Why you need a Theory of Change
We live in the Anthropocene, the period in which the decisions of our species have brought about fundamental changes to planet Earth. Never before in history have humans caused such profound and far-reaching changes to the very habitats on which survival depends. You might ask, how did we get here? A more helpful question is, could we have done things differently if we had known where we were going? While many people now recognize the need for a new kind of economy, efforts to create such a model have stalled. As human beings, we can imagine a future world. This capability might not be a unique privilege of our species. What is clear, however, is that only humans possess the foresight, capacity, and intelligence to deliberately shape a future that impacts the health of the whole planet.
A Theory of Change explicitly outlines how you plan to move from the present reality to the future you imagine. It is a set of causal relationships that details the steps and linkages you believe will bring about meaningful, lasting change. It helps align your vision with actionable steps, ensuring that efforts lead to meaningful and sustainable outcomes. When building or growing an organization, a Theory of Change becomes all the more important to envision not only your impact but also the short and long-term consequences of your organization’s actions and how they affect the system as a whole.
Organizations seeking to make a significant positive change in society need to be able to describe, at least to themselves, their theory of doing so and the cause-and-effect relationships between activities they conduct and the outputs they have. Consider two short stories:
- In Bangladesh, an international development organization named BRAC set out to alleviate poverty levels. They created a program using best practices and their best assumptions, but when they looked at the results they realized that the main group they were trying to support (the ‘ultra poor’) was not being helped by their program. Mechanisms like micro-financing were too advanced, as this group first needed upstream interventions like confidence building, education, and the creation of basic assets. Upon realizing this, and driven by the leadership of Sir Fazle Hasan Abed, BRAC changed its strategy and introduced a holistic package of support that included asset transfers (such as livestock, seeds, and tools), training on how to use assets effectively, stipends to meet immediate needs, and other basic services like healthcare.
- In the 1980s, the United States launched its largest drug prevention program, D.A.R.E. (Drug Abuse Resistance Education), with the goal of reducing youth drug use through education and a “just say no” policy. The program was built on the theory that increasing awareness about the dangers of drugs (through classroom talks and activities) would naturally lead to a decrease in their use among young people. However, as studies began to assess the program’s impact, it became clear that D.A.R.E. was not only ineffective but, in some cases, correlated with increased levels of drug use. The Theory of Change failed to account for the powerful influences of peer pressure, social dynamics, and the psychology of adolescent decision-making. Recognizing these shortcomings, the program was restructured in 2009 into “Keepin’ it REAL,” which incorporated these learnings and shifted the approach from merely raising awareness to addressing the root causes of drug use by equipping youth with decision-making skills and strategies to resist these forces.
These stories highlight the critical need for a Theory of Change, as relying solely on assumptions and best practices can lead to ineffective approaches that overlook the real needs of those you aim to serve.
This article explains how to create your Theory of Change, citing Metabolic Venture’s Theory of Change as an example and useful benchmark to refer to. We will start by looking at the long-term outcomes, which serve as the foundation of your Theory of Change model. Only when you know the ideal end goals/state you envision can you work backward to understand what inputs you need to put in to get there.
For more information on what a Theory of Change is, why your organization/initiative needs one, and how to think about it, check out our previous article Tools for Systemic Venture Building: Theories of Change.
Understanding the Key Components of a Theory of Change
Creating deep and lasting impact
Theory of Change by Metabolic Ventures
Outcomes vs. Outputs
The key difference between outputs and outcomes is as follows:
Outcomes: Occurring as a result of your actions, outcomes are not immediate consequences but deeper levels of change. At Metabolic Ventures, we have divided our outcomes into two time bound categories:
- Intermediate
- Long-term
Outputs: The direct and measurable results emerging from specific actions. For example, the three outputs that are listed in Metabolic Venture’s Theory of Change include:
These can all be measured in some way – for instance, a certain number of ventures that have been incorporated as a result of our activities, or a toolbox, the usage of which we can measure through certain KPIs like views and citations.
This distinction helps us track and measure progress at different points along the journey. Intermediate outcomes capture the more immediate changes we expect to see after outputs have been achieved, such as changes in behavior, knowledge, or capabilities within the ventures we support. Long-term outcomes on the other hand reflect broader societal shifts (such as a shift in mindset around entrepreneurship) as a result of the sustained impact of our work and the work of others.
Common Question: How do I define the outcomes my venture should aim for?
Start by defining the ultimate change you seek to make. This is your ultimate vision for the world your solution contributes to. In the case of Metabolic Ventures, we want to see a world where mission-driven enterprises are the norm and for-profit organizations are much more rare than they are today. Once you have the vision in place, the next step is to identify the underlying problem(s) that are preventing this vision from becoming a reality. These two building blocks help you to identify what outcomes need to occur more broadly. Keep in mind that the outcomes you select need to fulfill a longer narrative that can be linked back to your organization’s outputs and activities.
Activities and Inputs
Activities: The specific actions taken to generate outputs.
Inputs: The essential resources necessary to carry out those activities. Due to the variety of potential inputs available at this point, you must ensure to select the ones most likely to support the success of your activities.
For Metabolic Ventures, our activities are things we will do regularly such as building an organization (which includes activities such as co-design, experimentation, financial modeling, etc.), conducting workshops, or engaging in knowledge dissemination activities, etc. Inputs are what you will lean on to conduct these activities. In our case, building an organization requires expertise in creating aligned value propositions, conducting pragmatic business modeling, and understanding the critical underlying challenges that need to be solved and how best to intervene. However, we recognize that our capacity is limited and hence place strategic partnerships as an important input to carry out our work.
Common Question: What are the key inputs I need to focus on for my business to succeed?
To identify the critical inputs for your business to succeed, focus on the key elements that will drive your venture forward. Usually these critical inputs can fit within four categories:
- Expertise
- Funding
- Partnerships
- Infrastructure
Designing Your Theory of Change
Step 1 – Defining Your Outcomes
As mentioned above, the first step in crafting your outcomes is to refine your organization’s vision. Consider the following guiding questions:
- How do you identify and understand the problem your organization is trying to solve? (E.g., how do you frame the problem and what causes it?)
- What are the boundaries of the system that you’re trying to change? (E.g., is there a particular geographical scope, stakeholder group, or particular part of the value chain that you’re focused on?)
- What solutions are needed to address the identified problem? (E.g., what, if it existed, could break through where other attempts have failed?)
This can help you identify the what (parts of the system should be different) and the how (the system can be different) of your vision. With this in place, identify a maximum of 5 outcomes that could contribute to this vision. How can you prioritize them?
At Metabolic Ventures we believe entrepreneurial organizations can be used as effective vehicles for change when advocating for and building a new economy. A new economy should be founded within planetary boundaries, empowering equity and justice for all. We also believe that supporting the development of not-for-profit organizations is essential in traditionally for-profit sectors to safeguard their missions and ensure fair living standards for all.
Outcomes are not fixed. To be effective they need revision and consistent evaluation. When you gather data and feedback about your initial theory, these should be fed back into your desired outcomes.
Common Question: How do I ensure my outcomes are realistic yet ambitious?
When considering outcomes, it is important their effects can be linked back to your organization’s activities. By doing so you can break down broad ambitions/goals into manageable steps. Smaller steps are easier to work toward and hold yourself accountable to. Also, consider that your organization doesn’t need to do everything. Relevant partnerships may provide support, allowing you to focus on a specific niche that will create ripple effects across the system.
Step 2 – Identifying Key Outputs
To identify outputs, you need to further develop your hypothesis for how change will happen and your role in the system—concepts you’ve already started thinking about when defining your outcomes. Typically, a hypothesis is framed as an if this; then that assumption. When thinking about your role, read this article as a starting point. It explains some typical role typologies that an organization or initiative can have. Of course, you may find yourself occupying another role not listed here. Once you understand these two elements, you can better identify what outputs you might produce.
At Metabolic Ventures, we see the need to contribute by embedding economic principles into the ventures (and venture builders) that we build, which in turn should serve as inspiring examples that activate other stakeholders and showcase what is possible. For example, Fresh Ventures was the first venture studio in the Netherlands to emphasize steward ownership, which has brought more investors on board, led to replication of the approach, and shown entrepreneurs that a different philosophy of entrepreneurship was a possible pathway. Additionally, we need to simultaneously create relevant tools and resources that enable these ventures to thrive. We plan to expand our reach through content that causes people to reflect and think about venture building and models for venture building in different ways.
Our outputs focus on three main categories:
- Demonstrating examples of successful systemic ventures that inspire
- Creating the right enabling environments for these ventures to thrive in
- Changing narratives and mindsets
Ultimately, we are not experts in a certain field but more experts in the process of building an organization. We therefore position ourselves as guides that can enable entrepreneurs at all stages to get that much closer to becoming systemic by design.
Common Question: How do I prioritize outputs in my Theory of Change?
This is an important moment to reiterate that a Theory of Change is not a fixed roadmap. When prioritizing your outputs, consider which have the most probability to effect the change and the outcomes you seek. Also, think of which outputs you are realistically capable of producing at the given time based on the capabilities and capacities of your team.
Step 3 – Mapping Out Activities
Ask the question “What needs to be done?” It is important to ensure that the activities you enlist are feasible given your resources and time while leading to desired outputs. For example, in order to produce venture resources and thought pieces, we need to first spend our time on:
- Directly building ventures or designing programs that support ventures
- Innovating different ways of doing “business as usual” which can include creating new models, tools, or processes
- Training and educating relevant stakeholders (especially entrepreneurs) on what works best
Common Question: What activities are necessary to achieve my desired outputs and outcomes?
Step 4 – Identifying the Necessary Inputs
As a Theory of Change is fairly high level, and not a business plan, it is not necessary to map out all the specific resources required for each activity. Instead, focus on the inputs that you couldn’t live without.
For example, at Metabolic Ventures, to build exemplary ventures we need talented entrepreneurs to build them with. Therefore, the inputs we definitely need include:
Typically, inputs come under four main categories:
- Expertise (e.g., capabilities you have in-house within your team)
- Financial resources (e.g., at certain volumes or certain types of finance)
- Partnerships (e.g., with specific types of organizations or to acquire particular complementary capabilities)
- Infrastructure (e.g., a platform, logistics network, etc.)
Common Question: What is absolutely essential for the success of my activities and the quality of the outputs I am producing?
Making Assumptions Explicit
Assumptions are the underlying beliefs about how the different stages depend on each other and why they are essential for making the pathway to change realistic and achievable. If assumptions are incorrect or overlooked, they can lead to missed objectives. Therefore, it is critical to identify and test assumptions early on.
For example, at Metabolic Ventures, our Theory of Change identifies key assumptions at different stages. In the input-to-activity phase, an important assumption is that deep content expertise is accessible and sufficient to identify key interventions. This is critical because if expertise is lacking or not available when needed, the activities, such as building venture programs, could be misaligned or ineffective. Another key assumption is that there are sufficient numbers of motivated people and organizations to drive transformative change. If this assumption doesn’t hold true, even the most well-designed programs may struggle to find participants or partners, limiting their impact.
To test these assumptions, ventures should actively seek evidence that supports or challenges them. For example, Metabolic Ventures can assess whether it has access to the required expertise by reviewing its network and the quality of advice from internal and external experts. If gaps exist, adjustments can be made by building new partnerships.
Another set of assumptions at Metabolic Ventures focuses on the connection between outputs and intermediate outcomes. We assume that access to simple and actionable tools will lead to higher adoption of methodologies for building mission-driven ventures. To test this, we can continuously assess the tools we create to see how many organizations they impact and at what level.
Monitoring, Evaluating, and Adjusting Your Theory of Change
Regular monitoring and evaluation of your Theory of Change is essential to ensure that your venture stays on track and responds effectively to evolving challenges and opportunities. By establishing consistent check-ins, such as annual reviews, you can assess whether your activities are leading to the desired outputs and outcomes. This process allows you to adapt your Theory of Change as new information arises, such as shifts in market conditions or the discovery of new stakeholder needs.
Conclusion: From Vision to Reality
A well-designed Theory of Change not only serves as a tool for guiding entrepreneurial success and long-term impact but can also be a useful communications asset that showcases your work and methodology to relevant stakeholders. If you haven’t developed your organization’s Theory of Change yet, we hope this article will serve as inspiration and a guide to help you on your way!
If you’re an entrepreneur in the early stages of building a venture, consider crafting and publishing a Theory of Change.
If you’re an established organization that needs help revising or reformulating your Theory of Change, please reach out to [email protected]
