Social Impact Startups Challenges: Mentor Shorts Demetrios & Amu
We had the privilege of hosting an insightful conversation with Demetrios Sapounas, a seasoned mentor with over 20 years of experience in the startup ecosystem. The discussion, facilitated by Amu Fowler, Founding Partner at Startups Ignite, provides practical advice for startups navigating the challenges of the entrepreneurial world.
Demetrios delved into two critical issues that startups often grapple with: understanding their target market and securing early-stage capital. Demetrios underscored the importance of identifying the market's needs, rather than being solely driven by an innovative idea. The conversation took an interesting turn as it shifted focus towards the unique struggles faced by social impact startups. Demetrios shed light on the tough balancing act these startups have to perform between advancing their mission and appealing to traditional investor funding. Throughout the interview, one theme stood out - the importance of flexibility. Demetrios emphasized the need for startups to be adaptable, to listen to the market feedback, and to be ready to adjust their approach while holding steadfast to their vision.
Amu: Hi Demetrius, welcome to our mentor show at Startups Ignite. You've been mentoring with us for many years now, and I must say you have a deep understanding of product strategy. What sets you apart is your combination of product strategy and corporate strategy, which brings a holistic executive leadership to the startup domain.
Demetrios: Thank you, Amu. Yes, I do bring together business and technology based on my background and experience. I've been involved in the startup ecosystem for over 20 years. Some of those years were spent with my own startups where I either founded or co-founded them. In other cases, I joined existing startups, helped them grow, and even had a few successful exits along the way. For the past three or four years, I've also been mentoring and coaching entrepreneurs through the Small Business Development Center, where I've encountered various early-stage concepts and companies. Throughout this journey, I've noticed common themes and issues that many early-stage companies struggle with.
Amu: That's impressive, Demetrius. You have a wealth of experience to draw from, both personally and from working with ventures from their early stages to their successful exits. Recently, you've been more focused on mentoring and coaching at scale, and that's invaluable expertise that you bring to the table. You mentioned seeing a lot of issues and common themes among early-stage startups. What are some of the recurring themes you'd like to discuss today?
Demetrios: Certainly, Amu. There are two types of issues that I commonly come across in startups. The first is that many founders have a concept and an idea of what they want to do, but they often lack a solid understanding of the market. Specifically, they struggle to identify who their customers are and what their customers actually want and need. There seems to be a disconnect, as many entrepreneurs believe that their idea is universally appealing, only to realize during the validation process that the market doesn't actually need their product or service.
Demetrios: The other common theme I often come across is the challenge of accessing capital, especially at the early stage. Many startups ask, "Where can I get funding? Are there grants available?" However, unless you have established connections or are a known entity in the funding community, it can be extremely difficult to secure capital. In such cases, it is often best to approach funding in stages. This means finding ways to fund the initial stages yourself or partnering with others who can provide both development support and funding to help you progress to the next stage of development.
Amu: You bring up two significant issues that startups frequently face: identifying their first early adopter market and securing funding. It's important to unpack this further. In the upcoming programs I've been involved with, many startups focus on social impact, and they have a clear understanding of the problem they aim to solve. They also come up with impactful ideas to address these problems. However, building a viable business model around social impact can be challenging, especially when the beneficiaries of the solution may not necessarily be the paying customers. Additionally, I've noticed that some startups have multiple pilots running concurrently, often in different sectors, which presents its own set of challenges. Identifying the customer and market in such scenarios can be quite difficult. I'd love to hear your thoughts on this.
Demetrios: Absolutely, Amu. Especially at the early stage, it's crucial to maintain focus. I've observed some startups attempting to do too many things simultaneously, which becomes overwhelming due to limited resources. It's important to concentrate on one area and achieve success before expanding further. In the case of social impact concepts, where there is a clear beneficiary, it becomes essential to penetrate the market and ensure that the solution provided is something people are willing to pay for. Moreover, there is a need to consider how to expand beyond the initial market, whether by offering the same concept to a larger audience or by modifying the concept slightly. This expansion is necessary to create sustainability and explore additional ideas for growth. It's indeed a challenge because startups are driven by their desire to make a positive impact, but without a sustainable business model, funding can only go so far.
Amu: You're absolutely right. Balancing the social impact with scalability and viability is crucial. As we focus on social impact and emerging technology in our program, it becomes even more important to consider the intersection of focus, scalability, impact, and the business model. I understand it's a complex question, but any insights or advice you can share would be greatly appreciated.
Demetrios: It's definitely a tricky situation because depending on how you approach these factors, they may appear to be mutually exclusive.
Demetrios: When it comes to social impact, there is significant potential, but bringing an idea to the market and operating it requires funding. The question then arises: Who will bear the cost? Will it be government organizations, private industry, or another customer segment that needs to be identified? Without a clear identification of who will pay, it becomes challenging to gain serious consideration and secure the necessary capital. Scalability becomes a factor as the startup progresses and identifies the size of the market. It's important to explore related markets where similar technology or concepts can be applied, even if the initial market is relatively small. This allows for scalability by repeating successful patterns, whether in the same market or through slightly modified concepts.
Amu: I love that approach. It's what all the startups are grappling with as they strive to make a positive social impact. I'm grateful to have you on our team to guide them through these challenges. Moving on to the topic of funding, which relates back to social impact, we encounter another hurdle—social impact meeting VC or traditional investor funding. There are investors specifically interested in social impact outcomes, while others may not prioritize social impact or even view it as separate from business. How can we navigate these complex conversations and help startups demonstrate the convergence of social impact and a viable business?
Demetrios: It's indeed a tricky conversation, and it begins with the concept itself. Startups aiming for social impact must address the fundamental question of whether they will operate as a business or a nonprofit. This decision depends on the nature of the solution being offered. If the market cannot pay for the product or service, operating as a nonprofit may be necessary. However, it's important to note that investors typically seek a return on their investment, so securing funding as a nonprofit may require grant proposals and other avenues. On the other hand, if there is an existing market that can pay, it's easier to convey the value proposition to investors. However, when there is no market, the startup faces the challenge of creating one from scratch. In such cases, it's crucial to deeply understand the customer, articulate the problem, and outline how the startup will penetrate a non-existent market. Creating a new market is always difficult. Most startups in our program are for-profit and aim for the Triple P—triple impact business models. Nevertheless, even with viable business models, there are many moving pieces and the need for systems thinking. Sometimes, the gears don't seem to align, and it becomes necessary to be flexible and adjust the approach.
Amu: Flexibility is indeed crucial. Vision should remain constant, but the path to achieving it may require adjustments along the way. Without flexibility, it can be challenging to navigate the ever-changing market dynamics. Thank you for sharing such powerful insights. As we conclude this interview, I want to express my gratitude for your time and expertise. I'm excited to work with you, and I appreciate your valuable contributions.