When it comes to early-stage ventures understanding their impact, we hear the same thing over and over: “It’s too early to measure impact, isn’t it?”
The logic goes something like this: If it’s difficult for established businesses to track their impact, surely it’s a bit much to ask a fledgling company to do it? Besides they need to focus on growing their business, we should not distract them by asking them to measure their impact; it can wait.
Is measuring impact from the get-go really unreasonable? Four years of partnership between Catalyst Fund and 60 Decibels have demonstrated the value of understanding the impact of startup ventures from their earliest days.
Indeed, our experience illustrates that monitoring impact is an important part of building a business and reaching the holy grail for any startup: product-market fit. Here we outline a product-impact fit approach to impact measurement, indicating what types of metrics and growth areas founders and investors should consider as ventures grow from ideation to traction to growth.
Impact with a growth mindset
When venture capital funds assess pre-seed startups, they expect that product, operations, team, and even the business model itself will be a “work in progress.” They are looking for something that can grow, adapt, and improve, knowing that every startup will hit choppy waters. Investors recognize that a company’s financial and operational performance will be honed and refined over time.
The same mindset is rarely true of impact. Impact is typically seen as a static yes/no question (i.e., either a company is impactful or not) to be decided via a one-time assessment. Instead, we believe investors should treat impact performance and data much like they treat financial performance and data, using it to assess potential and opportunities for growth over time, rather than as a one-time assessment.
More concretely, investors know that a startup’s financial results indicate progress along the journey to product-market fit and expect due diligence to turn up a mix of strengths and weaknesses. At early stages, they may find that traction is great, but unit economics may be challenged. They may find tech talent to be top-notch, but the sales team needs bolstering. Investors use due diligence to dig into these strengths and weaknesses to come to a conclusion about the venture’s potential. They collect information and data to decide whether the weaknesses are fundamental or are solvable, and if they are in a good position to help the startup progress.
We believe investors should bring exactly this growth-oriented mindset to their assessment of a startup’s impact, collecting and assessing impact data to understand the potential a startup offers and anticipating the support needed to progress on a journey to product-impact fit.
The Catalyst Fund, an early-stage venture capital fund and accelerator, and 60 Decibels, a global impact measurement company, have partnered over the past four years to understand the impact of the early-stage ventures in the Catalyst Fund portfolio. Our years of work together have helped us understand what impact metrics to consider at various stages, and therefore how to craft and interpret 60 Decibels studies at each stage.
Product-impact Fit
The product-market fit literature typically outlines five steps in moving from starting point to scale: 1) problem insight, 2) problem/solution fit, 3) product iterations, 4) product-market fit, then 5) scale. At each of these stages, founders and investors pay attention to different financial and business model indicators. For example, acquisition rates might be a good indicator of problem/solution fit, but retention and churn is more important to scrutinize during later stages. At scale, teams pay more attention to total lifetime value and unit economics.
Source: https://www.mindtheproduct.com/measuring-the-product-market-fit/
At each of these stages, investors should also scrutinize certain impact metrics over others. For example, in early days, availability of alternatives is more important to problem/solution fit, while NPS and ratings on impact are more important at later stages. In this section, we provide guidance on why founders and investors should listen to users on impact issues, and what to look for at each stage.
Problem insight
| Stage | Activities | Need to listen to users | Success looks like | Relevant impact metrics | Funding stage |
| Problem insight | Understand users and market | Understand users current challenges | Understand target market | N/A – focus on problems and solutions of potential users | Bootstrap |
At the earliest stages, problem insight and ideation, founders need to pay close attention to the challenges users face. Without deeply understanding their problems, as well as the circumstances that keep current ways-of-doing in place, they have little hope of developing a solution that is an improvement over the status quo or is superior alternatives in the market.
Many early-stage solutions fail because founders have inadequately understood a problem and created something that partially solves a challenge but also creates several new ones. For example, many digital solutions have emerged to help microenterprises track sales and gain insight into business trends. However, they also imply enormous effort from users in the form of burdensome data entry. A closer look at notebooks, the default solution, reveals that they have the advantage of being easy, free, quick, and simple to edit.
For shopkeepers, a look at business trends that is enabled by a digital bookkeeping solution has typically not been valuable enough to convince them to take on the burden of inputting individual sales into a complicated application. That tension has resulted in low uptake of digital bookkeeping among microentrepreneurs. Had founders of such solutions understood better the pain points of tracking sales via a notebook (which are few), they might be able to design better products.
To avoid this kind of mismatch, founders should embark on deep listening exercises to understand problems and solutions thoroughly. At this stage, even though there isn’t a “product” to assess, founders should be executing studies much in the spirit of 60 Decibels. This can include surveys but also simple observations in the field and conversations with friends and family. At these stages, founders are typically bootstrapping so more informal methods of developing insight are often preferred.
Problem/solution fit
| Stage | Activities | Need to listen to users | Success looks like | Relevant impact metrics | Funding stage |
| Problem/solution fit | Develop MVP Iterate solution and formalize product | Feedback loops to improve product Usability tests | Acquire and retain early adopters Core group of happy users | User profileProduct useAlternative availabilityChallenge RateQualitative Feedback | Angel |
Once founders have understood the problem, the next step is to develop a minimum viable product and embark on a series of iterations to create a solution that adequately solves the problem identified. At this stage, founders are looking to acquire and retain a set of early adopters who will become champions of the product.
Although ventures at this stage are not yet at product-market fit and assessing impact may be premature, it is still important to listen to users. An impact study can help founders understand who the early adopters are in terms of gender, age, and relationship to the poverty line. For example, studies at this stage might explain why young women are early adopters of an e-commerce platform, and why older women tend to drop off after trying a few transactions. Interviews with users could uncover what hassles older women are facing and what workarounds the persistent users are adopting.
Furthermore, early studies can reveal how users are experiencing a prototype, whether they have good alternatives and where in the user journey they are facing challenges. Finally, qualitative feedback can reveal, in users’ own words, what they like and dislike about an initial product. At these stages, we often find that users feel frustrated because their complaints aren’t addressed.
More specifically, a 60 Decibels study can reveal the extent to which startups have achieved problem/solution fit. At this stage of product-market fit, we expect to see a high percentage of users reporting they have “no good alternative” and at least half responding that their life is improved by using the product. MazaoHub, a Catalyst Fund investee that provides data-driven agronomic support to farmers, found that 83% of its farmers had no good alternative to its offering. A similar portion reported reduced expenditures on inputs and chemical fertilizers, which indicates a potential for impact on net earnings and resilience at later stages. These findings gave us confidence that MazaoHub had achieved problem/solution fit.
We suggest that founders and investors should not be deterred by low net promoter scores nor by evidence that customer service mechanisms are not yet refined. We expect that customer complaint channels and responses will be developed in later stages in the journey.
Product iterations
| Stage | Activities | Need to listen to users | Success looks like | Relevant impact metrics | Funding stage |
| Product iterations | Establish product Find growth engine | Build customer service Understand pathways to impact | Growth in users/volume by reaching early majority Sizable group of happy users | Inclusivity RatioNPSChallenge Rate & ResolutionQuality of LifeValue for Money | Pre-seedSeed |
Once founders have developed a solution that enough users like and they feel confident they are onto something, they kick off a series of product iterations with the objective of achieving traction. During this period, ventures are often seeking to resolve leaky bucket issues so that they can acquire the right users, retain them more consistently, and demonstrate they have a scalable venture.
Founders should pay close attention to user behavior via dashboards and cohort analysis so they can observe how changes in product and market strategies affect users. Pre-seed investors are typically involved at this stage and are looking for ventures that have solid products, but may not yet have demonstrated scalable operations.
At this stage, 60 Decibels studies can help founders understand who their users are, and develop hypotheses about the impact of their product. For example, studies can indicate the demographic profile of the user base, including what proportion of users fall below the poverty line. They can also provide founders with quotes and insights into what kinds of benefits their product is delivering. We have found that 60 Decibels studies can help founders attract impact investors by illustrating a commitment to impact, and creating a “baseline” from which to build.
To know if ventures are reaching product-market fit, we would expect to see evidence that impact pathways are getting consolidated, for example that merchants using a working capital solution talk about growth or lower costs with more consistency. We also expect NPS would be higher at this point (moving into positive territory, but potentially still dominated by passives), and that some customers still report that their complaints remain unresolved.
At Catalyst Fund, we have used 60 Decibels studies to evaluate potential portfolio companies to know which ventures are reaching underserved people, which have developed products that are solving painful problems for users, and to understand where they need to focus going forward. Agro Supply, a Catalyst Fund investee that helps Ugandan farmers finance productive inputs, found that 9 in 10 farmers reported improved quality of life, production, and earnings.
Such studies make our due diligence process much richer, more evidence-based, and more focused on users, instead of just product and team. Unfortunately, too few companies in our pipeline have had resources to embark on such studies in their early days.
Product-market fit
| Stage | Activities | Need to listen to users | Success looks like | Relevant impact metrics | Funding stage |
| Product-market fit | Find predictable selling and execution mechanisms. Understand pathway to monetization | Assess impact on users Manage ESG risks Scope expansion | Organic growth to reach late majority Scale | NPS Longitudinal results by comparing to earlier studies Compare to regional and sectoral benchmarks | Series |
Once product iterations are complete, founders turn their attention to organic growth so they can develop a growth engine and create a coherent business model. At this stage, they are looking for a reliable sales and distribution strategy to move beyond early adopters and early majority to be able to reach the late majority of users. In addition, founders at this stage are uncovering how to monetize more reliably by paying more attention to unit economics.
A 60 Decibels report at this stage can help founders understand what is limiting repeat usage, any gaps in user experience, and how to maximize benefits via more targeted acquisition and user journeys. For example, founders can pay close attention to common complaints and to users’ assessment of value for money. They should also think about how to augment features and provide additional value via variations on their core product. We find that studies at this stage can also indicate what kinds of experiences customers like, whether those be follow-up calls, discounts, or smoother billing experiences.
To know if ventures have achieved product-market fit and are ready for scale, investors should look for higher NPS scores (getting into promoter territory). We typically see that more than half of users report good or very good value for money. Nearly all users are likely to report that their quality of life has improved and that they would be sad if they could no longer access the services. Importantly, at this stage, founders should be able to compare current results to past results, and note that their business has improved.
At Catalyst Fund, we support portfolio companies to conduct assessments with 60 Decibels via our philanthropic sidecar. We find that the studies help them understand how users are benefiting from their product so they can better focus on those impact pathways as well as address any pain points around customer service and user journey. We also find that investors at the series A and B rounds value having access to these studies, both an indication of quality and also as a baseline for future studies.
Scale
| Stage | Activities | Need to listen to users | Success looks like | Relevant impact metrics | Funding stage |
| Scale | Monetize and scale | NPS Longitudinal results by comparing to earlier studies Compare to regional and sectoral benchmarks | M&AIPO |
Once ventures have reached product-market fit and are scaling, we suggest that listening to users become a part of their regular monitoring activities. Periodic 60 Decibels studies can be a useful way for founders to know they are achieving their mission and for continuing to refine product offerings. Paymenow, an African Earned Wage Access platform, began monitoring impact through the Catalyst Fund accelerator in 2021 and has done annual lean data studies to track progress as it has scaled.
Investors and founders can also start to make use of regional benchmarks at this stage, to understand how ventures compare against each other and come to agreement on targets.
| Stage | Activities | Need to listen to users | Success looks like | Relevant impact metrics | Funding stage |
| Problem insight | Understand users and market | Understand users current challenges | Understand target market | N/A – focus on problems and solutions of potential users | Bootstrap |
| Problem/solution fit | Develop MVP Iterate solution and formalize product | Feedback loops to improve product Usability tests | Acquire and retain early adopters Core group of happy users | User profileProduct useAlternative availabilityChallenge RateQualitative Feedback | Angel |
| Product iterations | Establish product Find growth engine | Build customer service Understand pathways to impact | Growth in users/volume by reaching early majority Sizable group of happy users | Inclusivity RatioNPSChallenge Rate & ResolutionQuality of LifeValue for Money | Pre-seedSeed |
| Product-market fit | Find predictable selling and execution mechanisms. Understand pathway to monetization | Assess impact on users Manage ESG risks Scope expansion | Organic growth to reach late majority Scale | NPS Longitudinal results by comparing to earlier studies Compare to regional and sectoral benchmarks | Series |
| Scale | Monetize and scale | NPS Longitudinal results by comparing to earlier studies Compare to regional and sectoral benchmarks | M&AIPO |
At 60 Decibels, Ellie Turner is head of agriculture and Tom Adams is co-founder and chief strategy officer. Malika Anand is head of impact, ESG and research at Catalyst Fund.
