Laura Kromminga On The Key Criteria For Evaluating Social Enterprises And Impact Initiatives

Laura Kromminga, an experienced social entrepreneurship consultant, has been involved in the field for over a decade. She is particularly focused on impact investing, scaling and building ecosystems, and works with consultancies, public administration, and foundations.

One of her key interests is helping public administration recognize and utilise social innovation to improve public services. To enhance the knowledge of public servants, Laura co-founded a community for public administration employees and works as a guest lecturer at various universities, sharing her knowledge and inspiring the next generation of policy makers.

With a Bachelor's degree in International Tourism Management, a Master's degree in International Business Management and lots of experience in India, Chile, Spain and England, Laura has always enjoyed building bridges between seemingly distant worlds.

Laura discusses how to differentiate a social enterprise from a business creating social impact through donations and why policies and frameworks are essential for allowing social innovations to effectively scale.

Highlights from the interview (listen to the podcast for full details)

[Indio Myles] - To start off, could you please share a bit about your background and what brought you to working in social innovation and enterprise?

[Laura Kromminga] - It's funny how my education background hasn't followed me into my work life. I studied tourism management and was confronted with how the tourism industry affects the local population. I've always wanted to investigate these ethics of business management, and I then came across social entrepreneurship through a book. I read Muhammad Yunus' book on social entrepreneurship and how to do business differently, and I was immediately hooked. My first question was why did I not learn this in university? I then wrote my bachelor thesis about this, never worked in tourism, and started right away in social entrepreneurship. I haven't regretted this, it was the starting point and at the end in 2012, nobody knew in Germany about what social entrepreneurship even was. There were around 20 books about it at the time, and the community was quite small. Organisations like the Impact Hub didn't exist yet, and we were trying to dig deep into ecosystem building, one of my main interests.

Can you share more about your current work and role in this ecosystem?

The goal is to scale what great social innovations we already have. It's a pity that the innovations we have already that are working great are maybe only in one part of the country and don't scale to others. If we for example have an initiative helping kids from a migrant background early on in their schooling journey to make sure they understand enough German to not be left behind, why wouldn't we want this everywhere? In my understanding, in the beginning the mentality was that impact investment can help you scale. If you were to connect with the right investor, they would give you the right money (and we can talk more about what that is), have the right mindset, and help you scale. That was the thinking around getting deeper into impact investment. But as you mentioned in the introductions, I worked in England in the Anglo-Saxon environment and then wanted to come back and live in Germany in Berlin.

The problem in Germany is we have a very different understanding of what the government gets into and becomes involved in, so things around education or language training for example, we believe the government should be funding these things and should be creating rules and so every child has the same opportunity. There's a different underlying culture, and this is why I started looking at how to scale the movement through government. The main things that are hindering government is they have a lack of expertise; they don't know what social innovation even is. They don't have examples or know about all the great social innovators we have. They lack methods, so they don’t know how to apply this in government.

If it exists in the economy and social entrepreneurship is out there, then that's great. but how do we get push this movement into our ecosystem inside government?

These are the two pillars I work with. The third pillar you could say is lack of awareness, and maybe that is what you are working to fix which is fantastic. What I'm working on in terms of lack of expertise is trying to make social entrepreneurship more understandable. The criteria I published last year is one of those ways for governments to get on board with social entrepreneurship faster. When you throw social entrepreneurship as a word at someone working in government, they are probably not going to understand what you're even talking about. Using descriptions like an entrepreneurial way of solving social issues is also not going to help, because then you're going to have lots of questions raised. The criteria are a way of making this movement more understandable for government employees to get them on board faster.

Can you provide a summary of what this criteria document includes and some of the key insights you gained from its creation?

I was trying to create a language tool for people who have zero knowledge about social enterprise who we need for the movement to grow. For example, they work inside a government department, may it be education or health, or they are in another government supporting function like a public bank. These people need something very concrete, basically a way to tick a box; if you apply for a funding program, do you meet those criteria or not?

I was fortunate, because when I started at the Senate Department for Economic Affairs here in Berlin, I inherited a study they had conducted on which dimensions do definitions out there already have in common. All our six different dimensions have something to do with the Ashoka, Impact Hub, or the EU definition on Social Entrepreneurship. We questioned what do these definitions share, but we realised they had reached this level without making it more concrete. For example, with the entrepreneurial dimension, in practice you could ask how much money does the social enterprise make and can they cover their costs with the money they make by selling products or services?

On the other hand, you could ask if their economic activity is even sustainable? Is it meeting social and environmental goals, because if you don't, and you just have this nice green side hustle, you're still not a social enterprise.

Even with the economic dimension, you can dig deeper into this, and then when we look at income, does a social enterprise have to meet net zero? Do they have enough income to cover all their costs? Do they one hundred percent cover their costs or do they not? Do they stay below one hundred percent and subsidise through donations? The criteria I created are based on these six dimensions, but then digging deeper, I realised it's 11 criteria you must look. Some of the dimensions have two or three subcomponents and they come in different levels. There are four levels for each criterion, so for example the economic one starts at 25%. If you cover 25% of your costs through your income, then you meet the lowest level, and if you can cover all your costs, then you meet the highest level.

The funny thing with the criteria is that people immediately have follow up questions. For example, they might ask if they meet the one hundred percent of costs covered criteria, is there any criteria on how to use your profits if you make any? I would say yes, that's a different criterion, so please don't mix different criteria into one thing. We’re looking at all the aspects in a different way by separating the criteria out. People get frustrated because they always have a favorited thing they are looking for. For example, I just had a call with a foundation last week who told us impact measurement is their thing and we don't have impact measurement in our criteria. I said we do and showed them the criteria, but they were digging through so many criteria that they overlooked their specific one.

One of the key insights has been that you must look at all the eleven criteria and take your time analysing the most important one to you.

As with the Senate Department, one of their first questions was if we can create an overall score which allows them to say if someone meets a certain threshold, but you can’t. It is somewhat like ratings in financial markets, but you can't come out with a score like an A+. That doesn’t work, because you can say that while for example a social enterprise’s economic activity is great, they might be lacking in social impact.

What are the do's and don'ts of using the criteria both from a social entrepreneur's and intermediaries’ perspective?

There are critical do's and don'ts, and one of them I already mentioned with trying to create an overall rating. Funnily enough we tested this criterion and had a craftsman fill this in. For some reason he was sent the link, or he found it on social media, but we had made a version to test with social entrepreneurs. It was interesting to read his insights, because he stated, “of course I have social impact. I'm a craftsman who employs people, I'm creating work so in the end I create employment and these people pay taxes, so why isn't this social impact?” One of the key takeaways for intermediaries is you must choose the most important criteria to you, because some will be less relevant for you. For example, with the innovation criteria, some intermediaries are looking exclusively at innovation like Ashoka does.

Some say that if you create impact we don't care if you are innovative or not. Secondly, you must create an order which suits what you are doing. The criteria start with 1a, but that doesn't mean you should be starting with 1a. You can start with 2a (social impact) and adapt it to whatever you are doing to create what I call a ‘profile’ of your organisation and its most important criteria. Thirdly, if you are a big intermediary doing multiple projects like the Senate department I worked with, we had three different definitions for three different financial programs. That is completely okay, because one of programs was targeting start-ups, another was targeting later stage enterprises, so of course the economics criteria are going to be different.

What you can ask for in terms of impact measurement can be different, because organisations of different ages can provide different things. don't be too rigid with applying the criteria and only create one of your entire organisation; create different profiles for different support programs.

These three things are must for an intermediary, and for a social enterprise, it's a little bit easier; you just fill in the criteria, look where you stand, and then you look at where you can grow. Even for a social enterprise, for most of the criteria you might be at the lower levels, it is not necessary you to hit an A in all of them if this is not what you want to achieve. Coming back to the economic criteria (because it's such a nice and easy one to understand), if your model says you are always going to raise donations and you are only ever going to cover fifty percent of your own costs, that is completely fine.

What common obstacles do you see impact professionals encountering and what advice would you give to people trying to navigate those obstacles?

WHAT YOU ULTIMATELY WANT TO DO IS FIND A SOLUTION CLOSE TO YOUR HEART. YOU ARE OFTEN TRYING TO SOLVE AN ISSUE YOU OR YOUR LOVED ONES HAVE ENCOUNTERED, OR IT COULD BE A PROBLEM YOU HAVE WORKED WITH BEFORE. You WANT TO SEE you NEW SOLUTION WORK ALONGSIDE THE OTHER SOLUTIONS THAT EXIST OUT THERE.

Going from that, finding a local, fitting solution instead of saying what you have found is too good to be kept for yourself is usually the next step. If you talk about the key differences between social entrepreneurship and business, businesses usually from day one think about scaling. They are not thinking that if they live in Berlin or Munich, let's serve the customer base here and then maybe think about scaling later (if at all). Usually, businesspeople think about this way earlier. I would encourage social entrepreneurs to think about scaling earlier, so if you find a fitting solution that might fit somewhere else think about what this means for your own organisation as well in terms of what resources you are going to need and how you can set yourself up in a way that gathering these additional resources (whether it’s people or funding) is easier for you.

One solution is usually making things digital, because they're easier to replicate. That might not fit you, but thinking about what you are going to need and looking at all the different ways you as a social enterprise can scale is important.

Open sourcing for example isn't an option for a for profit, but it is for a social enterprise. If you care about your impact and you find a different way of financing that, then open sourcing can be one way for you to go. Understand different pathways early on.

What inspiring projects or initiatives have you come across creating a positive change?

It’s fascinating that I started in this more than 10 years ago and Germany is kicking in in terms of more people getting on board with what social entrepreneurship is. For example, we have had a national strategy published by the Federal Ministry of Education and Research as well as the Federal Ministry for Economic Affairs and Climate Action. They joined forces together and published a joint strategy, so that might be interesting for anybody who works in a federal ministry to have a look at. I get a little bit of inspiration with what they are coming up with in terms of support programs.

If you work in a rural area, one of the programs and projects in the South of Germany I find inspiring is called Silicon Vilstal. There's a German region called Vilstal, and they have created an ecosystem for bringing social innovations to villages and seeing if they can create a positive social impact in rural areas. I find this inspiring because usually we find these innovations in urban areas, and while cities have a lot of problems, villages and rural areas do too.

To finish off, what books or resources would you recommend to our listeners?

There's a book I would recommend for people who would like to think about scaling and finance, and that is called Adventure Finance by Aunnie Patton Power. I came across Annie’s work when she was in Oxford, and I met her. She's a brilliant person to talk to when it comes to impact investment and finance.

She wrote this book deeply analysing what finance instruments social entrepreneurs can use, all the different ways you can approach an investor, and what finance instruments fit you and your model. I believe a lot of social entrepreneurs come from their own specialised background and just need a little bit more guidance around finance.

This is exactly what this is, a guide for any experienced social entrepreneur to get going on impact investment and maybe feel less scared. There's an overview of what I can use and what fits me, it's not so scary and overwhelming to dive deeper into this world of finance. There are lots of words and explanations you need in the beginning, and that's all in there. They have an online resource as well which accompanies the book.