How is impact created?

To find specific guidance on how to improve your impact, see our guides for building impactful business models.

There are three sources of impact within a company:

1. Impactful business models – i.e. creating impact through selling impactful products/services

2. Impactful operations – i.e. operational decisions made across the value chain which affect impact (analogous to ESG) and are applicable to any company regardless of whether its business model is explicitly targeting impact

3. Impactful profits – i.e. the traditional model of creating impact for a firm: through philanthropy, CSR, or cross-subsidizing models

Each of these approaches can enhance impact (i.e. each can create a positive change in outcomes for people and/or planet) and so a good first step for founders is to ask: which of these three levers to enhanced impact do we want to pull?

Within each of these three sources of impact, there are two pathways to creating impact:

1. Direct impact - impact is created as a direct consequence of an action

2. Indirect impact - impact is enabled further down the value chain, often with a time lag

Impact Source	Direct Pathway	Indirect Pathway
Impact from Business Models	Wagestream: Its affordable finance product generates impact with each transaction	Sophia Genetics: As a B2B model, impact isn’t created directly with each transaction, but the improved analysis and treatment-related insights the platform generates allows medical institutions to enhance their impact
Impact from Operations	Lyft: Its ESG policy has a number of initiatives aimed at reducing the burden on the environment and improving driver wellbeing	Tesla: Its open source approach to innovation enables other actors in the ecosystem to accelerate the transition to green
Impact from Profits	Headspace: A cross-subsidy model helps to extend mindfulness related outcomes to students and lower income populations	Oyster: An HR platform enabling distributed employment with discounts for charities and social enterprises. By making talent acquisition cheaper, this strengthens the financial position of charities helping them create more impact through their programmes

Taking steps to improve impact along these three pathways is positive but it’s important to recognise that different actors have different thresholds for what they look for when it comes to impact. In a venture context, most impact investors are looking for impactful business models as these provide the highest leverage for impact (smaller teams reaching much larger user groups). Ultimately, the sweet spot is a company pulling all three of these levers whilst also managing negative impacts to create as much net impact as possible. This will only be possible over the lifetime of a venture (most early stage ventures don’t have profits!) but it’s important to be thinking about it early on.