As an angel investor, most of my impact investments are focused on earlier stage ventures looking to grow and scale both their business and their impact. It’s truly exciting to be a part of an entrepreneur’s growth and watch a business grow every year in orders of magnitude. More than ever in terms of businesses focused on impact, however, investors have a responsibility in helping to guide that growth sustainably.
One of the most powerful things we can do is to help entrepreneurs nail it before they scale it (note: not my phrase and I can’t find the true source but now widely taken up in the entrepreneurial scene!) Once a founding team has taken on outside investment, the need to scale (and often to exit) might feel like huge pressure. And of course, it is. Investors are looking for scaled impact, and returns, and that requires growth. But we (especially those of us on the board) are also responsible for weighing in on how that growth happens.
If it is an impact-oriented company, we need to make sure that the core vision and mission are solid. It might mean making decisions as investors to support a route to long-term revenue and social impact that sacrifices short-term returns, or even sacrifices a short-term exit. Or it may not. Those entrepreneurs who are genuinely trying to make the world a better place deserve patient capital, and they deserve the opportunity to take risks (and sometimes to fail) as they tackle our most entrenched social problems. If impact investors are in this to solve problems, there is also money to be made – but we need to be patient.
Scaling too fast is not only about potentially sacrificing impact – it also may mean sacrificing the entire business. If a business takes a product to market when it is not ready, fails in understanding their customer, sells the wrong service, gets the business model wrong, or doesn’t get the core staffing right, it can damage its credibility with customers and partners. Making big mistakes in a business that answers to a community, to vulnerable employees, or to disadvantaged consumers, also often costs more than money.
I have seen entrepreneurs take on investment and then need longer than they think it will take to test and refine the model before any grand strides are made, and if I’m investing at that early stage, I have to accept that. I want them to get it right. I want to see them learning and adapting rapidly. But some things also take time. At events like Skoll World Forum we see those amazing entrepreneurs who have made it – but most of them were on a path to success that was slower than one might hope, and often uneven. There are few “overnight successes” in the impact space. It might take a generation to change some of society’s attitudes towards social issues, and investors need to decide if they are okay with that and where they fit, therefore, in the timing of their investment in a venture (whether to come in earlier or later).
We need to understand that it isn’t always possible to nail it immediately: sometimes it takes time. And trying to scale it– whether its by expansion, franchising, replication, or whatever the strategy – too early can be the worst thing to do.
That is not to say we cannot drive for acceleration. Entrepreneurs need the backing of their investors and board members to help them bring the business to its full potential. Working in the business might not leave an entrepreneur enough time to work onthe business – investors can play a role in helping teams to refocus and consider the big picture or evaluate whether they are ready to scale. As investors, we’re in a strange position where we need to be impatient with our drive for clarity (giving the entrepreneur the energy they need to grow) and (sometimes) patient with our capital.
Once they have nailed it, though, and its time to scale – then that’s the time to move fast. More on that in another post.
This post was originally published at ClearlySo