This framework covers start-ups that take some of the profits generated from their business activities and put them towards programmes that create positive impact.
These differ from our first framework in the previous article in that it is not necessarily innovations in the business activity that creates the opportunity for impact, instead, business profits are specifically directed towards impact. It’s important to note at this stage that sometimes these two frameworks can be combined – you’ll see this in a later post when we explain some of our examples.
At this stage, you might be asking ‘what is different in this framework to how many businesses behave already’? For many years, businesses have put money towards philanthropic activities. Think of the way many companies make donations to charities, sponsor the arts or back environmental causes.
There are many high profile examples. Salesforce dedicates 1% of equity, employee time and products to community causes. BP has sponsored the arts in the UK for over half a century. Morgan Stanley partners with diversity organizations representing women and minorities. Certainly, most, if not all, public multinationals have a CSR programme that exists for this purpose.
In the vast majority of cases, this is great news and to be commended. In some cases, however, a business’ support for social, cultural or environmental causes might be better classified as a marketing expense, intended to burnish a reputation or offset some of the negative outcomes a company has been involved in through its operations.
This article isn’t the place to get into the impact-, green- or social-washing debate, so we’ll leave this for now, only to emphasise that we are looking to work with start-ups whose use of profit to create impact is integral to their business model, rather than a nice gesture or a way to detract attention from things they might be less proud of.
These start-ups generate income through their business activities and allocate resources to generate meaningful social or environmental impact. Examples include creating opportunities for disadvantaged groups, providing support to at-risk individuals, and encouraging activities that address environmental issues.
For start-ups using this framework, quality of impact – not just quantity – is a core consideration. For us, it’s important that early-stage businesses with little revenue are committed to their impact interventions, even if their initial reach is small. It is the impact relative to the amount of business activity that matters. Once a route to quality impact is determined, the quantity will be increased as the business scales.
The concept that we use to assess quality impact is the Impact Multiplier. In its simplest form, the Impact Multiplier is the impact generated per unit of revenue or profit provided by the business. Start-ups that can demonstrate relatively high Impact Multipliers will automatically grow their absolute impact as their business grows.
Assessing Impact Multipliers is not simple and the key consideration of this framework remains in finding the right level of revenue or profit to put towards impact generating activities, and identifying the trade-off between quality or depth of impact, and the quantity or reach.
Some observers point out that businesses are only rewarded by reporting big headline numbers about the positive impacts they create rather than really interrogating how deep or sustained this impact is. Our experience is that if founders see impact as integral to their business and purpose, rather than a late-added bolt on, the quality and depth of impact will be a key consideration.
These businesses will want to reach as many people as they can, but they will first want to make sure that they are genuinely creating the change they are aiming for. For those of us that are actively looking to increase our individual impact these start-ups offer us a tantalizing opportunity. Supporting their business by being a customer provides us a product or service that we are looking for and also generates impact to make the world a better place. We need more buying choices like that!
Gordon Eichhorst, Twitter & Linkedin
Joshua Eyre, Twitter & Linkedin