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No development intervention matters if it fails to produce “real impact.”

The Mulago Foundation maintains a striking level of focus on real impact. They are not alone in addressing market and government failures with grants and low-interest loans. But their singular focus on measuring real impact that overcomes those failures in the geographies where those failures are the hardest to solve sets them apart. To start off, Mulago doesn’t accept proposals. They provide unrestricted money. They provide continued funding for organizations that show clear progress towards scale. Formal reporting is streamlined and focused on a small number of mutually agreed-upon milestones. They’re not focused on financial returns. All they want is real impact.

It’s not just rhetoric. A quick review of the Foundation’s grantees – D-Rev, Samasource, LivingGoods, One Acre Fund, KickStart and many more social enterprise all-stars – gives credence to the approach. The impact of each organization is well defined: create state-of-the-art products that change lives, give marginalized populations decent income, save African kids’ lives, get farming families out of extreme poverty. While none have truly gone to scale just yet, a well-defined path to exponential growth lies at the core of their strategies. And the results, which you can peruse on the Mulago Foundation site, are impressive.

The complexities of running a successful social enterprise with scalable impact are significant to be sure. Yet many teams miss some basic points that help drive success in organizations throughout the Mulago portfolio. Having served as a mentor and advisor to many such outstanding organizations, I asked Kevin Starr, Mulago’s Executive Director and keynote speaker at SOCAP 11 to take a minute to tell NextBillion’s readers about the most important lessons he’s learned from working with social entrepreneurs at Mulago and beyond.

Lesson #1: Know What You Are Setting Out to Do

If an organization cannot decide on a clear raison d’etre, it doesn’t stand a chance for success. Starr suggests a simple tool for creating the focus on impact: go through the exercise of building an eight-word mission statement. Use a verb, a target population, and an outcome. “Save species from extinction,” “raise incomes for one acre farmers,” “educate kids in Kenyan slums” – you get the point. It’s a simple step that should inform all future decisions of the organization. Yet if an organization misses this point, it’s unlikely that they’ll produce clear, tangible outcomes and it’s certain they will not find a place in Mulago’s portfolio.

Lesson #2: Measure the Right Thing

“If you can’t measure the impact, you shouldn’t do it, won’t know if you have done it, and will be unable to figure out how to do it better,” says Starr. But don’t measure just anything – or everything for that matter. Again, he suggests a simple exercise to help organizations figure out how to assess organizational effectiveness: focus on measuring just one thing.

Here’s an example: Mulago grantee One Acre Fund exists to get farmers out of extreme poverty. The organization measures whether their actions actually raise farmers’ incomes. In 2011, they’ll double per acre productivity of 30,000+ farmers. Sure, they might improve literacy rates, decrease child mortality, and improve nutrition in the communities where they work as well. But their goal and central impact is raising incomes. Achieving that goal is what they set out to do and its accomplishment the determinant of their success. If the organization only measures one thing, this should be the metric.

Lesson #3: Make Sure the Model Matches the Mission

From Starr’s point of view, the only thing that should guide the decision to be for-profit or nonprofit is if the approach can be mapped to a path to maximum impact for the target population.

The R&D required to create solutions for market failures at the base of the pyramid requires subsidy. The products that create the highest impact often have low returns and low margins, i.e. high impact rarely equals high return. Ideology, financing prospects, and wishes of board members should all take a back seat to the ability of the organization to produce lasting results for the target population when choosing a for-profit or nonprofit business model. This means often times pursuing a nonprofit structure and forgoing big investments from for-profit investors.

Regardless of the path the organization decides to take, Lesson #1 and the contents of that eight-word mission statement should be top of mind – indeed the only thing in mind – when making this decision.

Why it Matters

In addition to the examples of organizations that have embraced the lessons mentioned above, there are some glaring examples of those who have not. For example, many microfinance organizations have focused solely on loaning greater quantities of money while using the loan repayment rate as a central metric for success. The real impact -increasing income – takes a backseat. Recent studies on the impact of microcredit on suggest that only a relatively small proportion of those receiving microloans actually reported improved livelihoods and an escape from poverty.

Regardless of your organization’s structure or goal, take a minute to think through these lessons assembled from conversations with hundreds of social entrepreneurs and consider how they might impact your next moves.

For more on Mulago’s innovative approach, check out their website or stop by and see Starr at SOCAP 11 this week.