What’s the best way to raise money for a social impact business? The first rule is to not call yourself a social impact business. It seems counterintuitive, especially since one of the key elements of running a social enterprise is the idealism behind it.
One of the major pitfalls of running a social enterprise is that once you give yourself that label, investors become concerned you’re not profit-focused. They worry you are ostensibly running a charity instead.
While I definitely want to create social impact, I don’t want to be labeled as a “social impact” business. So how do you work around that if you want to both do good and make money?
Here’s what I learned:
Get internally aligned on your goal for social impact.
Externally, be very clear with investors that your goal is to make money and generate profit–AKA returns on their investment.
Ultimately, put a solid business model in place, then hire the right people who care about your mission to make it work.
Let’s break this down a little, using the company I founded, Self Lender, as an example.
The Benefits of a Clear Mission
As a fintech startup with banking partners involved, it’s obviously important that we make money to make it work and to keep our partners happy. However, we also have a solid mission for our employees to rally behind, which helps differentiate us from other potential employers.
This is especially important in a tech industry as competitive as the one in Austin, Texas. Having a clear mission gives us a reason to feel inspired and excited to come into work every day, as well as actually helping the thousands of customers we serve.
With every hire we make, we onboard with the idea that we’re here to make money, but unlike some other companies, we can do it in a responsible way. This mentality has led to both better employee retention and better company culture, because we have a group of passionate individuals dedicated to making our mission succeed. Our employees understand the unique opportunity they have here to do good and make positive change.
Finding the Balance Between Mission and Profit
In order to keep making those positive changes however, it requires your business to be successful. Sometimes, staying true to your goal of success–both socially and fiscally–means taking the long term view and not just going for the quick business wins. This is where having a clear mission can help eliminate distractions that could pull your business off course.
For example, we hit a crossroads once where we had an important decision to make. If we chose one path, we could potentially have made more money in the short term, but it would’ve been at the expense of our customers, employees, and mission. While, as a startup, making money quickly was tempting for a minute, we realized that choosing the short term view would actually hurt us in the long run.
“Finding the balance between social purpose and commercial viability is not an uncommon situation for social entrepreneurs to find themselves in. According to figures from UnLtd, a foundation for social entrepreneurs, 71% still struggle to make a living from a social venture. The same proportion struggle to find sustainable revenue streams and 60% find it difficult to access the right kind of finance,” the Guardian reports.
This, despite the fact that 73% of consumers are more likely to buy from brands that put purpose before profit.
So What’s the Solution?
With the abundance of free-flowing capital investors want to put to work right now, it’s fairly easy for social entrepreneurs to take an idea and bring it to market. The problem is, people have short memories. We’ve been a massive bull market for years, but there are going to be periods of declining growth that result in recessions. As credit and investor dollars tighten up, you have to build a sustainable business to maintain yourself through the down times, as well as to ride the investing “highs.”
When those downturns inevitably hit, that’s where having social good as your primary focus can have negative impact. The way businesses should conduct social impact is through building big, responsible businesses that generate profit and have high quality products that actually work and help their consumers. That way, your customers stay happy, your investors stay happy, and you’ll be around for a long time to keep fighting the good fight.