Welcome to the world of impact entrepreneurship, which places as much importance on socially conscious activities as on profit. With consumers increasingly weary of perceived corporate greed, companies peddling products and services that tackle societal and environmental ills are gaining a following. Incubators aimed at impact entrepreneurship are sprouting up. And investors are warming to the do-good trend. According to a survey conducted by First Affirmative Financial Network (FAFN), a Colorado Springs, Colo.-based advisor on socially conscious investments, most investment professionals say impact investing is on the rise and becoming more widely accepted by institutions.
Wanting to change the world is not a business plan. It may seem counterintuitive to think about how you’ll make money as a social entrepreneur, but if you want to have a lasting and far-reaching impact, it’s essential. “An impact business can’t stand on one leg,” says FAFN president Steve Schueth. “It’s got to have a good business model. It’s got to have a good operating team. It’s got to be financially sound.”
The fact that your business helps feed children or repurposes plastic water bottles may initially entice a philanthropic investor, “but the impact itself is not going to sell the business,” Schueth cautions.
Sharon Schneider, CEO of Moxie Jean, a website that resells children’s clothing, had to iron out a few wrinkles before her collaborative-consumption idea caught on. In 2011 she started as a “Netflix for baby clothes.” The business owned all the clothes, and customers paid a monthly fee to “rent” them for as long as they wanted. Parents, frustrated with how quickly their kids outgrew clothing, told Schneider they loved the idea. She won a $20,000 pitch competition, was accepted into the prestigious Chicago accelerator Excelerate Labs and received $25,000 in seed money.
But despite trying tactics such as Google ads with all sorts of keywords, she found few subscribers. Market research revealed that customers saw her subscription model as too much of a commitment, putting pressure on them to keep baby clothes they didn’t own in good shape.
“People were saying, ‘Why don’t you sell them new clothing every month?’ But that’s not the business I’m interested in,” says Schneider, who is passionate about reducing wasteful consumption. “The social impact is built into my model. I couldn’t stop reusing clothes and have the same business. I fully intend to make a lot of money, but I intend to do it in a way that I feel good about.”
Last July Schneider relaunched Moxie Jean on her terms–as an online resaler of kids’ clothes, no subscription required. Parents buy clothing off the site, or they can send in gently used items in exchange for cash or credit. Now, she says, “business is going like gangbusters,” with sales increasing at a rate of 50 percent a month.
Money With a Mission
As with any for-profit venture, partnering with the right people is essential. Because your business has the added element of a social mission, the team becomes even more critical. When seeking investors, it’s not enough to go where the money is. “You need to go with the right intentions behind the money,” says Taryn Goodman, director of impact investing at San Francisco-based RSF Social Finance, which funds nonprofit and for-profit social enterprises. In other words, you need to find investors who share your goals and mission for the company.
Consider Burn Manufacturing’s quest for equity investors. Scott is specific: “We’re trying to find an ideal partner who gets our mission and is not looking for an exit strategy in three years and is happy with an 8 percent return on their money.”
But finding like-minded investors can be tricky, says Michael “Luni” Libes, founder and managing director of Fledge, a Seattle incubator for socially conscious businesses. “They don’t wear name tags,” he says. “Or sometimes they wear name tags, but it doesn’t say what their style is.” That’s why you need to sit down with prospective investors and see what makes them tick. If they’re more concerned with finding the next Facebook, they might not be right for you.
Rahier Rahman went further. Founder of Pangea, a Chicago-based provider of prepaid financial services to underserved populations worldwide, Rahman spent two years researching key venture-funding and business-development players in his niche. That way, he says, he didn’t have to “spend two weeks in Silicon Valley pitching people who don’t care about the space.” Nor did he have to educate potential investors about the group he wants to help: the 2.5 billion people worldwide who don’t have bank accounts, credit cards or other financial services. “They already know all that,” Rahman says. “They have already made significant money in the ‘underbanked’ space. So I’m really able to build consensus around our platform.”
Burying the Lead
Selecting which partners and investors to woo is only half the battle. Knowing how to pitch them is equally important. “The biggest thing I tell social entrepreneurs is actually not to define themselves as a social entrepreneur,” says RSF Social Finance’s Goodman.
Many people, she explains, mistakenly believe that there’s no way a social-impact business can make money, or that it’s a “nonprofit in disguise.” It can be far more effective to focus the pitch on the social or environmental outcome of the business, rather than on your own philanthropic ambitions.
FAFN’s Schueth agrees. When pitching, he advises, first sell investors on your business model, operating team and ability to go to market. Then you can say, “This business is designed to have a very positive impact, and here’s how we’re going to measure it.” The more specific your metrics are, the better your shot at getting funded, he adds.
Scott is banking on data to get his mission across. Among the metrics he has shared with potential partners and investors: One of his $30 Burn stoves reduces energy use by 50 percent, saves households $250 a year in fuel costs and reduces indoor air pollution–a contributor to the deaths of nearly 2 million people a year.