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SOCIAL STATUS

How to determine the social value of your startup

AP Photo/Ebrahim Noroozi
Behind every startup is a measurable social impact.
  • Sonny Tai
By Sonny Tai

Co-founder and CEO, Actuate

Larry Fink, CEO of BlackRock, a global investment management firm that deals with more than $6 trillion in assets, turned heads in 2018 with this statement: “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society,” Fink wrote in a public letter.

In other words, a startup’s long-term social benefit is just as important as forecasting positive financial outcomes.

Over the past decade, however, we’ve seen a fundamental shift in the venture capital and tech startup landscape that’s challenged founders’ ability to build and run socially conscious, mission-driven companies. American VCs have trended toward huge deals, while smaller ones have dried up. And as deal size increases, so does the pressure on startups to succeed at all costs.

If we don’t start thinking about our capitalist ventures in terms of their social value, the market will continue to trend toward destructive monopolies. Look at large tech companies that have become household names: Uber, Lyft, WeWork, and Amazon—these are all companies that, at some point, employed a strategy of raising gargantuan amounts of investor money by using predatory pricing to squeeze out competition. This focus on growth at all costs has led to negative externalities that the original founders of these companies either didn’t care about, or at least didn’t properly plan for.

Uber and Lyft, for instance, have essentially destroyed taxi driving as a career, replacing the vocation with gig workers who often work at below living wages. WeWork has built a house of cards that continues to hemorrhage cash. Its founder bailed via a $1.7 billion parachute, while employees were left with underwater options. And Amazon owns a near-monopoly on e-commerce, severely damaging the viability of physical retailAll these companies are on a quest to achieve as close to monopoly positioning in their industries as possible—and all of them have left a trail of destruction in their wake.

If you want to grow your company’s value, it’s time to let go of the idea that it’s all about the numbers and nothing else. Data shows that nearly half of US consumers are likely to ditch brands that don’t have a purpose beyond making money. And investors want to back businesses they believe in, beyond the promise of returns. In the US, sustainable, responsible, and impact investing assets increased by nearly 40% between 2016 and 2018.

My company Actuate was founded with a social mission at its core: We build technology to help prevent gun violence in the US. But over the years, we’ve learned the following lessons that apply to any company. Here are four ways to identify and foster your social value from day one, whether you’re in the business of financial services, consumer products, big tech, or anything else:

1. Assemble a mission-driven team. If you want social impact to be in your DNA, you need team members who are passionate about the mission. Mission-oriented employees are 30% more likely to be high performers and 54% more likely to stay with the company for at least five years. It may take more time and effort to find the right startup staff, but that committed core will go above and beyond the call of duty. Those teammates will accomplish more than you thought possible and become a strong draw for investors.

The best way to ensure that you’re hiring mission-driven team members is to ask directly: “What motivates you? What makes you excited to get up and go to work in the morning?” When you drill down, it’s pretty easy to discern boilerplate answers from those that show genuine desire to make a difference.

2. Onboard investors who are passionate about your mission. When your backers are more concerned with a quick profit than the company’s long-term social impact, there’s bound to be friction. Any investor can write you a check, but you want the few who will act as part of the team.

To find the right investors, you ultimately have to talk to them to get a sense of whether your mission aligns with their values. This should be quite apparent in the initial introductory call. Investors who are excited about the social value of your company will ask you a lot of questions about it, while those who only care about the return will be indifferent to your mission. This can mean talking to dozens—if not hundreds—of investors to find the right partners, but it will be worth it to find investors who align with your vision.

3. Avoid investors who have a reputation for meddling.You need investors who not only buy into the mission, but also trust you to execute on it. There’s a difference between supporting your startup and micromanaging it. Steer clear of those who enjoy the latter.

To tell whether investors will try to meddle too much in your startup, get feedback from other startups they’ve backed. Most will make their portfolios public, but in the case of smaller angel investors who don’t have a public list, don’t be afraid to ask to get in touch with their other portfolio companies.

4. Don’t be afraid to pivot, but don’t lose sight of your mission.As long as you stay focused on your end goal, there are plenty of ways to get there. I think back to the “commander’s intent” from my time in the military. This was basically your overall mission—for example, defend a position from enemy attack for 72 hours. But how the commander’s intent is met can be left up to the creative devices of individual teams. It’s the same with your startup.

You might be trying to curb the threat of gun violence or seeking to create educational opportunities for children in sub-Saharan Africa. Just be clear about that mission from the start, then be flexible in adjusting your approach as necessary along the way.

One way to determine the best approach is to regularly ask yourself, “How do these tasks or decisions further our mission?” Startups are typically especially strained for resources, and founders tend to be distracted by dozens of requests for their attention and time. Each thing may seem to contribute to the mission peripherally, but you must always question whether it truly makes a difference. When it comes down to it, these are social missions, and accelerators like Y Combinator are looking to back startups every day.

Tasks will need to be prioritized, de-prioritized, and sometimes even ignored altogether. Company leaders and their teams should put the things that contribute most directly to the mission at the top of the list. Whatever the mission may be, all startups exist to solve problems: to make people’s lives easier in some way.

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