Small Business

Building Purposeful Startups

March 27, 2020  • Srikumar Misra

Many startups could make long term change happen to address the two large problems that the world faces – inequality and climate change if entrepreneurs consciously build purposeful startups. So, what is being purposeful and why is building purposeful startups especially important? Purposeful businesses don’t get built by putting a layer of corporate social responsibility on the supply chain as an afterthought, neither by just launching some do good products, nor by cause-driven marketing. Purposefulness is certainly not something that can just be built into a businesses’s annual or medium-term plans or be injected suddenly. That’s why its important to build purposeful startups—because if the purposefulness is not there in its inception, its very difficult to infuse it somewhere down the road. It’s, of course, possible but that would involve a massive pivot for a company.

I founded Milk Mantra, a new age dairy foods startup to solve trust deficit between consumers and food in India arising out of opaque supply chains and adulterated food. And I believed that we could solve this problem by not just building a premium and innovative food brand and a scalable business, but also by creating an ethical sourcing network that would impact the lives of poor farmers as we grew. As our revenues have scaled up substantially over the last eight years to become a leading premium dairy brand in eastern India, in the same eight years, our ethical milk sourcing network has grown from just seven farmers to more than 60,000 farmers, many of whose income levels have gone up by up to 70%.

This deep impact was possible even whilst being a fully commercial startup and targeting industry-leading margins and with alpha return-seeking VC investors. To touch multiple aspects together early in our existence as a company we needed to have a strong sense of organizational purpose. This is how I think about a framework for a purposeful startup or business. If there are six dimensions – 1) Scale, 2) Commercial Business Model, 3) Financial Robustness, 4) Governance or Ethics, 5) Systems Thinking, and 6) Impact at Community Level.

  • A business or startup can just have the first three dimensions – Scale, Commercial Business Model, and Financial Robustness – and be successful (success as we generally see it) without having much to do with the other three dimensions.
  • When it’s all three dimensions plus governance, then you have a well run, corporate citizen business.
  • When you have all three plus governance and also systems thinking – you could get a real mission-driven disruptive company.

But when you have all three plus governance and systems thinking which also incorporates the sixth dimension of creating impact at a community scale, then you get to a purposeful startup or business.

Six Dimensions of a Purposeful Startup

From our experience of building a purposeful startup, I can share that it wasn’t as if each of these six elements were consciously planned. But, there was a strong belief to build something in a meaningful way that would solve a large market problem whilst having impact woven into its business model.

  • Scale was an essential ingredient, we didn’t want to create some very niche super-premium product or business that will just have a few customers and impact a few farmers – good to talk about but limited in its scope. It had to be big at least in a region in the medium term itself.
  • Very clearly, though doing good was in its DNA, the venture had to have an uncompromised commercial business model that put efficiency, profits and long term returns at its core. In fact, when scale and commercial had to both be there for something like this, it would need lots of capital right from day one. I needed $5m even before we could produce a single pack of milk. Realized back then in 2010 that there had never been any agri-foods startup which had been VC funded – It took me more than 20 months to do my first round of funding, and we became India’s first agri-foods startup to be VC funded. And starting with an impact VC investor, we went on to get mainstream private equity investors on board—scale and commercial business models were clear from a startup’s context.
  • Financial robustness had to be built up over a period of time. In spite of higher costs for transacting directly with thousands of farmers and higher technology investments, and in spite of paying farmers higher, our contribution margins are now amongst the highest in the industry – simply because the consumer believes in the value of the good that the brand is doing.
  • On Governance – the aspiration was to be comparable if not better than the best-listed companies, even though we were a startup. And we continuously incorporated best practices even though it was painful and some would argue, distracting, so early in a venture’s life.
  • And finally, solving this problem of trust deficit in the dairy value chain would need a systems approach to be truly disruptive and be able to create the change – to develop products at one end that are functionally differentiated and address the real pain point around trust for the consumer, to a systems approach to the entire value chain which was riddled with middlemen, farmer debt, significant leakages and inefficiency, lack of financial inclusion. And even if it took much longer than what a short cut would’ve done, we decided to only do this in a way which would have a deep impact on the lives of poor rural farmers directly, and at scale – that involved systems thinking to incorporate the impact dimension ground up.

As all these six dimensions came together, we were able to continuously build and strengthen a purposeful startup, and growing into a purposeful business that is able to make change happen at scale, impacting many lives by providing an opportunity for a generational change out of poverty, whilst building functionally innovative products that solve the nutrition trust deficit problem of urban consumers. Most consumer or market problems also present the opportunity to think laterally and structure disruptively scalable solutions that also have the ability to impact lives and our environment positively and encourage responsible behavior amongst both consumers and suppliers. Purposeful startups can do just that.

Srikumar Misra is a Kamalnayan Bajaj Fellow and a McNulty Prize laureate.

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