social impact profit

How Startups Can Balance Social Impact and Profit

Latest posts by Christos Kritikos (see all)

Professor Henrietta Onwuegbuzie of Lagos Business School claims, “Being purpose-driven helps companies grow faster and make more money.” But what exactly does it mean to be a purpose-driven business, and how can startups balance social impact and profit?


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Why social impact is important

The 2018 Cone/Porter Novelli Purpose study discovered that 78% of American consumers believe businesses need to positively impact society.

The data from the Cone/Porter Novelli Purpose study reveals:

  • Over 50% of millennials are willing to pay extra for environmentally friendly products
  • 66% of survey participants would switch brands to support a cause
  • 88% would buy from a social impact company
  • Impact-driven brands have 79% customer loyalty
  • Purpose beats low cost or high quality 62% of the time

In other words, incorporating social impact into the business equation drives profit, customer engagement and loyalty. Striking a balance between impact and profit helps businesses fund their operations and fulfill their long-term vision.

How businesses are responding to customer expectations

There are three main organizational approaches to social impact and profit:

  1. Profit-focused
  2. Corporate social responsibility (CSR)
  3. Social impact

Profit-focused companies can be highly profitable yet sometimes have devastating consequences on the environment, the local community and even their own workers’ health and well-being.

CSR companies support social causes by redirecting part of their profits back to society, implementing environmentally friendly policies and practices or developing community programs. However, the main business activity remains profit-focused.

Social impact companies consciously, systematically and sustainably serve or solve the needs of local or global communities. Their core business activities directly create positive social change. Unfortunately, lack of financial support, poor networking and marketing and unstable organizational structures often sink these organizations.


Related: WJR Business Beat with Jeff Sloan: Impact on Brands Taking Positions on Social Issues

How to build a profitable impact-oriented business

Sustainability refers not only to environmental impact but also to the sustainability of the business itself. The more funding and profit a business can attract, the better the chance it will remain operational and, thus, maximize its social impact.

Start with identifying a cause you are passionate about. This is the area in which you want to create impact. Then, use your background and strengths combined with market validation to decide on the product/service you want to build. Here are all of the steps:

Define vision and mission

Organizational vision and mission are the tools for communicating core values and purpose to stakeholders and for making all major business decisions.

Select your approach

There are many possible approaches to problem solving and many products or services that can be built for each approach. A brainstorming session can be a good starting point.

Take the following as an example:

social impact

Select the best option for your company by considering your interests, abilities and expertise to deliver the corresponding product or service.

Validate demand

Lack of market demand is the reason behind 42% of startup failures. It is important not to stay attached to a specific product or solution. Instead, be loyal to your vision and the impact you set out to create. Then, choose the product or service that provides the biggest business potential.


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Create a startup plan

Having just an idea, a piece of technology or a certain skill is not enough to start a business.

There are four main pillars of a (potentially) profitable business:

social impact

Without all four elements (product, market, operations, resources), the business will fail to achieve its ultimate vision.

Lead and engage

A quality product or service is only valuable if people know and care about it. Founders need to engage investors, customers, partners and employees and nurture those relationships. Social responsibility can play a significant role in engaging stakeholders and turning them into ambassadors for the company. Providing a stable environment for advancing social change can help build trust and improve brand reputation, which can ultimately increase profit.

Key takeaways on social impact and profit

Balancing social impact and profit is a challenging but important task for the organizations of the future. Customer expectations and market trends are clear, but current approaches still need fine-tuning.

Social impact can help drive engagement, but it doesn’t always translate into revenue, and it may not be enough to sustain a business. Profit-focused organizations, on the other hand, run the risk of alienating and losing customers to purpose-driven competitors.

Regardless of their size, sector or primary focus, companies will perform best if they combine a strong business case with a clear social impact element at their core. Striking the fine balance between profit and impact is the path to financial, environmental and social sustainability.

Originally published July 19, 2021.

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