Understanding the impact problem
Introduction
What is it and how does it align with traditional venture building?
Traditionally, founders choose problems based on criteria including: potential market, willingness to pay, and competition. Taking an impact lens means adding ‘potential impact to be created’ to the list of criteria, bringing issues like mental health and carbon emissions to the top of the list. In other words, it is about estimating the market for impact (i.e. how much impact can be realised).
After choosing a problem with impact potential, the next step is to understand the social and environmental outcomes of the problem and why they occur in a detailed and evidence-based way. Motivation for launching the business should partially be to improve the outcomes identified in this analysis. See Ophelos’ launch blog as an example.
How does it drive impact?
As with solving any problem, to achieve the desired outcome, it’s important to understand the drivers of the problem and why they occur. Detailed impact analysis is necessary to create impact.
How does it drive commercial value?
A desire to solve for impact can unlock unique opportunities. The salary finance innovation is a good example of this. The default model in the provision of credit to low-income earners was to extend an approach that worked for higher-income earners further down the pyramid. In other words, set interest rates at a level to offset defaults and maintain margins. However, in this particularly vulnerable group, that meant extortionate rates to balance the higher default rates.
Motivated by potential impact, pioneers of the salary finance model realised that there was another way to de-risk the provision of finance: earned but unpaid wages. Taking this less risky approach greatly reduced the cost to serve (as losses were reduced), generating favourable economics which made it possible to profitably serve a new slice of the pie.
In practice
What does good look like?
It is important to get to a deep understanding of why the problem occurs, how the startup will tackle this and what outcomes are expected as a result. There are a few frameworks to help break this down:
| Problem Dimension | Framework |
|---|---|
Why the problem exists and how the startup will tackle it | |
Understanding what outcomes occur, to who and how much | |
Categorising outcomes using an internationally established framework | UN SDGs |
Understanding a system, the outcomes it might produce and why |
Many of these frameworks require making assumptions about the future. It's important that these assumptions are credible and evidence-based where possible. In the same way it's important to test underlying assumptions from a business model perspective, it's equally important to test these from an impact perspective.
Some examples:
See Oyster's process for analysing and thinking through their systems change thesis
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