable, however not always identified. So, there are two real steps to forecasting growth sectors.
How can I invest in something sustainable?
To enable markets, and to drive money towards the right causes, to fill the gaps in the 17 SDG (Sustainable Development Goals) topics— individuals should first, define and communicate the needs they have to live humanly; and second, for people to self-reflect on what their personal interests are.
1 Communicate what you need, simply. UNICEF and other forward-thinking foundations have put children’s opinions at the epicenter of their evidence-based funding strategies.
What a breath of fresh air to hear children communicate so openly and without prejudice.
They are often a reliable source of information, and share their needs openly. What children express as their basic livelihood “asks” are clear, tangible and understandable. For example, a child may say “we read the same book at school, I would like for the teacher to read new stories!”; or “the lights always go off at home, it is hard for me to do my homework when it gets dark”. The child’s needs are uncomplicated.
2 Self-Understanding, what are your interests? let’s shift our conversation to comprehend what it is that interests us. Are you interested in music? Are you interest in politics? Are you interested in sports? We already share and parametrise our interests voluntarily, in every day life. Particularly, with Apps and Tech platforms to filter and customise what we see or read. For example, we set our interests on Pinterest, select categories on Medium or tag our career interests on LinkedIn.
Interests, although they relate to emotions, are measurable and quantifiable for investors. They can gauge customer segment sizes and forecast revenue.
These interests, will be sustainable. As they usually don’t change over time and are pursued regardless of monetary reward. So why can’t markets and financial investments look at societies’ interests and put money towards sectors people “need” and industries of “interest” to increase the certainty of their investment? A personal example, I enjoy and find singing rewarding. I might put more or less time towards listening or doing music — my interest stays the same over the years. As such, the music industry can anticipate this constant.
Such markets are often overlooked in frontier or emerging market strategies, where investors focus solely on sectors of needs. Let’s shift our view and analyse as well the sectors which communities have shown or communicated interest towards. This is fresh-thinking on how to build a sustainable market. As people within these industries, are likely to stay constant — these sectors will be discussed in future GrowthView publications. Keep in mind:
1. Does it supply to your needs and well-being?
2. Is it driven by your personal interests?
3. Can your skills be applied to this sector?
Prosperity starts when each individual communicates and acknowledges what they need and are interested in. Then, they identify how their skills will fit within that economic sector.
Step 1: know what you are interested in.
Step 2: know what you spend time and effort into in the long-term.
Step 3: pause and reflect on what is the most effective use of your time.
Step 4: understand what interests you are missing out on.
Step 5: visualise how you will re-focus your time into higher value activities.
Step 6: take your time and build your skills.
Sustainable means long-term, and impact can only be valued once each individual knows what change the investment is aimed to trigger. When individuals shift their priorities, the money will follow — and corporates will effectively align to the UN SDGs, so we can fill the critical gaps in health, education and job creation.
This is impact investment. Your personal impact and your personal time, effort as well as resources shifted towards areas of your life that will be of value (financially and personally) throughout the years. This time and effort spent will always be worth it — despite variables that are out of control, may change. Such as political changes, fiscal policy shifts, companies operating where you live or tragic natural events.
“Investing in people is the only sustainable way forward for both societies and our economies.”
Stay tuned! 3rd GrowthView publication will come out on comparative advantage, skills and greater gains for all with Pareto Efficiency. christina.wehbe@urbanemerge.com
