You know how sometimes you think you’re doing everything right, but then you find out you need to fine-tune your strategy? Unfortunately, there’s a lot of that going on in the investment world today — especially when it comes to mission-driven investments.
Most mission-driven investors look for scalable companies to invest in. Scalability is good; it promotes sustainability, helps investors make a wide impact, and increases the chance of attaining a solid ROI. Most investors view it as a primary indicator of a company’s value.
But when it comes to mission-driven investing, scalability simply cannot be looked at through its normal narrow lens. This view greatly limits investors’ options for having a social impact and overlooks a huge chunk of their potential candidates.
To really get the most out of each investment, mission-driven investors need to redefine their idea of scalability when searching for worthy companies.
Redefining Scalability for Change Seekers
Traditional investors view scalable companies as those that rely heavily or entirely on software and technology to reach their audiences. In other words, software-based services are viewed as highly scalable, while services with a high-touch component are often deemed unworthy of an investment.
If impact investors limit their scope to companies that fit this narrow definition of scalability, they end up excluding a large chunk of change-making companies that incorporate high-touch methods to bridge America’s digital divide. These overlooked companies recognize that a great number of low-income Americans still do not interact with technology the way middle- and upper-class Americans do.
Although many low-income Americans do have Internet access, they might only use it at the library or in the homes of friends and family. And while many in this demographic may use smartphones, they lack expensive data plans and, therefore, access to apps and online services. Mission-driven investors strive to reach those who are most vulnerable, so investing in companies that rely solely on exclusive and expensive technologies would be counterproductive.
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In addition to seeking software- or app-based solutions to social problems, mission-driven investors need to spend time diving into other business fundamentals while also balancing this with social impact. From a mission perspective, software-only solutions undercut mission-driven companies’ value because software-based solutions fail to reach the people who need help most.
How to Find the Right Socially Driven Investments
Here are five steps that mission-driven investors should take when seeking a scalable and socially minded company to partner with:
1. Don’t let the price tag scare you. Traditional scalability through software and technology is highly attractive to investors from a budget standpoint. The cost of providing high-touch services, however, carries a much heftier price tag.
Understand that the higher expenses associated with many of these business models is worthwhile when serving the needs of the most vulnerable. This doesn’t mean you can’t encourage businesses to proactively develop ways to make up for these costs and to incorporate those solutions into their business model.
2. Advertise yourself as a different kind of investor. Mission-driven companies are more than aware of the challenges they face, so they hesitate to implement high-touch solutions. They fear it will become more difficult to attract investors.
If you’re truly interested in reaching a wide audience, you need to make it clear from the beginning that you not only support these costly services, but also believe they’re necessary.
3. Look for companies that use technology in appropriate ways. Technology can’t be the sole medium for addressing social causes, but it also shouldn’t be completely neglected.
The best investment candidates are those that demonstrate a true understanding of the digital divide while simultaneously finding ways to incorporate technology into their offerings — like utilizing text messages or offering digital content and services that don’t require a download and can be accessed from public computers (how many low-income people use the Internet).
4. Get back to the basics. Redefining scalability is just the first step; investors should also look for multiple indicators of sustainability. As investors do across all sectors, mission-driven investors need to ensure potential investments have fundamental business indicators such as viable business models, substantial customer bases, and sustainable revenue streams.
If a company can do all of this while reaching vulnerable people, it’s likely striking the right balance between business imperatives and the obligations of social enterprise.
5. Be rigorous in measuring social results. Investors should be as rigorous in measuring social results as they are in measuring profits. In particular, investors should develop metrics for determining whether their investment will reach the most vulnerable people in their target demographic or the service they offer isn’t maximizing its impact.
Put simply, if you’re not striving to reach the most vulnerable, you’re not fulfilling your obligation as a social enterprise — or as a mission-driven investor.
It’s time for mission-driven investors to change their outlook on potential investment companies and begin searching beyond the narrow limits of traditional scalability. If more investors support businesses that find a reasonable balance between technology and high-touch services, the needs of the underserved will move back into the forefront and the impact of investments will surge.