How To Make Your Social Impact Start-up Profitable – And Get Investors

social-impact-profit

Social impact, by definition, ‘brings about a significant, positive change that addresses a social challenge’. It aligns with one or more of the 17 UN Sustainable Development Goals – and today, it’s taking on the consumer market. 

Customer interest in sustainability is skyrocketing, and many businesses are retrospectively embedding social impact into their marketing as a result. But what about newer companies with social impact at their core? Have we moved on from the 90s mindset of viewing impact investment as just a philanthropic endeavour? 

The stats say yes – especially where tech is involved. Medicine, education, finance, fashion – high-growth sectors are attracting entrepreneurs who want to tackle old problems in new (and scalable) ways.

Source: socialenterprise.org (2021)

Investors are joining the party, too. UK impact startups raised £2 billion in investment in 2021 (up from £1.7 billion last year). And consumers are also showing up: 74% of social enterprises made a profit or broke even in 2021.

So, how are entrepreneurs building successful for-profit businesses, while staying true to their impact values? Here are some tips from those walking the walk:

1. Fund your impact mission with consumer product sales

Eloise Skinner is an entrepreneur and an Enterprise Advisor to the Mayor of London. Over the course of a decade, she has worked predominantly in the social impact space. ‘My main piece of advice would be to see if a for-profit initiative could be blended with the non-profit mission.

For example, could you sell a product or service to a paying consumer at market value, and use that revenue to serve your non-profit mission? In my own social impact venture, this means selling our services to corporates and individuals at a set price, and then using these funds to serve students and schools on a non-profit basis. Or, for another social venture, this could mean donating a product for every product sold (for example, the model used by TOMS).’

Sravya Attaluri is Founder at Hello Colour – a design studio built by people of colour using brand strategy, storytelling and design to drive social impact. Sravya says a key factor to profitability is building out multiple revenue streams. ‘Our done-for-you creative services are only one small part of the puzzle.’ She says, ‘We offer a paid subscription model for training, coaching and mentoring in the art industry on our community platform. We also design self-care and mental-wellbeing products for e-commerce, licence in-house artwork, and regularly collaborate with leading brands on social media for other forms of company revenue.’

2. Marry mission with margins

Linking your mission to your consumer offering means every sale is also a win for your social impact journey.

Bare Fruit co-founders Alex Williams and Ben Kaye launched their whole fruit juice subscription business with one mission: to improve people’s health and prevent wastage of fruit. ‘A good step that social entrepreneurs can take is building their social mission into the heart of their business model. This delivers social change in line with business growth. 

At Bare Fruit, our mission is strongly correlated to the sales of our product. So, for every bottle we sell, we are helping increase someone’s fruit intake and using up imperfect fruit. Ensuring that these align and link can help to make a business appealing to investors, whilst also furthering a social mission.’

3. Leverage impactful KPI reporting

Securing investment is crucial to growing your business. To do this, you need to create impactful KPIs that investors can relate to and get on board with. This includes standard metrics like the ASP (Average Selling Price) of your product or service, your Customer Retention and Growth rates and Monthly Recurring Revenue.

TSIP founder Stephen Bediako OBE works with numerous social impact businesses. ‘Social Impact entrepreneurs should build a theory of change to ground and be clear about profit and impact.’ 

Shruti Rai is Chief Growth Officer and Co-founder at Novus – a UK sustainable banking app. ‘Building a social venture is essentially the same as building any other business.’ She says. ‘Social entrepreneurs need to focus on their business model and the financial viability of the project. If this is not nailed down, they will be at risk of not being able to maintain their business and/or appeal to investors.’

TOP TIP: For practical tips on this topic, visit our guide to creating impactful KPIs

4. Set up to scale up

Initially, you might be a small team with limited resources. Use this opportunity to create efficient processes and workflows that can grow alongside your business. Choose software that can automate time-consuming processes so you can focus your manual efforts elsewhere. Tools like Hubspot (for email outreach), Later (for social media), Xero (for bookkeeping) and Dext (for invoices) are all time-savers with options for levelling up when you’re ready to grow. 

Tactical Athlete coach Farren Morgan says creating scalable processes is vital to business growth. ‘New entrepreneurs looking to create a profitable business need to establish their foundation by having internal procedures (such as marketing strategies and payment methods).’ He says, ‘If your resources are limited, use them efficiently to produce optimal value, or find creative solutions to fill the gaps.’

Paperound founder Jake Fox agrees that the key to working towards profitability for an impact start-up is scalability. ‘If the business can be financially and operationally scalable,’ He states, ‘then the business can grow, and the impact side can grow along with that.’

TOP TIP: Addition CEO Graham Davies shares a wealth of ways that start-ups can use automation to scale up a business in his guest blog for Angel Investment Network.

5. Attract investors with SEIS/EIS schemes

The Seed Enterprise Investment Scheme (SEIS) is an excellent way to help your company raise money when you start trading. In a nutshell, it offers tax reliefs to individual investors who buy new shares in your company.

Addition COO John Miller recommends applying for SEIS/EIS Advance Assurance before you offer this option to investors. ‘Full SEIS/EIS eligibility can only be granted by HMRC after an investment has been made. Fortunately, there’s a way you can guarantee investors your SEIS or EIS application will be approved. This is called EIS and SEIS Advance Assurance, and it’s issued by HMRC. Think of it like an Agreement In Principle for a mortgage. As long as your information checks out, you’re good to go.’

TOP TIP: If you’re interested in finding out how to apply for SEIS/EIS Advance Assurance, our blog on the topic has a helpful step-by-step guide. 

Want some help with that?

As part of our mission to empower small businesses, Addition is proud to support multiple social impact start-ups in our client base. From tailored financial insights, to helping them create meaningful KPIs for fundraising, we’re committed to making their profitability journey a success.

If you’d like a free, no-strings call with us to see how we can help, please get in touch today!

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