When I left Twitter 5 years ago I wanted to have more “impact”. Of course my work at Twitter was impactful in it’s own way— the products I worked on were affecting a lot of people. However, the outcome of those products wasn’t clearly positive.
Now, after 5 years of founding and working for impact startups, I want to share 5 things I’ve learned about the space.
Note when I use “startup” in this article I mean a specific and rather annoying kind of company: Private, for-profit, high growth, “venture backable” companies. Some of these insights will probably apply to other types of companies, but some will not.
Impact takes a long time.
This is the reality of the impact space from which all other realities flow. Whether you’re working in education, healthcare or financial literacy, “Impact” is impactful because your work has positive externalities.
An externality is any effect of a product not accounted for in it’s pricing because the effect won’t be valued by consumers. For instance, global warming is a negative externality resulting from burning gasoline. When consumers choose to drive to work most don’t consider that they are also choosing to destabilize the planet’s climate. They know that they will have to pay for gas. They know they will waste time in traffic. These and other costs are considered in making their choice, but climate change accrues too far in the future to be a factor.
Similarly, the majority of the benefit from a product like a coding bootcamp accrues too far in the future to really be valued. Not only does it take the average consumer months to finish a bootcamp, but they won’t know if it’s effective until they’ve gotten and held a job as a software engineer. That will take years. Thus the average consumer, in choosing to attend a particular bootcamp, isn’t making their decision based on the efficacy of the product— they’re using proxies for efficacy that can be experienced in the short term. Was the teacher engaging? Was the class hard? Were the other students nice? These proxies may not be correlated with whether a bootcamp is likely to get you a job, but they’re all consumers have when making a decision whose effects are so delayed.
What makes Impact startups “impactful” is that they produce much more value than they receive in revenue. However, most of that value is delayed months or years down the line, and oftentimes accrues to people other than the consumer. As a result, most customers won’t consider these externalized benefits when making a purchasing decision. A heart rate monitor might save you or (if you live in Canada) your community $20,000 on medical bills in 15 years but consumers aren’t gonna pay more than $50 for one.
Impact startups create impact through products, but grow revenue through marketing.
The externalities discussed above are usually mitigated by offsetting long term effects with short term incentives. For instance, to help consumers account for the delayed cost of global warming governments can place a “carbon tax” on every gallon of gasoline. Similarly when an impact startup wants to incentivize consumers to purchase a product whose value accumulates far in the future, they use marketing.
There are many definitions of marketing, but here I mean any experience a business creates which isn’t the product itself. This might be ad, an event or talking to a sales rep. All of these interactions build intent to buy without the user experiencing what they’re going to be paying for.
Of course, marketing is important for every company, but at an impact startup it is essential for differentiation. When you eat a meal at a restaurant you know immediately whether you like the food or not. Not so with impact products. When you buy a “green” toilet cleaner at Whole Foods, you’re doing so because you don’t want cleaning your toilet to be a cancer risk. However, you won’t find out if the wholesome ingredient list on the bottle truly makes a difference until 20 years from now, if ever! Therefore, green products, like most impact products, rely on marketing to differentiate. What makes you choose to Babyganics over Seventh Generation toilet cleaner is the ad you saw on facebook, it’s cute logo and the nice marketing rep at Wholefoods. However, the things that will actually provide you value are their ingredients. When the CEO at 7th Generation wants to grow revenue they’ll put more money into marketing. When they want to change the world they’ll do more research into their product.[^1]
Impact startups are led by stubborn storytellers.
Matt Candler, founder of 4.0 Schools, is a powerful leader. I met Matt in 2015 and heard him pitch the idea of microschools, I was immediately hooked. I didn’t need to see data. I didn’t ask for financial projections. This was a good thing too, because that stuff probably didn’t exist.
Microschools, like any other impact product, take a long time to have an effect. Proponents have pulled together literature that gives hope microschools will be an improvement over traditional k-12 options. However, we won’t have any amount of certainty until we’ve seen a few cohorts graduate— in about 10 years.
Because impact products accrue value in the long term, the creators of these products struggle to get feedback as to whether they are headed in the right direction. If you read any modern book on product management you’ll see a lot of references to “small experiments”, “rapid iteration” and “failing fast”. When building conventional products, this is extremely important. But for impact companies, it often feels like you’re flying blind.
For this reason impact startups often rely “stubborn storytellers” like Matt. These leaders are able to sell funders, investors and employees on a vision before they have much evidence of success. At an impact startup product iterations are measured against the vision instead of outcomes.[^2]
To most PMs this will sound scary. Indeed, it’s a situation I’ve tried to avoid whenever possible. Stubborn storytellers can lead companies, investors and themselves down dangerous paths (see WeWork). However, when trying to develop impact it’s often the only option. Take Andela for example: In 2019 Andela discontinued its learning programs after 4 years development. This decision was made less than a year after they bought my previous learning technology company. How could a company go from purchasing learning IP to nixing their learning program in less than a year? One big reason: they had a four year learning program which required just as many years to produce significant market feedback. Over the course of its first four years Andela placed big bets on a series of plans laid out by very talented “stubborn storytellers”. But they couldn’t know for sure whether those plans would work until 2019.
Did Andela make a mistake? Empirically, yes. But that doesn’t mean they made a bad decision. As a venture backed startup they couldn’t wait for market feedback to expand their learning program, and the vision they followed instead got them pretty far before it failed: 100% YOY growth for 4 years, and over 1000 junior developers trained and placed locally or remotely.
Is rapid iteration and experimentation a better product strategy? For sure. But, in lieu of that, stubborn storytellers are the best shot you got.[^3]
Impact startups are staffed by ambitious operators.
At most startups, rapid iteration and experimentation is essential for success. Most of the work being done is “discovery”— figuring out the problem to be solved and requirements for a solution. Building a robust product is a waste of time, since you’re probably gonna scrap it in a month.
However, at an impact startup, where much of the product vision comes from a single leader and experiments last months or years instead of days, work tends to be more operational. The blocker for success quickly changes from discovering the right product to executing on a vision.
To be fair, there is plenty impact teams can do to iterate on and improve adoption, which has similar leading indicators to non-impact products— better ad performance, easier onboarding, more press coverage, etc. However, I would, again, label those efforts as “marketing”, since they are unlikely to change the majority of a customer’s experience, post sale. When it comes to improving impact, well understood leading indicators are unlikely to exist (the result of developing a novel, long-term product), so you just have to cross your fingers and charge ahead.
For this reason, I’ve found that impact startup employees spend more time executing and less time thinking about strategy. Every startup has operators— usually the COO and those that report to her. But at an impact company the operational focus extends beyond the operations org. PMs spend more time managing engineering work and less time interviewing users. “Heads of Strategy” spend more time making models for existing strategies and less time researching the market to discover new ones.
These operators have all the energy and ambition of any other startup employee, in fact often more. However that energy goes towards executing on a vision as fast as possible, instead of discovering a vision as fast as possible.
Impact startups have to compromise.
This is the hardest and most important lesson I’ve learned from my time in the impact space.
Startup success, in any industry, largely comes down to focus. Every one of my startups have eventually failed because I focused on the wrong thing. We hired a CTO when we should have hired a CMO. We built a social media presence when we should have built an app. High growth startups have very limited time to do something crazy. You fail when you waste time doing anything but the most important thing.
At an impact startup growing impact is almost never the most important thing.
When you grow impact you are increasing the amount of positive externality your company generates. The problem is, a positive externality, by definition, doesn’t influence consumer decision making. Thus, when you’re trying to grow as fast as possible, it’s a big risk to focus resources there. The companies that I’ve seen do this (my own included), fail to hit their growth targets and, usually, close down as a result.
This is pretty tough for any impact focused entrepreneur to hear. If you’re shaking your head right now and getting ready to write a polite but firmly worded comment, consider the following (then please write your comment anyway):
There is more than one way to optimize for impact. Nonprofits are very efficient with their impact, providing a lot of value to underserved groups who need it the most. However, as a result they are usually quite inefficient as a business, growing slowly at a high marginal cost.
Most impact focused for-profit companies create limited impact for a lot of people who may not be the most in need. However, unlike non-profits their focus on revenue means they can raise or otherwise generate capital and greatly accelerate growth.
Impact startups and non-profits each fill an important role in the impact ecosystem. Impact startups can pilot innovative products that have a shot at creating a lot of impact. When they succeed they lay the foundation which nonprofits, low margin corporations and governments can build on to increase access or quality.
Take, for example, coding bootcamps: Their rapid rise established intensive technical training programs as viable alternatives to a traditional degree. The bootcamps that have succeeded may not have the most educational merit and their students often already have college degrees. However, they proved the viability of a product that can now by offered to underserved groups by non-profits and at higher quality by boutique for-profits around the world.
All this is to say, as an Impact startup grows it’s impact per customer will almost always go down, as their focus shifts from impact to revenue. However, if you can accept this or even embrace reach as an alternative metric for impact, you have a shot at inspiring a new wave of higher impact orgs. Your work is not better or worse than the work of someone at those orgs— it is another essential step towards filling the world with amazing positive products.
That’s it. 5 years of learning compiled into 5 bullet points. This, of course, is just based on my own experience. If your experience has led to different or conflicting insights please comment! If these resonate with you, also please comment!
[^1]: Point number 2 is especially true in situations where your customer is different from your user, a fairly common scenario in the impact space. For instance in k12 you’re teaching children but the parent is paying. Thus all your revenue is generated without the customer (parents) every experiencing the product. All your revenue comes from marketing to the parent— which includes the stories they hear from their child each day.
[^2]: Of course, there are parts of business strategy, like marketing, which have faster feedback loops and are eminently iterable. However, the impact part of an impact product is always hard to iterate on. In fact, the reason Matt and 4.0 schools push microschools is because they allow a faster iteration cycle than traditional k-12— one year instead of twelve!
[^3]: Interestingly, the stubborn storyteller phenomenon doesn’t just affect impact startups, but any company with significant lag between product development and feedback. This includes hardware companies (see Apple) and medical tech (see the disastrous Theranos)