How Hypotheses Can Help You Generate More Impact
Friday Learning Notes
I have worked for several philanthropies and often observed that when investments or grants do not perform well or are simply outright failures, the response by staff is that failure is inevitable when we are taking risks, and this is part of the learning process. I of course believe in the importance of embracing failure (see my last Friday Learning Note), but what is frustrating is that when I probe what exactly was learned from the failed investment, staff often come back with lessons that are banal and not useful for future decisions (i.e. strong governance is important).
The power of developing a clear hypothesis is that it enables learning.
Reality is always different from what you expect it to be and the delta between your expectation and what actually happened is where the greatest potential for learning resides. If you don’t write down what you expect, you don’t have a basis on which to adjust your view of reality and make better decisions next time.
This is the basis of the scientific method which most of us learned in grade school: come up with a question you want to explore, develop a hypothesis, run an experiment, analyze your data, and draw a conclusion.
In a recent Friday Learning Note, I shared the Learning for Impact Cycle we use to guide our work at Omidyar Network. An important element of the cycle is Hypothesis-Driven Investing, which helps us see each investment as an experiment that tests our understanding of the system and how to affect it.
Impact investing involves making a series of staged bets against two hypotheses. On one hand we’re making bets about financial impact (in our for-profit investments), and on the other hand we are making bets about social impact.
To formulate our “bets” we use an investment hypothesis: a concise statement of belief, assumptions, and impact predictions for investments.
For example: We believe that, by providing timely and better quality care, dr. consulta will generate better health outcomes for low and middle income patients than the public healthcare system, which is the next best alternative in Brazil.
There are three ways hypothesis-driven investing allows us to be thoughtful, methodical, and to learn:
- It helps us to clarify what we believe, what we predict, and how
- Clear language on the intended financial returns and social impact of the investment and how they might be achieved makes it easy to understand goals, highlight risks, and set targets.
2. It helps us make smart bets now
- A clear investment hypothesis demonstrates the impact that could be achieved and risks and interdependencies to consider.
- By considering this investment within the bigger system, we can decide how best to invest for impact.
3. It provides a basis for learning and helps us make informed decisions later
- An investment hypothesis puts a stake in the ground and provides measurable targets that can be referred to in the future.
- The reasons for variance between intended and actual results provides a basis for learning and pivoting.
These same methods can be applied for learning in almost any field or area where you want to grow. To conclude, you may want to ask yourself:
What hypotheses can guide you in your learning?
#AlwaysLearning
Roy
Our Friday Learning Notes series is designed to share insights from Omidyar Network’s journey to become a best-in-class learning organization. Grab a cup of coffee and start your own Friday morning learning journey! *warning: side effects of regular reading may include improved mood, upswing in dinner party conversation, and/or increased desire to cultivate learning for social impact
