The message is clear: impact investing needs a shift in focus, from merely growing individual firms to scaling entire sectors. But have we figured out how to do that? Our experience suggests not yet.

In a recent article, Paul Breloff and Rishabh Khosla make a strong case for the need to measure the indirect impacts of market innovators. They recognize that we are just starting to test monitoring that focuses on sectors and not just on firms, accepts alternative pathways to scale, and tracks influence and awareness as important indicators of success.

As one of Engineers Without Borders (EWB)’s investees remarked about the article, “these ideas are great, but no one is actually assessing their investments this way at all.” Specifically, social ventures are still assessed first for their potential financial performance, when in fact other pathways are often credited for creating positive change across sectors.

For example, when market innovators fail gracefully but share what they learned, they generate crucial information that others can use to succeed. Failure is necessary to foster success, but ventures that focus on learning are seldom funded by risk-intolerant investors. The impact investing sector still has a ways to go in shifting its focus to scaling sectors rather than individual firms.

On that journey, EWB has experimented in two different ways. We have supported small and growing businesses and social ventures to understand what it takes to make them successful. We have also taken a market systems approach to systemic change, best exemplified by the Making Markets Work for the Poor (M4P) approach. In essence, M4P is about looking at a market as a system of interconnected actors, ascertaining which of these actors have a disproportionate effect on the others, and working with them to achieve broad, significant impact.

Combining these approaches and learning from them is proving to be quite promising  for EWB. The following are five lessons from our experiences that we believe can be applied to impact investing. We hope these insights will help impact investing shift from a focus on growing individual firms to stimulating entire sectors.

1. Focus on “reach” instead of “scale”. Scale speaks to the success of an individual firm, whether a market infrastructure provider, a market innovator or a market scaler. Reach speaks to the health of an entire sector with many thriving competitors. Reach speaks to changing the goals by which an entire system operates – which will incentivize further innovations in the future.

Economic development practitioners have learned the value of actively crowding in multiple, competing copycats of any innovative new approach. Crowding is triggered by the demonstration effect, as people come to understand the benefits of a new approach. It grows through showcasing events, media appearances, and working with industry associations or business networks to scale innovations. Impact investors should pursue reach by actively crowding the marketplace.

2. Recognize when the investment that’s needed is not financial. The most catalytic activities in a market system often don’t involve giving money. They include connecting new actors in strategic ways, stimulating behavior change in firms, and tackling issues in the enabling environment.

Much less frequently, market facilitators will buy down the risk of a new, innovative idea, but financial assistance is generally the point of lowest leverage for change. Impact investing could drastically increase its impact by acknowledging other complementary actions that can help an investment succeed.

3. Rally around the problem, not the solution. If we focus on solutions to the entrepreneurship or financing gaps that limit the growth of individual firms, we might miss the deeper challenges that limit the growth of entire sectors. Uncovering and rallying around the problems facing a system gives actors the space for innovation and experimentation needed to find effective solutions.

Impact investing could start to transform sectors if it rallies partners from government, not-for-profits, and research institutions around making sense of, and uncovering, the challenges rather than over-celebrating single solutions.

4. Monitor the system, not (just) the return. Many actors rallying around the same problem have the potential to transform systems. We should monitor their efforts not by focusing on immediate outputs, but by assessing whether the system is changing toward a better state. We can take a step in this direction by considering improvements to the entire sector when measuring an investment’s social return, as Omidyar suggests.

We can take another step by monitoring alternative pathways to scale and buzz as a proxy indicator of influence on a sector, as Breloff and Khosla suggest. We should supplement output indicators, like sales growth, with indicators of systemic change, like the durability of relationships expressed in terms of customer satisfaction, knowledge transfer, or repeat sales that indicate increased trust.

5. Overcome traditional incentive structures. Hand in hand with systemic monitoring goes the ability to incentivize systemic change. The incentive structures within development banks and institutions that reward dispersing large volumes of capital, while avoiding risk and focusing on justifying returns, yield few systemic impacts.

We should supplement traditional performance metrics with ones that measure how much a venture is learning about systemic constraints, and how much the overall systemic impact remains central to the venture’s mission as it seeks greater financial performance. Performance targets should be loose enough that people can experiment and respond to the constantly evolving sector context, rather than adhering to the parameters of a traditional portfolio management process.