Unless you’re bootstrapping, you’re going to need the help of experts and investors to make an impact. However, in order to make the most of guidance and funding, it’s essential to figure out what kind of impact start-up you want to be.
This article tackles the key hurdles that you need to overcome when conceiving and developing sustainable entrepreneurship. In this, we’ll explain how hybrid organizations offer a solution for walking the impact business line between charity and commerce.
Should my impact business be process or outcome focused?
Impact business is about making change towards sustainable solutions; be it environmental, social, economic, or all three combined. This means actively working at reducing harm to the environment and prolonging the renewable existence of a healthy society. It also means earning profit with a positive ethical impact, and minimizing any waste or harm that you leave in the field of your operations.
When it comes to tackling these issues as an entrepreneur, an important question to ask is whether you want to focus on the processes that are causing problems for sustainability, or on the outcomes that need to be tackled as a whole.
Looking at outcomes means looking to the long-term target(s) that can change a whole system, like the energy sector. To be process focused would mean targeting a more short-term goal through changing a process within a bigger system, like looking at wind energy technology.
In this division, think about whether your business model would thrive off a specific, process-focused approach, making larger improvements in a small area; or, whether it would do better at tackling an outcome; making marginal improvements in an entire system.
How does my business make a social impact?
Impact businesses focused on sustainability can have major social implications – changing the way people think, act, and respond in a society. You can generate such social change via top-down or bottom-up approaches.
Top-down social impact
A top-down approach would be to focus on influencing legislation, for example, so that littering becomes a crime or taxes on polluting vehicles are raised. Such legislation affects the way people behave, in which less littering and driving more sustainable cars translates in a cleaner environment.
Bottom-up social impact
Conversely, bottom-up methods come from civilian movements or charities, for example. These result in changes being made in society directly, which end up affecting higher positions such as government and business.
Regardless of which direction you take, these are social impacts that equate to progress. And, if we can measure these social impacts, the idea is that we can also measure progress.
How to measure social impact
Social impact tends to fall into the sphere of qualitative data, with qualities like happiness, safety or well-being as a focus for measurement. Yet, these qualities are highly subjective, thus hard to translate into tangible or scientific data. Accordingly, there appears to be no clear universal measurement for social impact, which makes any impact business difficult to measure objectively.
For quantitative data, we measure quantities – fixed values equating to objective standards. At the moment, the issue is that measuring social change requires a translation from qualitative to quantitative data i.e., how happy are you (quality) on a scale on 1-10 (quantity)?
Naturally, these types of data have its limitations, because it is a translation of subjective experiences into an objective measurement. Yet, by quantifying thousands of qualitative datasets, organizations like the OECD and the United Nations are able to cross-reference their measurements, resulting in reliable representations of people’s quality of life, health, happiness, and so on.
When you consider getting into the impact business, make sure to closely consider the complexity of measuring social impact in your business model. Because, impact start-up investors will want to see measurable, tangible outcomes, and you as a business owner will need to learn how to provide them.
What is a Hybrid Organization?
A hybrid organization aims to bridge the gap between charity and business by overlapping them in one entity. Yet, truly hybrid individuals with an equal dedication to both charity and commerce are quite rare. So, usually we find two branches of specialists within a single hybrid company: one branch for charity and the other for commerce.
If you’re considering a hybrid approach, make sure to consider both external tensions and internal tensions that any impact business model is subject to.
When investors, organizations, and clients assess a hybrid organization, they tend to be skeptical about one of the 2 branches of your hybridism. To keep this from developing in unwanted tensions, concentrate on:
- Legitimacy: promoting a legitimate business model with clear goals and processes helps to show that you have a plan. While your concept may be a completely new approach, developing a clear procedure for how you will work and reach goals helps to get a legitimate reputation. Many hybrid organizations do not fit into the pre-established formats that investors are used to. Without a clear plan to communicate, originality tends to withhold investment interests.
- Risky investment: due to the novelty of impact business and its focus on social causes, many investors regard it as a high-risk/low-reward venture. The concern is that social goals are prioritized above financial returns, which naturally scares off investments. By providing clear-cut financial aims that are married with your social goals, you reduce the perceived risk for investors and hence increase the likelihood of funding.
Running a company requires a solid internal structure where people can rely on one another, resources are allocated based on mutually agreed goals, and everyone employs their best skillset. To prevent internal tensions from rising, focus on:
- Identity: Because of hybridity, the direction and aims of such companies can get confused. If you don’t know what exactly you’re working towards, then allocating tasks is rather tricky… By focusing on a clear company identity, you prevent potential confusions around having both charitable and commercial incentives. A clear company ethos with a restricted focus fosters community building, which reduces internal divisions along your hybridism.
- Allocation of resources: Since limited resources must feed both commercial and charitable endeavors, the divide must remain fair. If one side appears to be more important without common agreement, this is going to cause trouble. A strong identity helps moderate resource allocation for both commercial and social goals, which helps prevent internal tensions.
How to become an impact business
Sustainability is no longer a maybe, but a must. Use the guidelines above for direction into starting up or scaling up in the field of innovative impact business.