How to make a horizontal impact on your industry vertical

I have spent the past 15 months contemplating what social impact means to me and how I can include it in my daily business activities. In September 2020, after nine months of research, I co-authored a report on how to build a scalable tech impact business; that is, a tech company whose business model includes impacting society for the better. This includes, but is far from limited to

• Ecologically-friendly processes
• Diversity, equity, and inclusion practices
• Philanthropy and partnerships with NGOs

We often refer to such impactful practices, programs, and initiatives as corporate social responsibility (CSR). 

My experience set me on a path of discovery. The two key takeaways from my first 15 months on that path are:

1. Impact is not a vertical, it is a horizontal
2. A social impact business is one for which a unit of impact generates a unit of profit

After reading several books on the topic, I found two existing frameworks that exemplify these learnings: conscious capitalism and social business. When you build either of them into your business model, these frameworks drive sustainable growth.

Before we get into these frameworks, let’s take a look at the two takeaways.

Impact is not a vertical, it is a horizontal

When I started researching social impact a year and half ago, I thought it was its own entity — a different type of model and a fundamentally different way of thinking about business. Conversations with leaders of social impact investment funds in Silicon Valley and the EU validated this notion. I also quickly discovered that there is no solitary, all-encompassing definition of social impact — it means different things to different people.

To step away from this ambiguity, I reframed the problem and set about finding companies with specific purpose goals that are not necessarily tied to profit. In doing so, I discovered that such companies deliver much higher returns to shareholders than their peers. But I was still stuck in a vertical way of thinking, which made quantifying social impact almost impossible. I ran into industry-specific measurement issues that made comparisons between each vertical’s metrics an exercise in futility.

Recently a partner on an unrelated business call mentioned that their organization does not understand impact because they perceive and measure it in vertical terms. She said social impact is a horizontal — a way of doing things, a mindset, a set of values that permeates any vertical.

It’s important to note that the social impact horizontal is not merely a set of superficial CSR tactics. It is so much more than that — it is a strategic mindset that should be a part of your company’s DNA. The benefits of integrating the impact horizontal into your business model include increases in:

• Cost reduction
• Stakeholder* engagement
• Profitability

* Key stakeholders include customers, employees, suppliers, communities, and shareholders

A unit of impact generates a unit of profit

Earlier in 2020, I was on a call with a Scandinavian social impact investor who, when asked for their definition of a social impact business, replied: 

“A social impact business is such that a unit of profit generates a unit of impact – if you remove one, you remove the other.”

Discussions around impact typically include a discussion around tradeoffs with profit – such discussions are, for the most part, pointless, as the relationship is the inverse of what we expect. In fact, socially responsible business practices have become a competitive advantage across most, if not all, verticals.

This investor described a type of a business that automatically creates impact when it makes money, which is an intriguing proposition. It emphasizes the fact that such impact creation is an intrinsic component of a successful business model, not a complementary feature or bolted-on benefit.

Since then, I have been looking for a framework that allows for the creation of social impact businesses, and I have found two that are on opposite sides of the fence.

Social business and conscious capitalism

First, let’s define these frameworks:

Social business

Professor Muhammad Yunus, Nobel Peace Prize laureate and founder of the first micro-credit organization Grameen Bank, defines social business more narrowly as a kind of business:

• Whose primary aim is to address a social problem
• Which is financially self-sufficient
• Which does not pay dividends to its owners 

Conscious capitalism

The term “conscious capitalism” refers to a socially responsible economic and political philosophy. Proponents of conscious capitalism believe that businesses should operate ethically while they pursue profits. This means they should consider serving all stakeholders involved including their employees, humanity, and the environment—not just their management teams and shareholders. The idea of conscious capital was created by Whole Foods co-founder John Mackey and marketing professor Raj Sisodia.

The Impact-Profit Horizontal

I created the Impact-Profit Horizontal based on my arbitrary understanding of these frameworks and how they compare to existing models. The most interesting aspect of conscious capitalism and social business is that they share three key characteristics. In both frameworks

• social impact is an intrinsic aspect of the business model
• profitability is a compulsory business requirement 
• every unit of profit generates a unit of impact

The biggest difference is that conscious capitalism distributes profits among shareholders past the initial investment while social business reinvests profits past the initial investment into growth.

My search criteria for an optimal framework were businesses that generate profit, are self-sustaining, and solve a global problem. This disqualifies everything on the left side of the Impact-Profit Horizontal. 

The models on the right side of the Impact-Profit Horizontal also fail to meet my search criteria for these reasons:

• Strict capitalism creates poverty by focusing solely on maximizing profits while disregarding social impact that does not affect direct shareholders
• CSR programs dedicate a fraction of a company’s profit to fixing problems the company helped create, so it is, by definition, unsustainable
• B Corporations, or B Corps, force company leaders at the operating agreement level to be conscious of a wider range of stakeholders, including employees, customers, suppliers, and communities. However, there is nothing requiring their business models to be intrinsically impact-generating
• Double/Triple bottom line companies are forced to prioritize profit above everything else in extreme situations, like sudden economic downturns.

The double/triple bottom line model is especially anti-social-impact. In an economic downturn, companies that operate on this model have the potential to, for instance, increase unemployment by reducing headcount, or weaken communities by shutting down operations in areas that are economically dependent on them.

Operationally, a social business poses a more difficult challenge; however, successful implementation has hugely positive downstream effects. Conscious capitalism seems like what capitalism should be so we can leave future generations with a world in which companies are actively trying to improve it rather than destroy it in their drive for profit.

I find both frameworks extremely interesting and am currently in active discussions to implement one or the other into our daily business operations at U+. In doing so, we hope to strengthen the social aspect of each step of the U+ Method to enable our clients to grow their businesses through innovations that are socially impactful.

Maybe I have discovered a wheel that does not need reinvention, but it is a pretty important wheel to me. If you were not aware of it, I hope this discovery helps you on your way to building more socially conscious businesses.

Recommended reading

• Conscious Capitalism
• Social Business

Edited by: Patrick Seguin