When people talk about having an impact in the world, they are usually thinking about serving at a food kitchen or administering vaccines in Africa. Usually, these ideas are not associated with business or making money in general, which are often characterized as selfish. This idea likely stems from the history of philanthropy, which was started by wealthy families wanting to use the money they made in their family businesses to relieve poverty and illness.
While philanthropies have saved millions of lives and improved the standard of living globally, they are often inefficient and lack the organization of a successful business. This failure has resulted in a mentality that has made separate the worlds of social impact and business. Many individuals in developed countries spend the first half of their lives pursuing wealth, which they then donate to charitable or political causes in their old age.
Without disparaging the efforts of nonprofits, philanthropies, and generous individuals and institutions throughout the world, I would like to offer an alternative view on social impact. While profitability and impact are difficult to achieve together, I argue that the two objectives can be compatible with, if not helpful to, each other. I will also avoid taking a side on any political issues; instead, I will provide examples of how businesses have been able to reconcile both worlds.
What do we mean by impact?
First, let’s define what we mean by “impact”. By one definition, impact is the benefit realized from a project or initiative expressed in terms of taking action vs. doing nothing. So instead of focusing on the amount of work performed, an organization has to determine what would have happened without their effort. For example, without these wells in Tanzania, what would the people have done to find clean water?
In social impact, it’s important to differentiate between outcomes and impact. Outcomes are the measurable and immediate changes resulting from specific actions. On the other hand, impact refers to the broader and lasting societal transformations that come as a result of the outcomes. Thus, impact measurement requires a deeper understanding of the underlying issues and resultant behaviors.
To measure impact in a business, we have to know what things would have looked like without the product or service offered. Have we really made a difference for consumers, or would a competitor have easily taken our place?
International development through business–how would it work?
In his book, The Prosperity Paradox, Clayton M. Christensen describes examples of businesses that used “market-creating innovation” to help lift people out of poverty. For example, he discusses the success of mobile money services in Kenya, like M-Pesa, which revolutionized banking and financial access for individuals who were previously excluded from traditional banking systems. Through the introduction of these innovative services, new markets were created, enabling widespread financial inclusion and economic empowerment in underserved communities.
Companies that solve problems tend to be profitable. In product development, the key is to understand the customer problem so fully that the solution is hard to resist. This leads to higher revenues, increased customer loyalty, and improved competitive positioning. Thus, even in a third-world country, solving a social problem may be both profitable and impactful for businesses. Of course, this means that businesses must also avoid illegal or unethical practices, such as using child labor or environmentally unsustainable practices.
While it is hard to build economic prosperity in a country with rampant corruption and other issues, people often need to be empowered from the bottom up. Introducing new technologies can give people access to improved health, education, and economic opportunities, helping to catalyze positive change even in challenging environments.
Impact investing
In recent years, a new form of investment has emerged. Impact investing refers to an investment approach that seeks to generate positive social, environmental, and often financial returns.
Unlike traditional investment strategies solely focused on financial gain, impact investing aims to create measurable and beneficial impacts on various societal and environmental issues, such as poverty, education, healthcare, and sustainability, while still considering the investments and their viability.
Businesses that focus on social issues may be able to find additional funding – in fact, they may be able to find grants with no strings attached, while traditional businesses will feel continual pressure to return a profit. Of course, this pressure helps keep businesses focused, but impact investing seems to have found the sweet spot between the two objectives.
Conclusion
Businesses can simultaneously achieve profitability and make a meaningful impact. Thanks to technological advancements and innovative investment approaches, this harmony between financial success and positive influence is more attainable today than ever before. As individuals continue to pioneer novel technologies and elevate their quality of life by embracing these innovations, the trajectory of global progress holds the promise of a significantly improved world for all.
Wes Brooks is an incoming Summer Business Analyst at Cicero Group and an undergraduate studying economics, management, and strategy. He is a serial entrepreneur, works in venture capital, and enjoys singing a capella and piano improvisation.
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