It’s 2004, and your fledgling footwear startup has an advertising budget of one million dollars for the year. Then a massive tsunami devastates Indonesia. You divert the entire advertising budget towards aiding the victims of the tsunami.
Impulsive humanitarian gesture, or strategic business decision?
For your footwear company (known in real life as KEEN)—and a growing list of other enterprises that have made improving the world part of their founding mission—such distinctions spring from an outdated mindset. Positive change is their business. And if you want to work with purpose while making a difference to your community or our planet, an impact venture like KEEN might be your best bet.
Impact Ventures are Basically Self-Funded NPOs
NPOs and NGOs have traditionally led the charge against social problems like poverty, inequality, and pollution. They’re typically the ones with boots on the ground directly handing out aid. They’re also constantly struggling to raise money.
So in 2015, when the UN General Assembly released an agenda to end poverty, pollution, and fifteen other global-scale problems by 2030, they declared the need to “mobilize the global business community as never before.”
Since then, the UN’s seventeen sustainable development goals (SDGs), as well as demand from increasingly conscientious consumers, have forced business standards to evolve. Social problems are not solely the domain of NPOs anymore. In fact, the financial independence of impact ventures often makes them even more effective in the fight for a better future.
Robin Lewis, cofounder and representative director of Social Innovation Japan, knows this firsthand from his time working for the Japanese NGO Peace Boat. “I used to spend a lot of my time fundraising and doing grant proposals so we could continue to do our work,” he says. “When you’re relying on donations and grants and things solely, it can become quite difficult financially.”
Today Lewis runs mymizu, a platform that helps users find free drinking water from public fountains, natural springs, and even businesses willing to fill up aluminum thermoses at no charge. The idea is to wean people off single-use plastic bottles, thereby reducing plastic waste. The app is free, but mymizu makes a profit through corporate challenge programs that help companies and employees change their plastic waste habits. mymizu spends no time or energy hustling for small donations.
And mymizu is not the exception: embracing SDGs doesn’t have to mean sacrificing traditional measures of success. KEEN, the real-life business that donated its entire advertising budget to victims of the 2004 tsunami, now makes more than $142M in revenue per quarter. Chacos, a competitor with a similar market, makes about a third of that despite being founded 14 years earlier. As an investor, this makes impact ventures a great bet, and as an employee, you can feel proud of your work without worrying about job security.
Impact Ventures Monetize Solutions
It’s easy enough to wrap a product in pink (symbolizing breast cancer), green (environmental impact), or rainbows (LGBTQ+ equality) to imply support for causes. But there’s no guarantee that the company is putting its money where its symbolism is—it might just be trying to entice you to buy the product. In some of the worst cases, companies even “pinkwash” products known to be cancer-causing.
Impact ventures put change-making at the core of their business. That distinguishes them from conventional companies with (sometimes superficial) sidelines in philanthropy.
“It’s not just about the problems these businesses solve,” says sustainable business scholar Trista Bridges. “It’s also about how the business operates, how it makes decisions, and its values as an organization.”
Sometimes the product itself helps advance the mission—as with mymizu’s app. Other impact ventures focus on ethical production. KEEN uses rare, outdated technology because it helps retain jobs and make their shoes sturdier—even if the machines slow down production. When they bought a new headquarters, they recycled more than ninety percent of the materials left behind by the building’s previous owners.
Then there’s the American insurance company Lemonade, which charges a flat fee for its service and doesn’t rely on inflated premiums. “Most insurance companies make money by saying ‘no’ to claims, which creates a conflict of interest between insurers and their customers,” says Nina Rauch, Lemonade’s social impact coordinator. “We wanted to remove that conflict.” Because Lemonade doesn’t profit from premiums (unused premiums are donated to a charity of the customer’s choice), it aligns the incentives of everyone involved. As a result, it’s able to pay claims with unparalleled speed and insure thousands of homes and pets.
Buying from impact ventures fuels an engine made especially for affecting positive change. And loss of business pressures bad-acting business to clean up their act.
Support for Impact Ventures Pressures All Businesses to Behave
The best impact ventures systemically change the business landscape. If you’re losing customers to a competitor that operates in a more ethical way, you can’t win those customers back just by changing the product. You have to change the way you do business.
Pressure to do that can come from customers, investors, or even industry heavyweights.
In 2019, H&M published the names of all of their suppliers globally, as well as their suppliers’ suppliers—an unusual move in the apparel business, where product sourcing is rarely transparent. Bridges describes the event as “a pretty big deal for the industry. If some companies take an action like that, it forces everyone else to take that action, too.”
But in many cases, even the heavyweights applying the pressure have a ways to go. Good On You, an app that scores fashion brands based on social and environmental impact, gives H&M a rating of “It’s a Start”—a long way from being a true impact venture. Companies that Good On You rates “Great”—the highest rating—look nothing like the retailing giant. They’re all smaller start-ups looking to make a difference through fashion, and there are thousands of them. Their existence alone shows that plenty of consumers want to support companies that are changing the world. Together, they apply competitive pressure to giants like H&M to keep changing.
Bridges is optimistic. “The question is not whether companies will change,” she says. “The question is whether they will change quickly enough.”
As employees and employers, and consumers and investors, our choices can help ensure they do.