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As the world confronts urgent public health and environmental challenges, a growing number of entrepreneurs are launching ventures that aim to both turn a profit and solve social problems. The boom in these “social impact” enterprises includes mission-driven companies like sustainable shoemaker Allbirds and plant-based meat producer Beyond Meat. Money is now flowing into sustainable startups at a record pace, the investing market hitting a record $715 billion in 2020, according to the Global Impact Investing Network’s “2020 Annual Impact Investor Survey.”
Are these growing ranks of purpose-led startups truly making a difference? Measuring organizational impact is always challenging, but establishing accountability is even more complicated when social objectives depend on consumer choices. A recent Capgemini Research Institute study illustrates some of the contradictions: While 79% of respondents indicated that they consider sustainability when making purchases, most lacked awareness of the actual environmental or social consequences related to everyday products. But it’s wrong to place the blame squarely on well-intentioned consumers, given a 2021 report by the International Consumer Protection Enforcement Network (ICPEN) that indicates up to 40% of brands’ sustainability claims may be misleading. For many, social impact is simply the latest buzzy marketing trend.
Mission-driven founders should not throw in the towel just yet, however, as there is widespread and growing demand for business-to-business (B2B) solutions that drive sustainability goals. Responding to regulatory pressure and burgeoning interest for environmental, social and governance (ESG)-focused investing strategies, leading companies like Apple and Amazon are making bold commitments toward specific and measurable sustainability targets on issues from modern slavery to greenhouse gas emissions.
B2B solutions in the spotlight
Setting a target, however, does not guarantee action. To make good on corporate responsibility commitments, most companies will rely on third-party expertise and dedicated suppliers. Even Microsoft, which set a new standard with its plan to become carbon negative by 2030, admits that achieving this goal will require “technology that doesn’t fully exist today.” Yet, the current B2B landscape, dominated by legacy players, may not be up to the task. Now, a sustainable solutions arms race is quickly heating up to bridge this gap. For socially-minded founders, this presents a textbook opportunity for disruptive innovation and a chance to help build a greener and more inclusive economy.
Key reasons why B2B startups can achieve huge social impact:
1. The time is right for B2B startups
Consumer-facing startups may get more media attention, but momentum is growing for B2B providers: venture capital investments into enterprise startups overtook their business-to-consumer (B2C) peers in 2019 and continue to dominate deal-making. This trend will continue as companies transform their risk practices in response to recent disruptions, especially those in their supply chains. A recent survey from Resilience360 and Business Continuity Institute found that 73% of manufacturers and retailers encountered supplier challenges last year, with over half adopting technology to mitigate future risks.
The key issues business leaders are being urged to address next are sustainability, transparency and reputational challenges. Startups that help businesses understand and mitigate these risks, such as providing new data-driven insights or more sustainable options, will have their pick of customers. As ideas around ESG and social purpose become more mainstream, founders can expect to spend less time making a case for social impact and focus instead on the strategic advantages their products enable.
2. B2B and social impact market synergies
From funding models to exit prospects, enterprise startups are on a different trajectory than B2Cs. Purpose-driven founders will increasingly find the B2B market better aligned with their strategy, and values. Principally, the social impact model, focusing on delivering long-term benefits to a broad set of stakeholders, contrasts starkly with the “growth at all costs” mentality typical among B2C founders.
The different approaches to marketing and sales exemplify the divide. Studies show that consumer buying decisions are influenced heavily by seemingly arbitrary circumstances, such as a person’s surroundings. Thus, to acquire new customers, B2C brands invest heavily in efforts to advertise their products at precisely the right time and place. But for social impact businesses, these marketing costs represent precious resources diverted away from impact objectives. Enterprise customers, on the other hand, tend to make more rational and predictable buying decisions. This dynamic allows purpose-driven B2B companies to focus on their product and its capabilities instead of messaging.
The B2B buying process is complex and protracted, but even a single major customer can deliver product-market validation. B2Bs have time to grow organically, achieve stable profitability, and mark consistent progress on impact metrics. With a set of key accounts instead of millions of leads, there are also more opportunities for educating enterprise customers on sustainability issues and co-innovating solutions.
3. Delivering your impact at scale
Few of us measure our carbon footprint, or study the labor laws of the countries where our electronics are assembled. The same was once true for businesses, but recent years have witnessed an explosion of corporate reporting, with KPMG reporting that 96% of the world’s 250 largest companies issued sustainability reports in 2020. Leading companies are taking disclosures a step further by quantifying impacts across extended supply chains, which are responsible for more than five times the emissions produced by direct operations. Supply chain operations for consumer companies create far greater environmental costs than their other operations, accounting for more than 80% of greenhouse-gas emissions and more than 90% of the impact on air, land, water, biodiversity and geological resources. Given the global profile of today’s major enterprise customers, founders can vastly expand the reach of their solutions by going B2B.
In fact, it is increasingly possible to design sustainability interventions around data published by corporations or their competitors, such as progress toward plastic reduction goals. The rising uptake of “Internet of Things” and analytics applications mean that statistics like emissions abated, gallons of water saved and whistleblower complaints are available in real-time. To access such data, B2B providers must build open and honest partnerships with their customers—a relationship that is hard to replicate with fickle, increasingly privacy-conscious consumers.
Rethinking the social purpose of business
The common refrain among companies is that ESG is a “journey.” But just as every traveler needs a guide, no company can single-handedly solve the systemic issues society faces. In the not too distant future, sustainability, purpose and social impact may well become primary business imperatives. On this journey, it is a certainty that B2B needs visionary entrepreneurs to demonstrate the power of doing well by doing good.