3 Common Mistakes Social Impact Founders Make

By Lauren Usher

Social entrepreneurship is popping up everywhere, with tech startups and corporations alike launching impact initiatives and more and more accelerators focusing on social impact-driven innovations.

According to gener8tor’s 2021 Social Impact Investor Report, more than 60 percent of early-stage entrepreneurs in the U.S. cite a desire to make a positive impact as a reason for starting a business.

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But what qualifies a startup as “social impact?” While social impact has long been synonymous with nonprofits, for-profit companies have grown into the space, showcasing mission-driven approaches supported by revenue models.

Luckily for founders—and everyday people who benefit from impact-driven solutions—social impact has $286 billion in assets under management as of 2020. And this number is expected to rise, as consumers are interested in spending dollars on companies making a positive impact.

Lolita Taub, co-founder and general partner at The Community Fund and keynote speaker for gener8tor’s recent OnRamp Impact conference, stated, “Doing social impact is a very huge benefit to our society, on the human side as well as on the business side.”

Social impact startups provide financial returns in addition to working to solve a social or environmental problem. This is often referred to as the double bottom line (financial performance and social impact) or even triple bottom line (people, planet, profit).

As founders navigate the day to day of maintaining a business, it can be easy to lose sight of the intentionality that sets a social impact startup apart from a traditional business. Between sales calls, budgeting and fundraising, and hiring and managing staff, impact founders must also carefully collect data to track impact. Balancing the two sides of a social impact startup can be daunting to first-time or early-stage founders.

To avoid some of these pitfalls and set companies up for success, here are three areas impact founders should focus on:

1) Social impact startup founders must balance the financial and impact sides of the company.

Craig Jonas, founder and CEO of impact investing company CoPeace, said during the same OnRamp Impact conference that it is crucial for social impact startups to demonstrate real impact and show a sustainable path for growth and revenue. For social impact founders, the financial side is just as important as the impact side. Founders who focus on finances at the detriment of impact can lose sight of the world-changing possibilities  their company creates. Founders who focus solely on social impact at the expense of business growth risk running their business into the ground, losing investor interest and greater impact down the line.

2) Impact founders should be intentional about impact monitoring and measurement.

It is of utmost importance for founders to identify their area of impact, metrics to measure impact, and the amount of change expected to be made in a given timeline.

Founders may see their company’s impact as obvious, but without a plan for impact measurement, there is a risk that impact investors will turn to other founders who can showcase measurable results.

Without measurement, founders also risk inadvertently creating a negative impact.

Two of the most commonly used impact measurement frameworks are the United Nations’ Sustainable Development Goals (SDGs) and the Global Impact Investment Network’s IRIS+. These approaches help founders think through the aspects of the impact area they aim to change (and which are outside their scope), and how to measure change.

3) Impact founders must be strategic in identifying their sources of funding.

When they are ready for investment, some social impact founders search far and wide to find the ideal investor who “gets it.” While it is true that founders must identify investors aligned with their vision, communicating the vision clearly is crucial for getting investors to understand the startup.

Remember that investors are not philanthropists; they are looking for investments that will generate a return, often to the tune of 10x returns. Looking in the wrong place can slow this process down, too.

For example, an edtech investor may identify a narrow vertical of interest, like elementary-level math skills.

Founders should review investors’ portfolios online, and have a conversation with willing investors to understand what milestones investors are hoping founders achieve before and after investment.

Finally, impact founders should not rule out traditional, nonimpact-focused investors.

Building a successful social impact startup is a commendable and challenging endeavor. Impact founders have observed seemingly intractable problems and found pathways to creating momentous change. It’s important to remember, though, that the mission-driven company is still a business, meaning founders need measurable outcomes and financial returns.

Founders who couple their passion for impact with a strong business foundation will have the best chances for success. Plus, they will play a part in helping other founders build a more sustainable roadmap for success.

Lauren Usher is gBETA Managing Director at gener8tor, a startup accelerator and venture capital firm. The gBETA program supports more than 200 startups each year across 28 cities. Overseeing the organization’s social impact accelerators, Usher helps founders address inequities in education, criminal justice reform and other important areas of impact.

Illustration: Li-Anne Dias