Systemic Venture Building: A Whitepaper

How to create social ventures that can achieve transformative change.

This is the introduction to Systemic Venture Building, a whitepaper published by Metabolic Ventures in October 2020. Read the full publication here.

Introduction

The word ‘venture’ was originally used as a verb, meaning to “undertake a risky journey” or “attempt without any certainty of success”. The use of the word arose during the emergence of capitalism in the 16th and 17th centuries as accumulating wealth from trade was then invested into increasingly productive technology and risky seafaring endeavors.

Today, while it is sometimes applied more broadly as a “young organization”, the word venture is typically understood as a startup, which in turn is understood as a young, for-profit enterprise in search of a business model that can achieve exponentially scalable growth.

For a handful of centuries, this daring attempt at untold riches was perhaps an unreasonable but respectable and exciting goal. And it has become lionized in our current culture: the mythos of the startup, armed with a new innovation, seeking to fulfill its destiny as the ‘next Google’ or regional equivalent, resulting in untold riches and influence both for itself and its stakeholders.

But current trends are causing many to reflect upon and reconsider the foundational purpose of the venture — both established companies and newly formed startups. When climate models are updated with dramatically worse predictions, or when studies are published that show the universal ubiquity of plastic particles in our ecosystems, or when we’re reminded that a degrading natural environment is one of the main culprits of the worst pandemic in over 100 years, we’re forced to rethink the foundational objectives of the modern enterprise.

Since its emergence in the 1970s alongside the Club of Rome’s report on the Limits to Growth, social entrepreneurship has left the fringe to become a powerful cultural force in mainstream business thinking, partly propelled by an increasingly worrisome environmental outlook.

The movement of social entrepreneurship and social innovation, and the infrastructure that has sprung up around it, has been crucial in creating a mindset shift among younger generations and future entrepreneurs, to the point where one-third of all new businesses are formed as social enterprises.

This entrance into the mainstream has coincided with well-known proponents of commercial business making dramatic proclamations about the need for change. A recent report by the World Economic Forum stated: “There is no future for business as usual — we are reaching irreversible tipping points for nature and climate, and over half of the global GDP, $44 trillion, is potentially threatened by nature loss.” The originator of the Triple Bottom Line concept in 1994, John Elkington, recently “recalled” it in the Harvard Business Review as a failed and misused approach 25 years later.

Yet social entrepreneurship has somewhat of an identity crisis. Broadly speaking, social enterprises seem to either eschew business approaches and act like NGOs or embrace growth and profit at the expense of real and lasting change. There are very few examples of social enterprises that manage to be true to their values and objectives while achieving real commercial success.

It would be great if social enterprises could be both “wildly good” and “wildly successful”, but even that would be aiming too low. The concept of social enterprise needs to be evolved one step further to embrace its role in creating transformative impact, not simply creating positive impact. The purpose of a venture should be to transform a system from one state to another, not to simply “do well while doing good”.

Steve Jobs, responding to criticism at the 1997 Worldwide Developer Conference for not embracing products that were not only open source but were better in almost every way, remarked that in order to create billion-dollar companies one has to work backward from the customer experience to the technology.6 Perhaps better than anyone, Steve Jobs understood the core insight behind modern customer-centric venture building methodologies. But Jobs was missing a crucial first step; given the challenges of modern society, we have to work backward starting from the challenges we face, and the solutions that could address them.

This whitepaper is about how we can approach building ventures that have systemic or transformational impact on society. In this whitepaper, we discuss:

1. Why the silos that we have created around for-profit and nonprofit organizations are no longer helpful.
2. How a new way of thinking about and approaching social entrepreneurship can increase our ability to create transformative change.
3. The frameworks and principles that help us think about and build systemic ventures.
4. How Metabolic is shaping its own venture building approaches in order to embody these principles and test their underlying assumptions and efficacy.

Summary

In this paper, we outline our philosophy for social ventures that can achieve true transformative change: what we call systemic ventures. Making the world “a little bit better” is an insufficient goal for these ventures; far beyond an incremental change, they seek a truly alternative state.

We explore four overarching principles that shape the design and implementation of systemic ventures.

1. Starting from the challenge

Without a full and comprehensive understanding of the challenge, no idea is likely to be good enough to create the desired impact or to succeed where other solutions have failed.

This means using systems thinking to develop a strong understanding of the challenge dynamics, market dynamics, and what is required to change the way the system works, not just capitalize on an opportunity. Starting from a challenge involves a desire to address the root causes as deeply as possible.

2. Removing the imperative of financial growth

The structure of the global economy, which demands constant, linear growth, is at the root of what is driving many of our social and environmental challenges.

We think that viewing financial growth as the only driver for scaling of positive impact is misguided. We propose a series of typologies and archetypes of scalable impact that paint a picture of the many alternative approaches to achieving transformational change. These typologies show that financial growth can be uncoupled from the effective scaling of impact.

3. Protecting the mission of the enterprise

A systemic venture needs to protect its purpose from external influences that may lead to decisions and directions that conflict with its overarching mission and play into the growth paradigm. Steward ownership is an emerging set of approaches to accomplish that goal.

4. Institutionalizing impact innovation

The Lean Startup method, which integrated elements of the scientific approach to venture building, was popularized in the early 2000s in the technology startup scene. We outline the potential use for this not only in validating and steering commercial success but also in delivering impact.

Sustainable business models are another element that can often play a critical role in enabling a social venture to deliver its value proposition at scale. They build a coherent bridge between the challenge, the solution, and the business model. We provide an overview of these models that can help move past previous barriers to change.

Finally, we talk about using a studio model of venture building to systematically produce ventures by utilizing pooled knowledge, resources, money, and talent. We see the studio model as uniquely suited for building a portfolio of such unique ventures from scratch.

Building ventures is hard. Building ventures that enable systemic transformation is even harder. As we see it, to deliver transformative change at scale requires an alchemy of a range of elements — an ambitious goal for systemic impact, a focus on the most significant challenges, and the use of systems thinking as a tool to address them, new enterprise structures to protect the broader mission, a scientific approach to commercial and impact validation, and the leveraging of venture building at scale through a studio model.

Our aim is not merely to outline a vision. We aim to provide a map — albeit an introductory one — to how to approach building systemic ventures.

Who this whitepaper is for

We have written this whitepaper for anyone wrestling with how to more effectively shift our economic system using enterprise as a vehicle. It is for the (potential) entrepreneur thinking about starting a new venture with positive impact who may not know where to start. It is for the philanthropy that embraces market dynamics as a force for change but rejects a for-profit ethos as a guiding philosophy of business. It is for the investor looking for new models to increase the impact of their investments. And it is for the policy maker who wants to reduce the divide between social impact initiatives and highly scalable, commercially successful ventures.

You can read the full whitepaper here.