The foundational playbook for Founders to create the next
sustainable impact-focused regenerative business
Why Impact Startups Fail (and How to Avoid This Fate)
A Look to the Future
Know You Can and Will Succeed
Create Your Foundation
It’s About Who You Serve, Not You
Validate and Prototype
Check for Alignment
Build and Launch
Activate Demand and Retain Customers
Attracting Investors and Investment
Create Your Movement
Build Your Team
Report on Your Impact
Push the Industry Forward
We applaud your decision to launch an impact-focused startup. The world needs more founders like you.
Unfortunately, despite good intentions and valiant efforts, most impact startups fail. This is a sad state of affairs, given that most regenerative and impact startups are committed to making their world a better place. Like it or not, that’s the unfortunate truth: Impact entrepreneurship is just plain hard. This guide is based on the collective outcomes of hundreds of startups and aims to make your journey to sustainable impact and change easier and attainable.
Your aim is to do the world some good. How can this possibly fail? Doing good seems like a premise everyone can get behind. Setting out to help the world gives us warm fuzzy feelings, but your good intentions won’t necessarily lead to a healthy, self-sustaining business. According to CB Insights, the top two reasons why startups fail are related:
Succeeding as a regenerative, impact startup requires a balance between doing good while creating a market-driven growth engine that can be self-sustaining. Time and again, we see company founders who believe they have the perfect idea for impact and are ‘guaranteed to succeed.’ Sooner or later, however, they realize that their bias has clouded their vision, greatly reducing their chance of success before their company gets significant traction.
As you read the Ultimate Guide to Go from Idea to Leading the Movement, know that the process is not linear and cannot be achieved by following a checklist. Your potential target market will be the primary factor to determine your pace of progress. There is no prescribed timeframe for moving through the process. It could take weeks or months, and in some cases, years. Progress does not follow a calendar, rather measured by validating learnings and achieving milestones.
This guide is intended for Impact entrepreneurs who want to maximize their impact and success. It’s for those who are ready to create lasting impact by transforming our world. The world is crying out for successful, passionate, impact-minded people. This guide offers a proven process to create a sustainable impact startup. It’s not done by following a ‘fill-in-the-blanks’ template; It is a foundational framework of proven principles, processes, tools, and mindsets that need to be embedded into your startup (and yourself!) from day one.
The world is facing multiple, concurrent, unprecedented challenges: Climate change, extreme weather events and the resulting human rights crisis for those caught in unliveable conditions and violence, biodiversity loss, poverty, and the declining trust in democratic institutions.
A nascent vision for Better is taking shape: the regenerative economy. Several startups have already established themselves in this space by creating wide-scale, highly effective impact. These startups are helping to break poverty cycles, revitalize drought-stricken lands, and reverse the effects of carbon missions – just to name a few. The goals of like-minded visionaries are coalescing around these new norms, with new expectations for a brighter, inclusive future. A thriving ecosystem is emerging in this “regenerative” space, creating several important benefits:
As part of this growing movement, our mission is to create nurturing, collaborative partnerships that empower the fulfillment of missions that contribute to a better world. We want to give founders like you the best possible opportunity to join the likes of The Plastic Bank, Just Digg It, Sea Trees, and Sacred Seaplants in this new economic ecosystem that does well by doing good – new members are always welcome!
Blog: Regenerative Economy: Overview ➔
Report: Top 12 reasons Why Startups Fail ➔more
Those were the words of Shaun Frankson and David Katz, co-founders of The Plastic Bank, as expressed to Cognition Foundry as they were set to be prominently featured in IBM’s flagship multi-national marketing and media campaign.
Plastic Bank had come a long way from a four-person startup to a successful business in a relatively short time when Cognition Foundry helped The Plastic Bank catch the eye of IBM. The regenerative startup wanted to embed inclusive economics to bring one billion people together from around the world to eradicate poverty and eliminate the flow of ocean-bound plastic. They had Big and Bold ideas. Remarkably, they accomplished their initial goal this inside environments known for corruption and low levels of trust.
The Plastic Bank’s innovation is the development of a plastic recycling marketplace, wherein corporations and citizens (without government intervention) come together and divert ocean-bound plastic. A citizen can start their own business within this new ecosystem and earn revenues without concern about having their funds stolen by local bad actors, thus helping break the cycles of poverty in countries like Haiti, the Philippines, and Indonesia. “Social Plastic” and a path to hope has been born.
Despite the early success, Plastic Bank didn’t get it right on the first try. Nor the second. When we first met with them, they were not the technology company they are today. It was challenging in the beginning. and it was not until Plastic Bank became clear who was a Customer and Beneficiary that did they began to see the kind of growth that led to a sustainable, thriving, impact-driven business.
As of December 2022, the impact has been substantial:
Blog: Dive deeper into the Plastic Bank enablement journey ➔
Maybe you’re reading this guide because you have an idea that you believe will change the world and you need help getting started. Or maybe you have a deep desire to be a positive force for change in the world but aren’t sure how to harness your passions. The world needs you to fulfill your destiny. The world needs your amazing ideas, talents, and contributions. Cognition Foundry exists to help bring transformative ideas to life.
The key to changing the world through an impact business is first knowing yourself. It begins with discovering and embracing your Core Purpose.
Your “Why” is important. This is your personal story as to Why you’re the driving force inside your Impact startup. What motivates you? What gets you excited? For you (and your business) to succeed in the face of obstacles, you need an emotional, visceral connection. In a very real sense, your dreams are the driving force that transcend your products, market, even your “impact.”
Articulating a strong “Why” is vital to attracting the right employees, customers, and investors to join you on the journey. It instills the right components for a vibrant culture destined to lead the movement. When your Core Purpose and Impact are aligned, the real magic happens:
Starting an impact business is scary for many, but it does not have to be.
Much like progressing your idea, you too will change and evolve into the leader and face of the movement. This is a learning process for you. Your initial efforts may fail, but you don’t have to be perfect to start – like everything else, Entrepreneurship is a journey and a process – all you need now is commitment, a strong “why,” and a mind open to learning. Be confident that oyu can #Become that leader.
Video: David Katz and the Journey of #Become ➔
Video: Simon Sinek, The Power of Why ➔
Blog: Patient Capital ➔
Book: Firms of Endearment ➔
Despite what is portrayed in the movies and other media, the overnight success story is extremely rare. Mastery doesn’t come from a single attempt. Success is a process. Without discipline, the process almost always leads to failure.
Establishing the right foundation is vital for one important reason: Startups fail. If your impact startup fails, the impact will be felt beyond the walls of your startup – and that is not the result that anyone wants.
Eric Ries in The Lean Startup makes the point that “a startup exists not just to make stuff, make money or even serve customers. They exist to learn how to build a sustainable business”. This is the desired outcome of all the Founders with whom we interact: to transform their community through sustainable impact because that is how lasting change takes hold. Impact entrepreneurship is hard already, don’t add to the challenge with a scattershot approach.
Successful impact startups use a proven framework to find product market fit then scale impact for a better world. These components do not follow a set checklist, rather they form a disciplined process, anchored in strong strategic principles:
Strategic Process: Double Diamond
The tenets of the Double Diamond model are anchored in Product Development and are applicable to building out your startup. Consisting of two main stages, the model seeks to ensure that you Build the Right Product/Service/Offering before spending significant time and money developing the product (and Build it Right).
Remember, startups exist to learn how to build sustainable impact. This is a long-haul journey. You’ll need to conserve resources during your early days in order to drive development. This is accomplished through a process called “validated learning.” As assumptions are tested and validated (or invalidated), the components of the product will be revealed and enable you to Build your Product/Service/Offering Right.
As previously mentioned, this process is not linear. You may find you need to go back and revisit items, change assumptions, or change your strategy. This must be expected. Some of your early assumptions will fail or found not to be true. Founders are often surprised when this happens.
This is the crux of the first diamond: Build the Right Thing. Obsessing over the problem means empathizing with your customers and beneficiaries, deeply understanding them and making sure you deliver real value.
Too often, founders think they have a billion-dollar idea that is guaranteed to work and be a success. They focus on quickly building the solution, only to discover that they built something nobody wants, pay for or trusts. Successful founders know that it does not matter if you feel it is a great idea, the groups that matter are Customer(s) and Beneficiaries.
Using the double diamond as a framework for success, the common thread of successful impact startups is that all of them incorporate the following into their operational DNA:
Startups are messy. You are venturing into unchartered territory. Much of the work will be new. Every day there is new learning. Processes feel like they are developed in real time. It’s often far too early to think about optimization. Progression is measured by milestones or goal achievement. If you fail to progress, you’ll need to pivot and revisit stages again. This may feel like starting over from scratch, but validated learning preserves your resources so that you can succeed in the end. This is the foundation of a successful impact startup.
Book: Inspired ➔
Book: Lean Startup ➔
Book: Sprint: How to Solve Big Problems and Test New Ideas in Just Five Days ➔
Download: Complete the Impact Business Lean Canvas ➔
Idea Review: Get your idea assessed by one of our senior advisors, for no-charge ➔
One of the key tenets of a successful startup is to Obsess Over the Problem – not your Solution.
The primary reason for this obsession is that by doing so, you find the basis for your impact startup:
a) You’ll have identified a problem worth fixing or something that someone wants and,
b) Someone is willing to pay for it.
Without these two components, there is no sustainable startup – just an idea that will struggle. The two components form the basis of your business: The Value Exchange.
To create lasting impact, we believe market-driven impact innovation should be the primary model, as this is foundational to building a business, not a program. The difference lies in the primary source of income:
|Market-Driven Income||Dependency Income|
Obsessing over the problem (or pain or aspirations) means empathizing with your customer and beneficiary, deeply understanding them and making sure you deliver them what they value because that is what is important to them. Value and price are not the same thing. Price is what you want to sell it for, value is what the customer perceives the item is worth. So, Value is determined by the Customer. Being laser focused on creating value ensures you’ll make impact in areas that the community and market wants.
Finding impact innovation that aligns to you is a process. You may find success on your first attempt. A more realistic expectation is to know that despite your best intentions your original idea may not gain traction. Using the right process enables you to modify your idea over time, providing the best chance for success. The models, frameworks, and tools used in the process are rooted in design thinking. After completing specific early steps, you’ll need to assess for impact and market traction (i.e., is it working?). If traction does not occur, you’ll have to repeat the earlier steps to find the answer. This may take several attempts.
The first stage is Discovery. You need to build empathy for your target customer. The best method to gain that insight is to engage with them or observe them in action. By doing so, you’ll understand:
The deeper you understand your customer, the better chance you to gaining traction. You’ll use tools like Customer Journey Mapping to help identify the Jobs to be Done, Pain Points and the areas of perceived value for your target customer.
After gathering insights and data on your customer, the second step is to Define. Take your learnings and understandings and build a proposed solution that can help them achieve their aspirations or eliminate their problems and fears. This will be in the form of making it easier to ‘get things done’ or resolve their pains and frustrations. You know you’re on the right path when just about everyone wants to be your customer.
A quick note on how this process relates to Impact Startups. Impact Startups often have a unique aspect to their business – the people who receive the benefits of the impact are often not paying customers. For example, social network businesses have users, people who get benefit from using the platform for free (Facebook, LinkedIN are two examples). The customers are the Advertisers – the ones paying for access and catching the users’ attention. During these two initial stages, you’ll need to be clear Who is in these two groups: Customers and Beneficiaries. These may be two different groups you need to serve. Remember, if you don’t have a customer, then you don’t have a market-driven impact startup (and will need to rely on grants and donations to succeed).
This often stalls or trips up founders and startups. The desire to help the world hits a roadblock due to lack of revenue. We’ve seen this before and we’re able to help. The Plastic Bank had to solve this issue – read more of their story here. You can learn more about the difference between Customers and Beneficiaries by accessing the Lean Canvas toolkit.
These first two phases will help you define your first assumption:
Do I have a Problem+Solution Fit? The next phase in the Design Thinking process will help bring the solution to life. It will help potential customers visualize and interact or engage with your solution. It will also help you further validate your business model to determine if you are actually on the right path towards creating sustainable impact.
Insight:The insight that drove Plastic Bank forward ➔
Download: Impact Startup Lean Canvas. To capture your idea, initial assumptions, and value exchange. ➔
IdeaCast: Leverage the experts at Cognition Foundry for Product Strategy and Product Development efforts.
Request a free Idea Session with our Senior Advisors to see if you are a candidate. ➔
You’ve empathized with your beneficiaries and engaged with customers. You’ve run a series of co-creating workshops with your founding team. You’ve completed your initial Lean Canvas including expected revenue models, solution idea, value exchange and key stakeholders who will enable your success (just to name a few). The next phase is to validate your strategic thinking.
Validation is all about FOCUS.
Find customers with a problem
Offer to test your ideas with them
Currency test to validate your business model
Utility test to be able to validate your ability to solve their problems
Scale test to figure out how to grow
Testing and validating is as simple as engaging with Customers and Beneficiaries and determining if the expected outcomes are realized. To suppor this feedback loop, build the initial visualization of your solution – Enter Phase 3 of the core process.
Phase 3: Develop
Remember the purpose of your Impact Startup is to “learn how to build a sustainable business”. If you do this the impact will come. This is the phase that many founders get wrong because they just want to start building for the purposes of launching. What they learn too late is that while problem+solution fit appears on the surface, there are still many, many assumptions they need to validate to get to the next growth step, and that step is not simply ”launch the product” rather it’s “get to product+market fit.”
This phase is about taking your ideas – your riskiest assumptions – and ideate quickly. Your goal is to test those assumptions as fast as possible. You’re testing to ensure the output from Phase 1 is accurate: that people are truly as you’ve observed, are receptive to your idea, and that someone will pay for your solution. As you learn, update the assumptions in the Lean Canvas. This minimizes resource consumption, saving valuable resources for the more expensive phase, the initial delivery phase (phase 4). Here the agile process of Build-Measure-Learn using Small Batches is most effective.
Phase 3 is devoted to producing low fidelity ‘prototypes’ so people can visualize and engage with your idea. This allows for faster testing and completion of the Build-Measure-Learn loop. The more loops you can complete successfully, the more confidence you can have in a successful launch.
The purposes of the prototypes are to a) test your assumptions, b) gather social proof that your solution will work and c) gather user data for the initial build. As you rapidly learn and validate, you’ll be in a better position to Build Your Solution Right (the overall goal of Phases 3 and 4). This may take weeks, months, or years – the key to building the sustainable business is not output driven, rather it’s achieving the right outcomes.
Your prototype(s) can come in many forms: PowerPoint/Keynote presentation, video, pre-order offer, market survey, clickable prototype, app using a no/low code platform, mobile-friendly website, and/or Kickstarter campaign. Remember: the goal is to validate before building. This minimizes wasteful spend and lost time focusing on the wrong thing. Prototypes are used to:
The important point here is that you’re not spending your resources developing a fully-fledged product, solution or offering; rather, you are executing a series of experiments using a minimal viable approach to test your assumptions. Your goal is to achieve product+market fit (spoiler alert: this is what attracts investors to you!), not deliver a fully-developed, but unwanted product or solution to the market. This is the number two reason that startups fail!
The prototype is designed to help you understand what to build and may end up being discarded in the end. This might feel like waste, but it is not. Using quick-to-build technologies, what you’ve accomplished is a) showing the feasibility of the solution and b) providing a working draft for development. This will save resources in the long run and should be viewed as a valuable investment to achieving sustainable impact. Building for long term use or scalable use comes in Phase 4, with the prototype(s) serving as definitive inputs into the development process.
Final Note: Validation testing is to prevent you from making long-term mistakes and minimize waste. It’s not to pad the founder’s ego; – it’s easy to fall into the validation traps. Here are the most common reasons founders cut the process short:
Blog: The Value of Empathy in Product Design ➔
Blog: How to Ideate a Solution ➔
Technical Feasibility: Need to understand if your idea is technically feasible? We can help. Chat with a Senior Advisor today
You’ve got the idea. You’ve started the Discovery Process and are making some traction. Before going too far, it’s time to reflect on your Lean Canvas and confirm alignment to your core Purpose, to global impact goals, and whether you have inadvertently generated unintended consequences.
Core Purpose Alignment
One of the first validation checks we advocate is to confirm alignment to your core Purpose. You may have identified a need in the world, but if it is not aligned to your core purpose you risk losing the motivation and stamina needed to succeed.
For example, if your core purpose is people-centric, but you can’t see how the impact you’ve identified serves people in a way that aligns to your core purpose, you may lose heart. If you sense misalignment, don’t panic. Meditate (brainstorm) on your core purpose. Perhaps it isn’t exactly what you thought it was. Or ponder how you might solve a different problem that is better aligned. This is yet another reason to follow the process – it gives you space to make changes before exhausting your resources.
Aligning to Global Goals
Impact Startups drive direct results and benefits. The impact needs to be measurable, and you will need to confidently and accurately report on the impact. This sounds like common sense, but you must dig deeper. On the Lean Canvas, these are the Responsible Performance Indicators (RPIs), and there are two universally accepted global frameworks you can use to help create your RPIs:
Use these two frameworks to gain a clear understanding of the potential magnitude and the interconnectedness of your impact. This will help you make your impact bigger and sustainable.
Avoiding unintended consequences
If the Customer-Beneficiary balance wasn’t hard enough on an Impact Startup, you may face the problem of unintended consequences. Like physicians, Impact Startups have the brand responsibility to make sure they “do no harm.” Intended or not, causing harm diminishes the brand value of the Impact and can affect financial performance.
Unintended consequences often show up as:
One way to limit the risk of unintended consequences is to lean into Human Rights. According to the United Nations High Commission for Human Rights, “all business enterprises are expected to respect human rights, meaning they should avoid infringing on the human rights of others, and should address adverse human rights impacts with which they are involved.” This is really just good practice. In 1948, the General Assembly of the United Nations adopted the Universal Declaration of Human Rights. It is now widely expected that businesses do not infringe upon Human Rights. If you create an Impact Startup, consider going beyond “doing no harm” and aim higher to actively alleviate the infringement of Human Rights. For more on this concept of Human Rights and Impact Startups, look at the Right Here, Right Now Global Climate Alliance, an international initiative created to take on climate change as a human rights crisis.
Site: Project Drawdown ➔
Establishing Demand stores potential revenue. Establishing demand is your email list or your audience of followers on social media. It’s your network. Early on, this might be your truly clear metric of ‘traction’ – an audience that can become Customers or Beneficiaries.
Establishing Demand is also a form of validation. People are expressing enough interest in you to pay with their attention or time (valuable on social networks) or to make a pre-order purchase. Establishing demand shows traction to an early investor and can be the deciding factor for their investment decision. This demonstration of traction derisks the investment in the mind of the investor.
Developing an audience is building a following on social or growing an email list. You’re communicating frequently on social, offering actionable insights (i.e., value) to your following and community. Your followers start to view you as a valuable resource. They trust you. They will listen to you. You have them primed for your impact.
You’ll also be able to hone your story and personal brand, another validated learning outcome.
You’ve come this far and you’re feeling good. You have the foundation in place. Your riskiest assumptions have been tested and turned into validated learnings. You’ve found the problem/solution fit either through persevering or pivoting, have established demand and may have some early customers on board. Now it is time to build, make more impact, and scale! Right?
You can confidently focus on scaling when you know the answers to these questions:
These questions are important to your startup because they are the cornerstone of what you’ve been validating early:
Finding the answers to these questions puts you into the right place. You’ve got all the right components, and established the right recipe for success. It’s time to help transform the world for better.
Establishing Sustainable Impact comes from executing three interconnected aspects of your startup simultaneously:
Along the way, you’ll need to delegate and manage your team and capabilities. Building out your team will be one of the next set of challenges you’ll need to solve.
The purpose of Stage 1 is to “Build the Right Thing” by validating assumptions and proving potential demand or traction. The outputs and learnings serve as valuable inputs into the next stage in which the product/solution is built and is placed in front of the masses. It also should prevent you from making expensive mistakes.
A team of software engineers can easily run into six figures per month. If getting to a solid and dependable release takes three to six months, it doesn’t take a financial expert to point out the money wasted if your assumptions are incorrect. That’s why Stage 2 can be so expensive – there is plenty of risk at stake if you are wrong.
Stage 2 is all about “Build it Right”. This entails minimizing risk, minimizing wasted budget and minimizing lost time building a product nobody wants. Building it Right is a mindset that should help you avoid the top two (2) reasons why startups fail.
So, if the goal of Phase 4: Deliver is to minimize risk and waste, where do you start? Good question. There are no definitive targets, but there are some very good guidelines. If, when talking with prospective customers about your idea, they say “if you build this, I will buy it” (and better yet, sign a Memorandum of Understanding to buy), you are on the right track. If you can pass the feasibility test and the financials work, this could be a great time to start Phase 4.
Another guideline will come from your validation work. If you can confidently answer these three questions with proof, that’s another indication to start building:
The Lean Startup model provides the framework on how to approach developing your product. By now, you should know that the model promotes development with a minimal viable approach (the initial real release of a product is called the MVP: Minimal Viable Product) using a build-measure-learn cycle. The idea is to build the minimal required product or service to obtain user/customer feedback and reactions, and to determine whether you are making progress toward your goal.
If you see good progress, then continue to iterate to improve functionality, appearance, experience etc. If you are not making progress, then stop and change course. Again, do not see course changes as failures. Validated learnings strengthen your subsequent efforts by helping you to learn faster. The approach is designed to help you minimize waste. The Lean Startup approach calls this the “small batches” approach.
The start of phase 4 is really a continuation of phase 3. You will use the validated learnings from engaging with customers, the interactions with your prototype and the technical proof of concept to create a Product Requirements Document (PRD).
The PRD is used by a development team to build the product, and should initially address their key questions:
The more you share, the better the result. No detail can be too trivial. At times you will be amazed by the insights good development teams get from ‘trivial’ details. Good teams will review the PRD and may challenge your thoughts on the scope of the initial release, as they may see non-conformance or non-adherence to the ‘small batches’ approach. Treat this as a good sign, as it will keep you from violating the “minimal” in “Minimal Viable Product.”
Book: Inspired – How to create tech products customers love ➔Blog: Measurement: Innovation accounting ➔
As you’re building your product, you need to also Activate Demand (and Retain Customers by continuing to deliver value). Your first set of customers should come from those within your established demand group: your pre-order list, your followers, and the customers with whom you interacted during your initial validation process.
Activating demand requires creating a digital presence and brand. If you have not done so, launch an MVP-level website, have a presence on the appropriate social networks. Use a Brand Wheel to develop an aligned brand strategy across color(s), logos, visual style, tone and voice. The validated learnings from Stage 1, including your mission and purpose, provide a great head start developing the brand wheel.
Activating demand requires a strategy aligned to a primary growth engine. Each strategy has its own product design implications, so alignment is critical. According to the Lean Startup, growth engines include:
While more than one growth engine can operate at a time, you only need one operating effectively to become sustainable. You may need to test to find the right one.
The right growth engine may become apparent through your initial interactions with your Established Demand segment groups. If you’re experiencing mixed results, you’ll have to dig deeper into understanding your audience to fine tune or switch growth engines:
This will help you find the initial marketing and distribution channels to select/test. This is not ‘one size fits all’, so if a marketing consultant tells you to ‘be on Tik Tok’ without understanding your business, turn and run away! The potentially right channel for you could be social (Tik Tok, Facebook, Instagram, LinkedIN, etc.), or email, or inbound via search, or word of mouth, or old-fashioned cold calling. The appropriate channels is where your customers ‘live’. Different personas interact with different channels; and different are used across the stages of awareness.
Know that in the impact space, marketing may need to overcome an additional burden.
First, outsiders and critics are everywhere (especially on social media), all looking to maintain their inertia by resisting change. You’ll need to anticipate these criticisms – you can get prepared by thoroughly searching for the ‘unintended consequences’ described in the Check for Alignment section. Your brand needs to withstand criticism and remain authentic if it’s going to succeed.
Secondly, if your impact involves the uplifting of the underserved, marginalized groups, you’ll have to adjust your marketing approach. Be warned that despite your best intentions, these groups might be wary of you. They have probably been ‘burned’ by outsiders before you enter their space. In other words, you will be entering and marketing into a low-trust environment. This is not a reflection of you and your positive intentions; it is their survival tactic in response to generations of misdeeds. You goal must be to overcome their natural skepticism. You’ll need to spend your early days establishing trust (raising your beneficiaries trust levels) by listening and giving (and giving more) before you can get them onboard properly to receive the needed impact. No one said this would be easy, but it will be rewarding!
In a traditional startup, “product+market fit” is pretty straightforward. When you add the element of “beneficiary” to the ecosystem, there is a different type of work that needs to be done, albeit in a similar way. Let’s call it “impact+beneficiary fit.”
How can you know if the impact of your aspirations is aligned with the needs, desires, and hopes of the beneficiaries you seek to serve? Start by asking the right questions and then listen intently to the answers. It’s very similar to the Discovery phase to identify the Right Customer. When you ask questions like “What do you need?” and “What are your biggest challenges?” you will validate or invalidate your hypothesis about the best way to serve a person or community.
For example, you might think transportation is what is needed for rural children to access free education. When you ask families why their children aren’t getting free education, you might be surprised to learn that the challenge isn’t transportation, it’s lost wages the child would normally earn for the family during school hours. Your free transportation solution is a classic example of a “product” with no market need. Soon you will know whether you have “impact+beneficiary” fit.
Book: Brand the Change: The Branding Guide for social entrepreneurs… ➔Blog: Growth Loops are the New Funnels ➔
Scaling your impact will require funding. You may be able to secure those funds internally, using revenues generated by an existing business, utilizing debt, or accessing personal funds – all of which are forms of “bootstrapping.”
When internal sources are insufficient to fund the continuous development of your product for impact, generate demand, and ongoing operations, you’ll need to seek outside funding through investors or government programs.
Investment is all about risk and reward. The higher the risk, the higher the expected reward. At the same time, the greater the unknowns, the smaller amount an investor will risk. Investment rounds grow primarily because the startup is validating learnings and the investment can be derisked. More importantly, the startup’s leadership team is demonstrating their ability to prove problem/solution fit and may be on a path to a thriving business.
Raising money with little to show for validated learnings is seeking to obtain “Seed Money.” With little evidence of expected success, the investor is primarily investing in you, the founding team, and the investor’s belief that you can deliver the expected impact! This bears repeating: They are investing in You. Ideas are said to be a ‘dime a dozen’, so the x-factor is the ability to turn the potential into reality. Here are some primary ways of obtaining seed funding:
At every fundraising stage, be clear on the amount you are seeking and what the purpose of the investment will be used (i.e., how the funds will be deployed within your business for growth).
Regarding the ask, you don’t want to have to keep asking for money, as this is both time consuming and creates the perception in the mind of an investor that you might be inexperienced. The purpose of the seed money is to validate your learnings, so this will be a small ask. However, when you’re ready to build, your ask will be much larger. Ideally you should raise 18 to 24 months of cash to sustain you through to the next stage and/or provide the runway to revenue self-sufficiency. Experienced software engineers can run between $25,000 to $40,000 per month, so a significant portion of your ask should factor this in (note: investors know how much a good team costs, and will do swift mental calculations at your meeting). If your ask is too low, this will be a red flag, raising questions whether you’re ready and able to run a successful and sustainable business. If your ask is too high, a different red flag will arise, namely in overconfidence in the valuation.
As you validate learnings and start to gain momentum, it’s important to consider how your startup will look to investors, and how they will gauge your potential. Investors are looking to buy into a vision. Your job is to sell them that vision. Beyond fluff and hyperbole, investors seek specifics. The Noorsken Foundation has a great list for impact startups:
As you seek investment, you do need to remember that most investors will expect to make money and to seek an exit in some form in the future. In most circumstances, they are not going to be part of your journey for the long haul. Keep this in mind.
Impact-minded investors are aware of the challenges of scaling impact and tend to be more patient with their capital in terms of governance, exit, and in some circumstances, expected return. The other benefit of impact-minded investors is that they tend to be values-aligned.
You’ve delivered a successful pitch and the investor is ready to ‘write the check.’ Congratulations! This isn’t easy. For early stage startups, these are the prefered investment instruments to capture the funding:
Convertible Debt/Convertible Note
Convertible debt is a loan from an investor to a company using an instrument called a convertible note. This type of loan will have a principal amount (the amount of the investment), an interest rate, and a maturity date (when the principal and interest must be repaid). The intention is that the note converts to equity (thus, “convertible”) when the company does an equity financing round, with the investor usually paying a lower price per share compared to other investors in the equity round. Convertible debt may be called at maturity, at which time it must be repaid with earned interest, although investors are often willing to extend the maturity dates on notes. As the valuation is not determined at the time of funding, this allows for the funding to flow faster to you, at a lower cost.
Created by Y Combinator, a SAFE acts like convertible note without the interest rate, maturity, and repayment requirement. The negotiable terms of a SAFE will almost always be simply the amount, the cap, and the discount. Like the convertible note, the valuation does not need to be determined at the time of funding.
An equity round means setting a valuation for your company and per-share price, and then issuing and selling new shares of the company to investors. For early stage startups, an equity round is typically more complicated, expensive, and time consuming than a SAFE or convertible note. It is also premature, as there is limited basis for calculating the value of the company. This is also the most expensive of the three options, mainly through higher legal fees.
Download PDF: The best pitch deck I’ve ever seen (by Andy Raskin) ➔
Blog: How to value a startup during a Seed Round ➔
Blog: Steward ownership structures ➔
Blog: A primer on using SAFE financing ➔
Things are going well. Impact is being made. Lives and communities are being transformed. People are standing up and taking notice. You may have even attracted some naysayers and critics. Well-done!
By now, you’ve established that elusive product+market fit. You have a deep understanding of your customers and beneficiaries. The impact you dreamt of is happening! The team feels great, you feel great about what you’ve been able to accomplish. Now it’s time to take your impact to the next level.
Be warned. Making the transition to global impact still requires skilled management and precision. Advancing forward requires keeping your eye on the long-term goal. You’re also going to evolve and transform inside. The actions that got you to this point may not be the same ones that take you forward. Acceleration requires optimization of processes and resources. You avoided failure #2 – no market need – but you still face the dreaded “running out of cash” possibility. If revenue self-sufficiency has not been established, this will be the next big hurdle – the transition and transformation you need to undertake.
The biggest takeaway here is that what got you to this point may not get you to the next level. There will be activities you’ll need to continue and aspects that you’ll need to start. Here is a small list:
Continue or Maintain
Start Doing (if not already in place)
Master these activities and you’ll be well on your way of transforming the industry and leading the next impact movement.
Many people join a startup because of the fluidity and freedom; startups are seen as not being too process-rigid or bureaucratic like large corporations. However, startups without good discipline, effective processes, long-term visions, and achievable goals tend to go out of business before reaching their potential.
All successful startups know that good process is vital. Getting here required you to be disciplined on your Product Strategy to problem+solution fit before investing the resources to build your product using the small batches and Build-Measure-Learn framework. Your next step is to extend these disciplines across the organization. Having a solid development process will make this leap easier to achieve.
Advancing forward requires a strong team alongside the founding team. No one succeeded by going it alone, and now is not the time to believe that you will be the only exception. Attracting and retaining the right team should be one of your top priorities. While your founding team may have gotten the startup to this point through sheer determination, advancing will require growing the team — and delegating.
This requires solid leadership and management. Maintaining a strong culture with shared values will help retain performers and new talent (as well as make it easier to move on from under-performers). Strong onboarding plans and a strong culture will ensure new and existing team members can be successful.
Download PDF: Talent Playbook by Village Capital ➔
Book: StrengthFinders ➔
Maintaining your momentum and expanding the scope of your impact will require a critical piece of information: Proof.
The Annual Edelman Trust barometer continues to show the overall decline in the trust people have with brands and organizations. Impact startups tend to excel in these areas and be the bright spot within these studies. Impact startups tend to have a different view of the world and their place within it, they are more active in dealing with unintended consequences within their operations, as they are sensitive to the harmful perceptions these consequences can have on their brand.
When you start to make claims of your impact, be ready to be challenged. You must provide proof. This is where technology can help build trust through transparency. Tools like monitoring devices, APIs to data sources, satellite imagery, social platforms, and the like raise standards of transparency to levels that were previously either impossible or unaffordable. Knowing which technology to employ to achieve the optimal level of transparency can be challenging. If you are not a technical expert yourself, you would be well served to seek the counsel of someone who is.
Download PDF: Edelman Trust Barometer ➔
When your industry changes as a result of your outcomes and impact, or when government policies change because of your actions, you’re in a position to transform entire industries and leading the movement.
When others take notice of you, your actions and outcomes are changing the perspective of what is possible. It’s no longer theory or potential, but real results. You’ve overcome the naysayers, showing the world what is truly possible. Actions have overcome rhetoric.
Being successful enables you to change the conversation. A prime example of this is Newlight Technologies, and how they are changing the narrative on consumption while raising the bar on transparency. Mark Herrema, Founder and CEO, and his team developed transformative, regenerative technology that harnesses nature’s power to convert greenhouse gases into goods. Their products include an alternative to plastic that shares the same utility with none of the toxins that accompany fossil-fuel-based plastics. All of their products are biocompatible, biodegradable, recyclable and carbon-negative. Without asking anyone to change their habits, they are providing a pathway for consumption to become a service to the planet. This alone is a revolutionary concept, but Mark wanted to take it a step further.
Knowing his claims would be challenged, Mark wanted a way to allow any critic (or advocate) to validate his claims. Importantly, he also wanted to show consumers a new standard for validating claims. When a product makes a claim on the label, will the consumer trust it? Mark’s answer was to create an immutable record of the entire manufacturing process, from sourcing the greenhouse gases (methane or CO2), through extrusion, assembly, and carbon credit certification. He turned to Cognition Foundry to create the world’s first Hyperledger Blockchain Manufacturing-Provenance-As-A-Service solution. Now Newlight’s customers can search for in a unique product identifier (down to the item level), and see that particular product’s entire lifecycle via a web browser. Mark hopes this unprecedented level of transparency will become the norm for any brand making claims of sustainability, regeneration, and fair trade.
As you experience success, attracting a significant number of customers will force the industry to follow your lead and adapt. Your success will also provide the blueprint for other like-minded founders to be successful within your ecosystem – thereby extending the reach of your impact business and helping other founders do the same. Some of these new founders will come from within your own impact enterprise. The cycle can continue and the opportunity for a better world can be strengthened.
The world needs you to become a successful impact founder. This guide provides the roadmap to take your impact idea and create the next transformative component of the regenerative economy.
At every stage, this guide provides opportunities to apply what you’ve learned. If you get stuck or could use some additional advice, please request an Idea Assessment Session with one of our senior advisors.