The New Frontiers of Impact Entrepreneurship
Article by Rebecca Mills and Alina Siegfried
For the longest time, there was a separation between doing business and doing good.
The natural path of progression for those who wanted to do good in the world, was to either amass a fortune through traditional business and then become a philanthropist, or to live a humble life, working hard for a dedicated yet resource-constrained not-for-profit, hoping to secure enough funding to provide a helping hand to people or the environment.
The world is a very different place from the one it was a generation ago - even ten years ago - and the nature of business is rapidly changing. Global online connectivity has removed geographical barriers to markets and thrown open the doors to knowledge. As this age of information and opportunity coincides with the converging crises of climate change, global health epidemics, income inequality, species extinction and resource depletion, re-thinking the nature of business is both a responsibility and source for competitive advantage.
Kiwi Connect recently hosted a discussion around the rapidly emerging new paradigm of Impact Entrepreneurship, at our New Frontiers gathering. Impact Entrepreneurs seek to make a positive impact for people and the planet while making a profit.
On a fundamental level, the problems the world is facing stem from the systems within which we operate our societies, our economies and our relationships with the natural world. These systems were created by previous generations operating in different contexts and conditions, and for today’s world, they are essentially flawed operating models that are no longer appropriate. Drawing on the definition of impact to mean "influence" and "significance" impact entrepreneurship seeks to change the very nature of business to be a driving force in bridging communities, solving complex challenges and creating a more sustainable and equitable world.
This new paradigm of business shares many basic foundations with the concept of social entrepreneurship. Yet, unlike much of social entrepreneurship, impact entrepreneurship does not seek to make impact-driven enterprise a sub-category of entrepreneurship. Rather, it places mission at the centre of all entrepreneurship. Impact enterprises may take the form of social enterprises, for-benefit corporations, certified B-corporations and regular C corporations. The key is for every entrepreneur to ask actively themselves, How is my work having a positive impact on the world? And if not, what can I change to ensure I am making a positive impact?
The Schwab Foundation has recently identified the following characteristics of mission-driven entrepreneurship:
- Achieves large scale, systemic and sustainable social change through a new invention, a different approach, a more rigorous application of known technologies or strategies, or a combination of these.
- Focuses first and foremost on the social and/or ecological value creation and tries to optimise the financial value creation.
- Innovates by finding a new product, a new service, or a new approach to a social problem.
- Continuously refines and adapts the approach in response to feedback
Just as we have seen a recognition over the past decade that great customer service and user-friendly design are essential for businesses to do well, embedding impact into your business model is a must-have for the future. Businesses that don’t make the transition risk being left behind.
At New Frontiers, Matthew Monahan suggested that today we have an opportunity to reclaim the sovereignty and sacred nature of entrepreneurship, and redefine the role that it plays in our society. A model that can be applied to existing businesses, it’s not necessarily about knowing where you are going, but trusting that you can achieve great things with great intention.
Impact Entrepreneurship Is Big Business
There is no question that mission-driven business can create fiscal wealth. In the United States, an estimated 3.5% of GDP is attributed to the sector. A 2010 report by JP Morgan and the Rockefeller Foundation signals that the value of global impact investment could reach US$1 trillion by 2020.
Multiple sources are indicating that the number of people seeking meaningful work is rising:
- In January, The Guardian reported that in a recent study, 44% of Britons ranked meaningful work that benefits the world, as a higher priority than a high salary when seeking a new job, and 36% said they would work harder if their employer benefited society.
- Another survey from Deloitte around the same time found that 47% of millennials say that the “purpose of business is to ‘improve society/protect the environment' " - up 30 percent over the last two years.
- And it's not just your typical 'do-gooders' - a 2014 study by Net Impact indicated that when polled, 83% of MBA students said they would take a 15% pay cut "to have a job that seeks to make a social or environmental difference in the word.”
Given their wider benefits to society (environmental, social and economic), there is an active movement to establish legal forms and structures which provide incentives and a supportive environment for impact entrepreneurs and the ventures they create. For example, not satisfied with being classified as a standard “for-profit” business, nor being a “not-for-profit” organisation, many impact-driven companies in the United States are registering under the legal status of “for-benefit”.
To date, over 1,200 companies spanning 38 countries have gained B Corporation status, a stringent certification system administered by the not-for-profit B Lab. This accreditation requires enterprises to meet standards of social and environmental performance, accountability, and transparency. Patagonia, Ben & Jerry’s and the New Resource Bank are among the better known companies who have gained B Corporation accreditation. Etsy, an online platform for buying and selling hand-crafted goods, recently filed an IPO for $100 million, one of the first certified B Corporations to go public.
This isn't a small category on the fringes - this is the future and the next order of evolution in business, with leading global entrepreneurs championing a new paradigm:
Elon Musk: Launched electric car manufacturer Tesla, disrupting the automotive industry. Acknowledging that Tesla alone cannot save the planet from heavy emission vehicles, Musk is making public all of their patents for the advancement of the industry. The enemy is the carbon crisis, not rival car manufacturers.
Mark Zuckerberg: Best known as the face of the Facebook empire, Zuckerberg is dedicating his time and resources into leading Internet.org: An organisation that is working with developers, mobile operators, device manufacturers and local entrepreneurs to bring the internet to the two-thirds of the planet that are not yet connected.
Sir Richard Branson: Has become a prolific ambassador for what he calls “business as a force for good.” Whether this is leveraging entrepreneurial tenacity to tackle problems that governments have failed to solve, or by launching The B Team, a not-for-profit that encourages businesses to be of “social, environmental and economic benefit”, Branson is dedicated to transforming the face of business.
We believe that New Zealand has a unique opportunity to be an entrepreneurial hub, to breed and attract the world’s best impact entrepreneurs who can create strong economic benefit for the nation, as well as developing solutions that create lasting value for our land and people. As the situation stands today, the Enspiral network and Social Enterprise Auckland are helping to promote business-for-good models and connect impact entrepreneurs with each other. New Zealand's business incubators and economic development agencies are also looking at how to maximise opportunities through an impact lens. With a boost in government support last year, the Ākina Foundation is supporting early-stage impact ventures, with 11 teams having just emerged from their six-month Launchpad accelerator. (Read our review of the pitch event here.)
While mission-driven businesses are growing in New Zealand, we have a lot of catching up to do. In 2013, MJ Kaplan, Adjunct Professor of Public Policy at Brown University spent time in New Zealand on an Ian Axford Fellowship studying our social enterprise sector. Her report noted that the sector is young in comparison to the US and the UK, and concluded by setting out a series of proposed steps that the New Zealand Government could take to better support the sector.
Despite good intentions of the nature of business to drive economic growth, unintended consequences have brought us to a place where the system is not working. In order to rethink the nature and purpose of entrepreneurship, we need to examine what it is we value in modern society, and how we measure that value.
Creating And Measuring What We Value
Traditionally, we have measured the success of enterprise in its ability to make money.
At New Frontiers there was much agreement among participants upon the definition that “entrepreneurship is to produce more value than you consume". This becomes particularly potent in impact entrepreneurship when we ask ourselves, What is value?
In his presentation, serial entrepreneur Eben Pagan challenged the audience to never stop asking this question, as the answers are perpetually changing. Assigning value is a process that human beings go through time and again. And as the world rapidly changes, so do our ideas of what we value.
While traditionally the social and environmental value of business has gone unmeasured, good progress is being made in developing methods to quantify this value.
There is no question that there are many high quality ideas in New Zealand, yet it seems the landscape is limited by a lack of capital and experienced mentors. Scott Nolan, of Silicon-Valley based Founders Fund, visited New Zealand back in December along with Sam Altman, President of Y Combinator - arguably the world’s most prestigious startup accelerator. At that time, they attributed the success of Silicon Valley in part to its interconnected nature. Just as a tree survives best within a whole forest ecosystem, entrepreneurs survive best in an ecosystem that includes all the necessary elements - other entrepreneurs, mentors, government support, venture capital investment and enthusiastic paying customers. Rather than focusing on the single economic benefit of one company, New Zealand needs to nurture a thriving, interconnected environment. If we can do that, Scott and Sam consider that New Zealand has a good chance of emulating the success of Silicon Valley.
Research indicates that there is economic gain in ensuring your business has a positive impact. A recent study from Nielsen indicates that 50% of global consumers are willing to pay more for goods and services from companies that have implemented programmes to give back to society.
While one of the core tenets of entrepreneurship and business is to operate at a profit, some challenging notions were put forth at New Frontiers about what level of growth is appropriate for today’s world. Joshua Vial, founder of Enspiral, questioned whether the "growth-at-all-costs" model was outdated. He put forth the notion of capped returns on investment - a situation where the investor and entrepreneur agree on what would be a reasonable return from the venture, and everything surplus is poured back into the social or environmental mission.
It’s an idea with merit if we are serious about investing in wide-spread change. Of course, as pointed out by veteran entrepreneur and investor Dave Moskovitz, we are up against a well-oiled machine in the form of business-as-usual capitalism. The notion was a great entry point to a discussion around working with investors to create leverage points, and bridging capital into new forms of impact entrepreneurship.
We are living in a time of accelerated change, and none so obvious as the rapid degradation of our natural environment and level of biodiversity. These changes, along with the behemoth of climate change, are occurring at a rate to which most governments cannot respond quickly enough. Entrepreneurs are by their very nature agile, flexible and responsive to their conditions. In this regard, they are well placed to address environmental challenges, as they can adapt to problems, and respond quickly in a way that governments cannot.
Lou Sanson, Director General of the Department of Conservation told the New Frontiers crowd that we need more entrepreneurs and engineers in conservation. Creative, technological solutions are needed to tackle New Zealand’s invasive predator problem, and Lou remarked on the value that might be gained from a tech-startup style hackathon on conservation.
The environmental effects of business have in the past been viewed as externalities, not fiscally connected to the venture. Today, methodologies for pricing such externalities are gaining traction and there are a number of groups making headway in what has traditionally been a tricky business. While we are still refining comprehensive ways to measure the value of our planet's ecological wealth, there are now robust models that can help businesses measure environmental impact.
With help from The B Team and Pricewaterhousecoopers, Trucost have developed a methodology to put financial value on environmental impacts, with an Environmental Profit and Loss accounting system. Taking a slightly different angle, a huge consortium of organisations lead by the World Business Council for Sustainable Development (WBCSD) have developed a system to measure the value of natural capital - that is a financial value on nature itself. Closer to home, New Zealand’s Sustainable Business Council is spearheading the movement in New Zealand for companies to assess the ecological impact of their operations with the Ecosystem Services Review tool. Contact Energy, Fonterra and Aotearoa Fisheries Limited are among the leading businesses that have used this tool.
Within New Zealand, there are a number of impact-first companies that are delivering clear, measurable social returns. Wellington tech startup Loomio is building collaborative decision-making software that has helped thousands of people to organise political action in Spain, Turkey, Hong Kong, Greece, Taiwan and the Ukraine. Here at home, some government departments have started using the tool to more actively engage with their staff and consult the public.
The impact entrepreneurship model is not only found in small startups. New Zealand’s third highest earning technology exporter, Fisher & Paykel Healthcare, is leading with the world in respiratory care and acute care products. When Fisher & Paykel started innovating in the healthcare sector in the 1960’s, the terms "social enterprise" and "impact entrepreneurship" were still decades away. Yet with a vision to "improve the lives of our patients all around the world” this company fits the mould.
Mechanisms for measuring the value of social impact and social capital are not as far advanced as the tools we have to measure natural impact and capital, as this type of value is more difficult to quantify. The WBCSD are making some progress towards a Social Capital Protocol with the development of their guide for business on measuring socio-economic impact.
Amid the shifting sands of a changing entrepreneurial landscape, a sense of connection to your fellow entrepreneurs, investors, advisors and customers is crucial, and the strongest currency is that of relationship. Social and environmental impacts can take a longer time to become apparent than pure financial returns, and thus earning the trust of investors that you are committed to for the long haul is important.
Candace Kinser, former CEO of NZTech, started the Women in Tech Exec Lunches programme with half a dozen women in 2013. It has since blossomed to a network of 215 women who regularly attend lunches. She explains that the support provided by such a network has helped many women transition from the safety net of stable tech jobs into starting their own business. Providing a space for women entrepreneurs to thrive within a typically male-dominated sphere, can be of massive benefit for the entire ecosystem. And it seems the trend is extending to the younger generation as well. Creative HQ CEO and Lightning Lab investor Stefan Korn indicated that there were more young women than men in the Venture Up programme earlier this year, an accelerator programme specifically aimed at 17-25 year olds.
A Home For Impact Entrepreneurship In New Zealand
New Zealand has many of the elements required to become a mecca for impact entrepreneurs. Innovation, creative problem solving and resourcefulness are in our DNA. We are open and collaborative, we value community and we care for others. The practice of intergenerational stewardship of the land and people, displayed by many Māori communities, has helped to embed these values within our collective culture. We have tight-knit business communities typified by two degrees of separation, and we have less regulatory barriers to innovation than many countries.
But we need to make a strategic decision to support the entrepreneurial ecosystem. We have a huge opportunity to build upon the strengths of our history as an agricultural nation, and pave the way with new models of primary production and value-added enrichment. With the right ingredients - a supportive government, a welcoming immigration system and proactive opportunities for cross-sector collaboration - we can create collective value in a impact ecosystem that loops back and nurtures itself.
While much of the attention around entrepreneurship is currently directly at technology entrepreneurs, New Zealand’s future as an interconnected impact entrepreneurship ecosystem will involve scientists, teachers, communicators, artists and intrapreneurs - innovative agents-of-change who inject entrepreneurial characteristics into existing corporations and government departments.
Vaughan Rowsell, Founder of Vend, a New Zealand-grown software company estimated to be valued at $100 million, considers that in the future we may see a tipping point where the majority of people will be entrepreneurs. After all, prior to the industrial revolution which required centralised labour on a vast scale, most tradespeople, farmers and merchants were entrepreneurs.
Once a seed is established, the best way to promote impact entrepreneurship is to lead the way. By creating and supporting working examples, we invite others to observe, gain insight, and notice the value of business models that are good for people, the planet and profit.