Start-ups strive for more than profits
When you ask most start-ups, whether in Poland or elsewhere, what their top goals are, they’ll usually mention something like traction, product-to-market fit, and of course, profits. Purpose or social impact are seen as something that might be a nice by-product, but it’s rarely the goal. However, two entrepreneurs, one from Poland and one from the U.S., are determined to change this view
At this year’s Bitspiration Festival, Ela Madej, a serial entrepreneur from Krakow best known for co-founding Applicake and Base CRM, and now with the investment firm Innovation Nest, and New York-based entrepreneur Seth Bannon, who founded the social good start-up Amicus, spoke together about the importance of maintaining your sanity and health while running a start-up. Thus, it seemed appropriate to interview them together.
Impact entrepreneurship, or creating companies that are not just focused on being profitable but that want to make a positive impact on society, is an almost unknown concept in Poland, and still relatively new even in Silicon Valley. In fact, the Polish entrepreneur (to our knowledge) to tackle this subject recently was Paweł Jarmołkowicz, co-founder and CEO of Harimata, a company that develops apps that detect autism in children. He recently spoke at TEDxKraków about running a profitable business that also creates good in the world.
At the moment, Ela and Seth are on the verge of starting an investment fund for these so-called “double bottom line” start-ups — though they can’t talk about that publicly yet. So instead, I asked Ela and Seth to tell me more about this concept, and whether they see a future for this kind of entrepreneurship in Poland.
Web.gov.pl: Seth, could you tell me a bit more about Amicus and what you do there, and how that’s going to work with this fund?
Seth Bannon: At Amicus we build tools to enable nonprofits to turn their volunteers into fundraisers and advocates. Essentially, oftentimes nonprofits have people who are really passionate about what they do and want to help out, but they don’t necessarily know how to have those people help aside from having them donate money. Amicus is a suite of tools to allow those supporters to actually reach out to their friends, their family, neighbors, etc. in support of a cause they care about.
The primary app allows people to log in, and they’re given a list of people they can call through the app, like a Skype call with a script that the nonprofit wrote for them, so they can automatically type their answers in. In exchange for doing this they get points and levels and badges, and there’s this whole game layer. Another feature allows them to send actual physical postcards to potential donors. Both these things are very popular in the States — I think phone calls and postcards are less popular outreach tools in Poland.
Do you see this idea of impact entrepreneurship developing here in Poland at all?
Ela Madej: I think it’s not a trend yet, for sure. Obviously due to the fact that many of the markets we’re talking about and the problems we’re talking about are an invitation for a very profitable business, there are entrepreneurs solving many socially important problems in Poland too. But I think it’s more scattered. There’s not much thought yet in the start-up world about social responsibility. People are familiar with corporate social responsibility and what corporations have to do because they’re making ridiculous amounts of money and maybe [social responsibility] would be good to attract better talent or whatever their goal is.
The community is still very young and people right now are just focused on making a profit and scaling. It’s more selfish right now — which is OK. I think it’s a phase, and maybe people also need more role models. To be fair, even in the U.S. part of what incentivizes us is that people still don’t think you can combine purpose and profit. People think of traditional impact or nonprofit investing — philanthropy as putting money into nonprofits because you want something happening in the world, but never returning any money.
There’s a growing number of impact companies that from day one are built as for-profit businesses, because it gives you more freedom. It actually allows for a more flexible dynamic — you’re not dependent on the funding. Some entrepreneurs are very wisely choosing to start a for-profit corporation because they think it will help them achieve what they want and maybe even impact the world positively on a bigger scale.
SB: In Poland’s defense, it is a much younger ecosystem, and even in the States, which is obviously the most evolved entrepreneurial ecosystem in the world, seven years ago if you walked into a VC’s office and said that you’re a double bottom line company, meaning that you cared both about profits and about purpose, you would be laughed out. Like, “get out of here, you hippie, we’re looking for people who actually want to make money!”
Now, no VC will blink their eye, because they’re starting to understand that there’s some competitive advantages to being a purpose-driven company. It’s easier to recruit talent, it’s easier to retain talent; people who work at a purpose-driven company are more productive because they’re happier. It’s easier to get press; customer retention is higher because like being involved in a company with a purpose.
EM: Founders are also less likely to give up because they have a sense of purpose.
SB: It think Poland will get there. It took the States a long time to get there and for people to recognize this, and even in the States, as Ela mentioned, there’s still this dichotomy in most investors’ minds in which if they want to invest for impact they have to go to nonprofits and if they want to invest for profit they have to go to the stock market.
One of the things we want to do is really break down that dichotomy and show that the best investments in terms of capital return are also the best investments in terms of positive impact in the world.
EM: One thing that needs to be noted is that for a long time, Silicon Valley has been using the phrases “making the world a better place” and “changing the world”, but this is not what we’re talking about. Let’s say that when an e-commerce automation company says they’re trying to make the world a better place, they’re actually just trying to make money so they’re trying to make their world a better place, which is obviously going to happen for them if they get rich, but likely the social externalities of e-commerce companies being able to put more stuff that people don’t want into their hands or to trick people into compulsive buying — that’s easy to verify if that’s actually a universe where the world is a better place.
SB: There’s a great Turkish Airlines commercial in which they’re announcing that they’re starting flights out of Silicon Valley, and the commercial is two guys on a plane next to each other and they’re both entrepreneurs and they’re talking about how Silicon Valley is so great because it’s where they have impact and can really innovate and really move the world forward. And one guy asks the other guy, “What does your startup do?” And he says, “Oh, you know, it’s like Instagram but for cat photos.”
So we almost hesitate to use the word “impact” because it sort of has been co-opted. But we’re interested in start-ups that are improving or solving systemic societal problems; startups that are solving the food shortage problem in the third world, or helping people in the first world to eat healthy; people that are curing diseases, improving the education system, people that are solving the global warming crisis by investing in alternative energy sources — these are the sort of companies that we’re interested in.
EM: We can name some of those companies right now that actually combine profit and purpose. Take Tesla, for example. It’s easy to say that yes, if we were off fossil fuels, the world would be better off. Yes, there are going to be some negative externalities, but probably not bigger than what is happening with fossil fuels.
SB: There’s a company called Hampton Creek that uses plant proteins, like 30,000 combinations of plant proteins, to emulate the emulsifying effect of eggs, to try to get the world off of factory farming. They’re doing incredibly well now. There’s another company called Clever that built an API on top of K-12 computer systems to allow app developers to develop apps for students, to push education forward. But even things like a company called Cruise, who make a self-driving attachment that you can put on your car that makes it self-driving. In our mind, that fits our criteria, because if you have self-driving cars that’s a million fewer deaths per year. That actually is improving the world in a serious way.
EM: If we want to start talking about this here in Poland too, we need to plant the questions in peoples’ heads — “what’s really the purpose of what I’m doing?” As an investor, it’s an extremely important question to be able to ask any entrepreneur, because you may have some fuel for six months, for a year or two, but you need something to push you through in years 3, 4, 5… 10, etc. You need that energy and that idea to be contagious, and I don’t think, in most cases, that e-commerce automation is going to make it.
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Originally published at www.web.gov.pl.