BUILDING A PRODUCT
Embedding impact into the business model starts at the very beginning of the venture journey in choosing a problem and building a product that solves that problem. Funding wise, this stage typically corresponds to angel, pre-seed or seed funding.
This first phase is particularly impact-focused and includes:
- Founding team impact ambition
- Understanding the social or environmental problem
- Articulating an impact thesis
- Iterating for impact
1. FOUNDING TEAM WITH IMPACT AMBITION
What is it and how does it align with traditional venture building?
A critical step in getting a venture off the ground is building the founding team and the one or two fundamental early hires. This is about incorporating a desire to create impact as an input into those decisions.
How does it drive impact?
Talent is a key determinant of what a startup will achieve, the same is true for impact outcomes. Building a founding team with people who have impact-related values (empathy, integrity, etc.); are passionate about the targeted impact and bring important technical skills to solving the problem, will enhance the company’s impact.
How does it drive commercial value?
As more talent seeks purposeful careers, selecting for impact is a way to broaden the talent pool and secure top-tier talent. Being explicit in sourcing for impact also helps to ensure vision alignment, avoiding friction down the line.
2. UNDERSTANDING THE IMPACT PROBLEM
What is it and how does it align with traditional venture building?
Traditionally, founders choose problems based on criteria including potential market, willingness to pay, and competition. Taking an impact lens means adding ‘potential impact to be created’ to the list of criteria, bringing issues like mental health and carbon emissions to the top of the list. In other words, it is about estimating the market for impact (i.e. how much impact can be realised).
After choosing a problem with impact potential, the next step is to understand the social and environmental outcomes of the problem and why they occur in a detailed and evidence-based way. Motivation for launching the business should partially be to improve the outcomes identified in this analysis. See Ophellos’ launch blog as an example.
How does it drive impact?
As with solving any problem, to achieve the desired outcome, it’s important to understand the drivers of the problem and why they occur. Detailed impact analysis is necessary to create impact.
How does it drive commercial value?
A desire to solve for impact can unlock unique opportunities. The salary finance innovation is a good example of this. The default model in the provision of credit to low-income earners was to extend an approach that worked for higher-income earners further down the pyramid. In other words, set interest rates at a level to offset defaults and maintain margins. However, in this particularly vulnerable group, that meant extortionate rates to balance the higher default rates. Motivated by potential impact, pioneers of the salary finance model realised that there was another way to de-risk the provision of finance: earned but unpaid wages. Taking this less risky approach greatly reduced the cost to serve (as losses were reduced), generating favourable economics which made it possible to profitably serve a new slice of the pie.
3. ARTICULATING AN IMPACT THESIS
What is it and how does it align with traditional venture building?
Many startups articulate a vision, mission and roadmap to achieving those. An impact thesis articulates what the social or environmental problem is that’s being targeted, what the solution might be and the potential outcomes of addressing the problem. It outlines a set of assumptions to be tested which if they hold true would create impact (e.g. Oyster’s impact thesis). Impact theses will likely be iterated several times over a startups journey (much like commercial assumptions).
How does it drive impact?
Having a clear articulation about how you think impact will occur makes it easier to identify which assumptions need to be tested. It also makes it easier to generate learning and iterate the model over time if impact outcomes are not being achieved.
How does it drive commercial value?
Being clear about what impact the company is trying to achieve helps to align stakeholders with the company’s purpose. Key stakeholder groups with clear commercial value include top-tier talent that is seeking more meaningful work; investors that are looking for mission-aligned business models to invest in; and regulators keen to ensure that future companies do not cause harm.
4. ITERATING FOR IMPACT
What is it and how does it align with traditional venture building?
Ideating and experimenting are a fundamental part of the venture building process and so this step is about layering in impact. Following an articulation of the core assumptions behind creating impact, the next step is to brainstorm ways to address pain points and test these for their potential to achieve the desired outcomes.
The team should be able to measure impact-related outcome changes in some way, going beyond traditional venture metrics like NPS (e.g. health outcomes improved). Establishing who is benefiting from these outcomes is also key to ensuring equal access.
How does it drive impact?
Without ideating for impact, it is unlikely that the final product will create impact in a meaningful way. Experimenting for impact helps to refine those ideas by identifying the optimal way for impact to be delivered.
How does it drive commercial value?
Ideating and experimenting for impact will often generate unique ideas, underpinned by a more thorough understanding of the problem and customer needs. This can lead to reaching new customer groups, building better products, or innovative models which may be favourable from an economic perspective. Read more of how Ophellos’ mission is driving product design decisions.
We believe the best entrepreneurs will scale their companies in ways that are respectful to the planet and societies that they operate in.
