Aligning impact and business models: The key ingredient for successful impact startups

Authors: Medea Nocentini, Lana Azhari and Maria Najjar

Published by Wamda

The power of impact-driven businesses unfolds when they can effectively leverage business methods to solve daunting global challenges facing humanity. On the flip side, when impact startups fail to align impact and business models, they miss the opportunity to create a virtuous cycle that simultaneously benefits the community and improves business performance.  

The social and environmental impact certification body B Corp, defines this as Impact Business Models (IBMs), or “ways a business is designed to create a specific positive benefit/outcome for one of its stakeholders. They may be based on their product, a particular process or activity, or the structure of the business”. 

The rule of thumb for Impact Business Models is that the more the business grows, the broader and more profound the impact should be, and vice versa. If you need to compromise your business performance or your organisation’s impact, then your impact strategy and business model are not aligned. This will put you at risk of a mission drift or business failure, both of which can be detrimental to the success of your impact startup. 

Finding a product-market fit: setting your theory of change to ensure that your solution can create positive impact  

For impact startups, the main goal is to positively impact the communities and stakeholders targeted by the company’s solution. A critical element in that journey is formulating the startup’s Theory of Change (ToC) or a “methodology to define a desired long-term impact and the process for achieving it”, as defined by Sopact. 

Given the importance of this step, startups need to focus first on outlining how their impact will be achieved through a ToC framework (see below), which in turn affects several business and impact considerations. The main goal of a ToC is to ensure that your startup activities and outputs eventually reach your beneficiaries  (the beneficiaries are those who benefit from your company. They are the people whose circumstances change positively, thanks to your company's activities) to effect positive outcomes that will lead to the long-term impact you are looking to achieve.  

Startups strive to create a meaningful difference by addressing pressing issues faced by a large target population. However, it is equally important to evaluate whether the impact being generated would occur naturally without the existence of the startup or its solution. If the desired impact would happen either way, it calls for a reassessment of the startup's ToC and the solution's efficacy. The essence of impact entrepreneurship lies in pioneering innovative solutions that fill gaps and create tangible, incremental, and measurable change. The focus should be on developing interventions that not only address a problem, but also ensure that the impact is unique, significant, and genuinely transformative.

Go-to-market strategies: navigating the nuances for an impact startup 

Finding product-market fit and crafting a go-to-market strategy are often straightforward for commercially focused businesses. The goal is to find a customer who is looking for what you are offering and is willing to pay for it. For impact startups, this is not always enough. Often, the target beneficiaries are not yet included in the business value chain, introducing an additional level of complexity, at least in the business ideation phase. 

We will explore three common go-to-market strategies for impact startups: 1) where the customer is the end beneficiary, 2) where the solution serves other stakeholders in the value chain and 3) B2B or B2G models with third-party paying customers. 

The most logical method to achieve alignment between your impact model and your business model, allowing your startup to scale and your impact to grow, would be for the beneficiary to also be the customer buying the product or service you bring to the table. These models, targeting ‘nonconsumption’ markets’, are the most transformative ones when it comes to bringing prosperity to large communities. Not only do they provide essential products and services to underserved segments, but as part of their business, they also end up building infrastructure and boosting local economies by employing local household breadwinners who would otherwise be unemployed.  

This is the case for all startups providing access to healthcare and education, increasing financial inclusion, bringing effective solutions to climate change, and ensuring water and food security and affordability. The impact becomes even more significant if they operate in frontier markets. 

Other impactful models exist, where the target beneficiaries are suppliers, distributors or employees. The potential of these models is unlocked when these impact-driven solutions align with sustainable revenue-generating models. This connection is crucial as it opens avenues for substantial growth, essential for success for venture capital-backed models looking for high growth and scale. 

For example, Egypt’s Tekeya offers a digital marketplace where food providers such as restaurants, bakeries and groceries sell their fresh surplus food at a reduced price to consumers or donate it to charity. Tekeya collects the food surplus of restaurants (the suppliers) and sells it for cheaper, giving the suppliers a chance to eliminate their waste and the costs associated with it. The company then sells products at a more affordable price point for beneficiaries, creating the intended impact while, in parallel, being more financially sustainable and reducing food waste!

A third approach would be to identify customer segments willing to pay on behalf of the main beneficiaries. This falls in the purview of impact startups with B2B, B2G and B2B2C business models. 

A relevant example would be Turkey-based BlindLook, an audio-oriented technology making existing products and services of brands accessible for the blind and the visually impaired through voice guidance. BlindLook’s business model is B2B, offering Accessibility as a Service (AaaS) to corporations such as Amazon, Google and McDonald’s, making their products accessible to the blind and empowering them to do their day-to-day tasks freely and independently.

Motivated by the goal of making a positive impact, founders are increasingly exploring innovative models involving third parties to unlock new revenue models. These approaches have the capacity to generate impact on a considerable scale, balancing both impact and profit. 

The models will vary from one sector to another and one mission to another, with a myriad of possibilities for how an impact startup can find the sweet spot between its business and impact model. 

Evolving into a lean impact startup 

By integrating the impact solution into the business model, not only will these benefits be safeguarded, but it will also ensure that the impact acts as a driving force for sustained organisational performance in the long run.

Engaging in ideation and experimentation with a focus on creating impact frequently yields distinct ideas, supported by a deeper understanding of the challenges at hand and specific customer needs. This helps access untapped customer segments, develop better products, or devise innovative models that offer unique economic advantages. 

For lean impact startups, it is essential to avoid crafting a ToC and a business strategy and treating them as static. Instead, mission-driven founders have to be dynamic, evolving alongside their product or service, adapting to changes in the surrounding environment, and most significantly, incorporating feedback from beneficiaries to gauge the success of their solution in achieving the intended impact.