The Three Ways A Business Can Create Impact
One myth in our industry is that a social enterprise is defined by where it’s profits go.
While this is a valid model, it is by no means the only option.
There are in fact three ways your business can create serious impact, and you’re allowed to pick one, two or all three.
The terminology I use for these are based on IDEO’s Three Lenses of Innovation: Desirability, Feasibility and Viability.
The Desirability Model
This is where your product or services creates impact; each unit you sell makes the world a little bit better.
For example, every time someone buys or uses a Keep Cup, we save a disposable cup from going into landfill.
Every time a child in the developing world eats a vitamin-enriched meal, we reduce the levels of malnutrition.
Every time the Red Cross distributes an emergency relief package, we reduce the death toll from natural disasters.
Every time a person receives access to counselling or psychological support services, we lower the rates of suicide and depression.
As an entrepreneur, if you can make these sorts of things desirable, you are doing the world a favour.
If your business can deliberately save a million plastic cups from landfill, feed a million children, rescue a million people from floods or provide support for a million people with depression, then you’re a social enterprise.
The Feasibility Model
This is where your business uses people, resources or processes that are inherently good for the world.
It might be that you use recycled or salvaged materials.
It might be that you employ refugees or asylum seekers.
It might be that you train people who are long-term unemployed.
It might be that you make meals using organic or free range ingredients.
Classic examples include The Big Issue (who employ homeless people), STREAT (who train vulnerable young people) and Terracycle (who upcycle waste materials into functional products).
In other words, the act of running your business addresses a social issue, even if your customer never sees it for themselves.
The Viability Model
This is where your business uses the surplus (or profit) that it generates to fuel some sort of aid work.
Maybe you give a portion of your profits to a charity.
Maybe you have a charitable arm of your organisation.
Maybe each sale contributes a dollar amount to a campaign.
Famous examples of this model include TOMS shoes (giving a pair of shoes to someone in a developing country), Thank You (donating 100% of profits to aid agencies) or Who Gives A Crap (donating 50% of profits to aid agencies).
Which one is for me?
It depends on your industry, and your Theory of Change.
If you’re selling a generic product or service, donating profits might be the logical choice.
The first test is The Breakeven Test:
What happens if you break even in year 3?
You’ll be doing better than 90% of new businesses, but won’t have donated any profits.
Will you have made a difference?
The second test is The Behaviour Change Test:
If you make money but don’t change how your customers think/act, will you be happy?
You’ll have donated money, but perhaps not made a lasting change within your customer.
For example, with clean cookstoves, there’s only health benefits if your end user gets rid of their old cookstove.
If they continue to use the clean one and the old one simultaneously, there’s no real impact.
Or if you’re trying to change destructive behaviours like bullying, discrimination and gender violence, what happens if companies run your training sessions just to “tick the box”?
Will you be happy with your impact?
What these tests reveal is your true measures of success.
For many entrepreneurs, they’re actually hoping for change on multiple fronts.
They want to change behaviour, attitudes and funnel money towards charitable causes.
That’s good insight – it might seem like a lot to ask for, but by naming it you increase your chances of achieving your targets.
This may well change what you aim for; are we measuring the number of units/services sold, or are we measuring the change in customer behaviour?
Are we measuring profit as a percentage, or as a dollar figure that we donate?
Customers and Profit Donation
When you say “X% of profits go to…” what does your customer hear?
You might know what you mean, but do they?
Are they imagining a large amount of money?
Are they pleased that you’re not keeping profits for yourself?
If you go from donating 100% down to donating 50%, will they shop elsewhere?
Do they even care about where your money goes?
Or do they just hear “We’re not doing this for personal gain”?
Having asked over 200 social entrepreneurs, I’ve met just one who has actually scanned the “Track Your Impact” barcode on a Thank You product.
Meanwhile, at least 120 of those 200 claim that the “Track Your Impact” feature contributed to their purchase decision.
Is it the same for your business?
Do your customers have a sophisticated understanding of your impact model?
Or do they just like knowing that you’re good people?
The answer to this question can be very liberating.
It might be that as long as you’re genuine about your impact, people won’t mind that you use your profits to grow your business.
As long as you’re staying true to your intent, people who tell you that you’re “not a social enterprise” can get lost.