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Complete Guide to Impact Entrepreneurship

Let’s start by looking into the following 3 premises:

  1. All entrepreneurship is social entrepreneurship. It’s important to understand and embrace the fact that all entrepreneurship is social. All businesses have a direct relationship with the communities they serve. Thus all businesses create different degrees and types of social impact outcomes. Whether these are good or bad, is a matter of measurement and evaluation.
  2. Not all social enterprises are impact enterprises. But they should be.
  3. All enterprises can be Impact Enterprises. Whether they are or not will depend on their focus and outcomes on making an impact.

The key to understanding these premises is to look into what “making an impact” means.

Impact is the effect an organisation’s activities have on the well-being of society. In the social sector, we usually refer to positive impact, simply as impact. When talking about negative impact, make sure you refer to it as such.

Key qualities impact should have include: Relevancy, Measurability and Scalability.

Therefore “making an impact” means driving positive impact in relevant, measurable and scalable ways. 

DEFINING IMPACT ENTREPRENEURSHIP

The term Impact Entrepreneurship refers to enterprises that are ethical, transparent and make a measurable impact at scale in the social or environmental problems they aim to tackle.

Note that impact entrepreneurship is not an approach to entrepreneurship, i.e.: social entrepreneurship. But rather a management system encompassing the whole spectrum of impact created by a business.

WHO IS AN IMPACT ENTREPRENEUR?

When we think about entrepreneurs that make an impact, it’s natural to think about nonprofits or philanthropies. Impact entrepreneurs are not necessarily those. Because unlike nonprofits and philanthropies, impact entrepreneurs don’t rely on donors. They’re focused on profits, long-term sustainability and creating impact through market strategies. 

Remember that impact in this context should always be relevant, measurable and scalable. 

Furthermore, unlike traditional entrepreneurs, Impact Entrepreneurs are focused on a Triple Bottom Line (TBL).

TBL is a framework covering 3 perspectives, each giving equal value:

  • The first bottom line refers to the economic perspective
  • The second bottom line refers to the social perspective
  • The third bottom line refers to the environmental perspective

This means the traditional financial perspective of business is expanded to include the social and environmental performances of a company. The goal of TBL is to advance sustainability in business practice. It does so by showing the full cost of development.

An example of a small social enterprise seeking a Triple Bottom Line would be a local company earning income by offering opportunities for handicapped people who have been labelled unemployable, to earn a living recycling. The company earns the profit, which is managed by a volunteer board and ploughed back into the community. The social benefit is the meaningful employment of disadvantaged citizens and the reduction in society’s welfare costs. The environmental benefits come from the recycling accomplished.

For an example of an impact-driven business seeking a Triple Bottom Line at large scale consider Tesla, a large for-profit company. They’re trying to create a globally sustainable and affordable energy ecosystem, free from fossil fuels. They do so by building all-electric cars. Therefore Tesla is focused on creating a positive environmental impact. The company demonstrates its commitment to that goal beyond profits by making its patterns available in an open-source manner to the whole community. This means anyone else can leverage the research and development done by Tesla. This shows that the company is also committed to creating a positive impact, at scale.

EXAMPLES OF IMPACT ENTREPRENEURS

Areas addressed by Impact Entrepreneurs are those that have great potential for scalable impact, and that are underserved. These include healthcare, energy, sanitation and education.

Muhammad Yunus

Perhaps the most well-known impact entrepreneur is Muhammad Yunus. A Nobel laureate and the founder of Grameen Bank, a company that created the entire industry of micro-finance.

Grameen Bank provides small loans to people living in rural areas in Bangladesh. The company has provided loans to over 8 million borrowers and has repayment rates of over 95%. Grameen Bank is not reliant on donors and is self-sustained based on interest rates that it charges for these loans.

Iqbal Cotter

Another well-known social entrepreneur is Iqbal Cotter, founder of GrameenPhone, which is a company party owned by Grameen Bank. He partners with Muhammad Yunus to launch a mobile phone operator in Bangladesh. It was founded based on the belief that providing connectivity to the poor will help increase income and better job prospects. To date, GrameenPhone is the Largest operator in Bangladesh with over 50 million subscribers.

Manish Sabharwal

Manish Sabharwal, founder of Team Lease is another example of an impact entrepreneur. His company is focused on skills development and job placement for people with limited access to education and employment opportunities. Currently, Team Lease focuses on employment and employability in India. They have helped over 1 million people find jobs.

Notice that in all 3 examples, the entrepreneurs and their companies are focused on profit. Their solutions are relevant to local needs, they address the root cause of problems and deliver measurable impact solutions at scale. 

They have a revenue model but at the same time, they have a very clear social mission. The paring of profit-focus and impact-focus makes them impact entrepreneurs.

SCALABILITY STRATEGIES FOR IMPACT ENTERPRISES 

Impact Entrepreneurs face similar challenges than traditional entrepreneurs do. For example, they need to solve the product-market fit question, they have to hire the best people with a limited budget, they have to manage finances and strategise around growth, among others.

Key aspects that differentiate impact entrepreneurs from traditional entrepreneurs lie on the impact aspect of the denomination. Impact Entrepreneurs must develop an impact model alongside a revenue model. Thus Impact Entrepreneurs face unique challenges concerning the way both models work complimentary:

  • Scalability constraints due to costs associated with their mission. For example, reaching remote rural populations. The cost can add barriers and make it difficult to scale beyond the initial geography.
  • Impact entrepreneurs need to address the challenge of scalability of both impact and revenue from the early stages. There 2 main  strategies to overcome this challenge:

One way is scaling through partners. If you want to increase your geographical scope you can do so through franchises. Through this strategy, you’d train others and they’d help take your solution to the field in other regions.

Another strategy is to partner up with another organisation that has last-mile reach at scale. For example, partnering up with organisations like the red cross, which has larger geographical coverage and great last-mile connectivity when needed.

In some cases, the barrier to scale might be policies set by the government. The best way to address this challenge is to influence policy change. For example, for Team Lease, a company that provides job opportunities in India, a primary barrier tends to be a lack of clarity regarding labour laws in the country. Therefore, for the company to scale, a central area of focus and investment has been driving policy change in the county. 

HOW TO FUND AN IMPACT ENTERPRISE

Another way in which Impact Entrepreneurship differs from traditional entrepreneurship is in the way they raise funds. Traditional venture capitalists are most likely not an option for Impact Entrepreneurs. 

Venture capitalists often want to exit their investments in 5 to 7 years because their funnel fund life is usually no more than 10 years. Impact ventures often need more time because they scale slower than traditional ventures. Therefore impact entrepreneurs need patient capital to support their pace of growth. 

In seeking patient capital, it’s viable for Impact Entrepreneurs to consider applying for philanthropic foundations such as the Gates Foundation of the Ford Foundation. These funds tend to focus on specific areas of the impact spectrum. Proposals are evaluated through multi-stage competitive processes and calls for proposals are usually not limited to specific countries. 

If your proposed solution is set to deliver relevant, measurable and scalable impact, you should have no problem in getting funding to bring your initiative forward. 

Alternatively, government grants are another viable source of funding for Impact Entrepreneurs. But these tend to be limited depending on each country.  

Finally, there are impact-oriented venture funds, such as Khosla Impact Fund, the Acumen Fund, and the Omidyar Fund. These are all venture capitalists who are willing to be more patient because they’re focused on social and environmental impact and understand that impact is a long-term endeavour. 

Traditional venture capitalists can be a viable option when an Impact Enterprise meets their main criteria, such as large market size and the ability to scale fast.  In other instances, Impact Enterprises would effectively be able to raise funds from Impact investors. However, it’s important to be clear on the expected time to maturity for your business. Compare that to the investor’s expectations and make sure they’re aligned.

THE NEED FOR IMPACT ENTREPRENEURSHIP 

While social enterprise models focus on doing good and delivering some social outcomes, there’s not a standardised framework that guides real impact creation in the social entrepreneurship space. As a consequence, several social enterprises have un-intendedly done more bad than good with their impact models.

For example, after successfully selling tens of thousands of shoes through its one-for-one model, social enterprise TOMS was severely criticised for creating economic disenfranchisement and aid dependency in the communities they were donating shoes. A study carried out at the University of San Francisco, evidenced that the one-buy-give-one model was largely inefficient at tackling the challenges it aimed to. It reinforced dependency and patronising patterns that rather delayed the development journeys of communities. 

Further, there’s rising demand for companies to focus on creating a positive impact, and with this comes the challenge of authenticity. Purpose-driven marketing is a great strategy to help companies connect with their audiences through their shared values, but there needs to be a regulatory instrument that ensures claims about impact creation are authentic. 

There are several ethical issues involved in telling audiences your company is making an impact and not telling them exactly what the role of your company is in solving a problem at scale. 

Besides, many emerging and established entrepreneurs are shifting towards an impact-driven way of doing business, but very few are knowledgeable of what makes a positive impact entails. The lines are blurred and many companies are mistakenly approaching Impact creation as Corporate Social Responsibility or Strategic Philanthropy.

IMPACT ENTREPRENEURSHIP AND SOCIAL ENTREPRENEURSHIP

On the one hand, in regular social entrepreneurship, the value created may or may not be measured against impact indicators. This is because current models of social entrepreneurship fall short on impact assessment. And among other aspects, failing to address true impact creation, risks social entrepreneurship becoming a medium for conscious consumerism, which would negatively affect society and the environment. 

On the other hand, to run an impact enterprise you must start by setting the bar high on the impact you want to create. Research extensively to identify potential solutions to the problem you want to solve. Build hypotheses around your potential solutions and test them out, so you can deliver on impact goals that will truly move the needle on the problem.

It’s essential to remember that Impact Entrepreneurship is not an approach to entrepreneurship, i.e.: social entrepreneurship. Neither it aims to replace or discourage social entrepreneurship. All enterprises are social enterprises and should be supported to deliver impact to their highest potential. That is not to say that impact entrepreneurship should only be considered by social enterprises. Impact Entrepreneurship management system can be used by all kinds of businesses whether they’re social ventures, high-growth startups, lifestyle startups, small businesses or large companies.

CONCLUSION

Impact Entrepreneurship covers the whole spectrum of impact created by businesses. As such, it provides a set of strategies, tools and a framework to ensure that businesses can create relevant, measurable and scalable impact.

The process of starting an Impact Enterprise or shifting your impact model to Impact Entrepreneurship will require genuine dedication, in-depth study of the problem at hand, and constant iteration.

Are you up for the challenge?

What part of the process would you like us to expand on? Let us know in the comments below.