5 Extra-Financial Key Indicators of Performance for Tech Startups
Extra-financial criteria increasingly make the difference in the performance of a large number of companies — tech startups being no exception — and should be measured alongside financial KPIs to assess a company’s performance and overall health. But where should you start? Three words: Corporate Social Responsibility (CSR).
CSR — commonly known as RSE in french — is a risk management practice by companies to monitor their impact on all aspects of society, including economic, social, and environmental. Not having formalised your CSR policy does not necessarily mean that you are not already tackling non-financial factors of performance in your corporate strategy or that you cannot start doing so now. That being said, implementing a CSR policy is not that complicated and should be encouraged.
To help you in this process, I have identified 5 key elements you should consider as a tech startup to assess your company’s health. These elements are based on the analysis of other companies’ past failure or success stories due to their CSR policy and practices (or lack thereof).
🖋 Strong mission statement
Mission-driven companies are increasingly taking over performance-driven companies in the startup ecosystem because the power of their mission is often the key ingredient to their success.
Nota bene: not all mission-driven companies are impact companies. An impact company is a company addressing one or more of the 17 UN Sustainable Development Goals (SDGs).
To be efficient, a company’s mission must be clear, ambitious and serve as the spine of the company’s body. This is the case for Back Market, Blablacar, Yuka and OpenClassrooms.
Success stories
Back Market’s mission is to restore trust and desire for refurbished devices with the end-goal of reducing the environmental impact of our consumption of electronics (SDG 12, 13). While the company’s core activity is a marketplace, its side activities are driven by the same mission. One example is their Co2nscious project, a widget that helps device owners limit their carbon emissions every time they charge their phones or tablets. To this day, Back Market accumulates $176 millions in funding and is the reference in Europe for the sale of refurbished devices.
Blablacar’s mission is to bring freedom, fairness and fraternity to the world of travel. Blablacar claims to have both a social impact through the social ties created by carpooling and an environmental impact through their zero empty seats goal which saved 1.6 million tonnes of CO2 in 2018 by BlaBlaCar carpoolers (SDG 11). To this day, Blablacar accumulates $448.5 in funding.
Yuka’s mission is to improve consumer health by helping them make sense of product labels and make better choices for their health (SDG 3). As of January 2020, the app had been downloaded over 15 million times and is used monthly by 5.5 million users.
OpenClassrooms’ mission is to make education accessible to everyone, everywhere (SDG 4). They stand out from other e-learning platforms with their impact-driven goal: that one million OpenClassrooms students find jobs and advance their careers each year by 2025. They accumulate $69.7 million in funding and have a traction of over 3 million users per month on their platform.
Failure stories
On the contrary, Palantir’s mission — “We go where we’re needed most” — is very broad and open to interpretation which has led the company to many problems in its history. The company was more than once at the centre of protests and public indignation due to its business activity and the services delivered to its clients.
For example, its product was believed to be used to track illegal immigrants in the US and deport them through their partnership with ICE (U.S. Immigration and Customs Enforcement). Even though Palantir has responded that its software is not used to facilitate deportations, Amnesty International released a report in September 2020 criticizing Palantir’s failure to conduct human rights due diligence around its contracts with ICE.
However, Palantir’s products are also believed to help investigators uncovering human trafficking rings, finding exploited children, and unraveling complex financial crimes. Under the political circumstances, it is hard to determine whether the social impact of Palantir’s products is mostly positive or negative.
An assertion one could make is that when a company’s mission is not clear, it is hard to assess whether its business activities are aligned with its mission without having a biased opinion based on political beliefs.
🎯 Healthy governance scheme
This element is critical to make sure that the governing decisions are taken multilaterally with the company’s best interest at heart.
Some key metrics of a sustainable governance scheme include the percentage of women and independent members in the shareholding governing body, the percentage of women in the operational governing body, the balance of voting rights per member and whether the board reviews CSR and ethics on a regular basis.
Success stories
In the case of Kering, more than 60% of board members are women including independent board members and representatives of employees and ⅓ of its executive committee members are women. According to the Corporate Knights’ Global 100 ranking 2019, Kering ranks second among the 100 most exemplary companies in terms of sustainable development. Kering is the only luxury group in the ranking, making sustainable development one of its core differentiators.
Failure stories
Uber is a perfect example of the problems that can occur from unequal voting rights schemes on boards, usually to give more power to founders. The company’s founder, Travis Kalanick, had superior voting rights and installed an aggressive culture within the company which resulted in a list of scandals surrounding Uber’s toxic working environment, fraudulent behavior and dysfunctional corporate governance.
On the recovery journey to improve its image, Uber’s board agreed to expand from 11 board directors to 17 board directors, increasing the number of independent members to seven. However, these scandals affected Uber’s reputation and its competitor Lyft increased its market shares.
Theranos’s downfall can also be explained by poor executive management and governance practices. The ruling couple’s — Elizabeth Holmes and Ramesh Balwani — first motivation behind their company’s success being power and money, the entire company was based on fraudulent practices and toxic corporate culture. An example being the “F*** You Sonora Quest” song (Sonora Quest was Theranos’ first competitor) which the once multi-billion dollar valued InsurTech company’s former employees were encouraged to sing. This practice was described as “normal” by Holmes’ legal team to motivate employees.
Palantir is another example of unhealthy governance leading to bad internal practices. Since its creation and until recently, the company’s board of directors had only Peter Thiel (a controversial co-founder known for giving quotes such as “I no longer believe that freedom and democracy are compatible” and public supporter of Donal Trump) and three men (none of which were independents). In 2016, a lawsuit was filed against Palantir alleging that the company discriminated against Asian job applicants on the basis of their race. Palantir settled the suit in April 2017 for $1.7 million while not admitting wrongdoing.
In June 2020, Palantir decided to add three independent directors to the board including a woman. This decision seemed to be compliance-driven rather than mission-driven considering its timing: Palantir was planning an approaching IPO and the state of California requires that public companies include one woman minimum on their board. The question is, does the intention behind this decision make it less valuable? or less effective? Only time will tell.
⭐️ Positive corporate culture
The company’s culture is a key element to its success as it is a source of motivation for employees and attracts talents, investors and customers. The examples of Uber, Theranos and Palantir cited above show how an imbalance of power in the executive management and governing body can lead to a toxic corporate culture and bad practices. Below are inspiring examples of how a company’s culture can either become an asset or a liability.
Success stories
Alan’s mission is to make healthcare frictionless, fair and friendly for everyone (SDG 3). The insurtech company stands out in the startup ecosystem for its promotion of a healthy corporate culture. Alan’s co-founder Jean-Charles Samuelian-Werve notably wrote a book called Healthy Business about his vision of corporate culture mixing well-being and performance. Alan’s genius is having invested in their culture to turn it into an important asset. Alan accumulates €125 millions in funding.
Failure stories
On the contrary, an example of how corporate culture can become a serious liability if you let it slip and focus on ‘more pressing’ business issues is Facebook.
In 2018, Facebook faced scandals after scandals and was accused of promoting bigotry, racism, xenophobia and hate speech (and more) which led to a consequent PR nightmare (more info here). If you’ve watched The Social Dilemma documentary on Netflix, you know all about Facebook’s unethical business model and the negative consequence of this on users. How does that relate to the company’s culture? Here’s a simple explanation: the way their platform has evolved over time is reflecting a neglected company culture that has focused on generating revenues and has not paid sufficient care and attention to its societal impact.
This story highlights the importance of nurturing its culture and ensuring that its values and mission continue to remain relevant as the company is growing in scale and impact.
A recent example of a failed corporate culture is Ubisoft. Following a wave of sexual harassment scandals targeted at the company’s executive members during summer 2020, Ubisoft has decided to take some actions to change their corporate culture and public image. Notably, the video games editor has recruited a former Uber employee to become Vice President Diversity and Inclusion Manager starting from February 2021 (more info here).
👫 Social risk management
One key element of CSR is about treating your employees fairly. However, CSR does not stop outside of a company’s office, it continues all the way down the supply chain. It is the company’s responsibility to make sure that its suppliers and service providers are aligned with the company’s values and work ethics.
Success stories
In 2019, Shine decided to offer its employees the opportunity to work for someone else one day per month whilst still being paid on the condition of not disclosing confidential information about their main employer. This new policy’s goal was to promote the well-being and autonomy of all employees. Shine was acquired by Société Générale for €100m in June 2020.
Failure stories
In 2019, a Frichti delivery man publicly described his stressful and humiliating working conditions which brought bad press to the FoodTech startup, provoked a Twitter debate and resulted in multiple shocked customers who called the startup out for “social washing” and decided to stop using the platform.
Another example is Apple who was called out more than once for its supply chain’s unethical working conditions that has led to the suicide of 14 Foxconn workers in 2010 and the tragic death of three Foxconn workers killed in a factory blast in 2011. As a consequence of these incidents, Apple published a set of guidelines for safe and fair working conditions and pushed its suppliers to improve their labor practices. Every year, Apple still releases a supplier responsibility report that tracks progress on these fronts.
🌿 Environmental risk management
Same goes for the company’s environmental responsibility: switching to sustainable suppliers and service providers is ideal and should be encouraged (Check out this article for a list of suppliers). Startups have a huge advantage here as being conscious of your company’s environmental impact and making decisions in consideration of this early will save you from the pain of having to catch up later when you are ten times bigger.
Success stories
Agricool’s mission is to contribute every day to building a new, healthier, more responsible food system (SDG 12). They have raised $38.9 million in funding. True, their mission is about responsible consumption to protect the environment. However, they stand out from the crowd in the way they are seeking to align their mission and their activity outside of their core business model. For example, they have built a responsible website to decrease their carbon footprint.
Failure stories
A basic example of the consequences of putting business before environmental consequences at all cost is Volkswagen. In 2015, the car maker admitted to manipulating 11 millions vehicles worldwide to fool emissions tests. The company pleaded guilty to criminal charges and paid out $4.3bn in civil and criminal penalties. Total costs caused by this scandal are estimated to have reached $21bn.
In the tech ecosystem, Amazon was getting bad press back in 2008 for the excessive amount of packaging used to ship items. Following complaints from customers, Amazon signed up to the Frustration Free Packaging initiative under which it vowed to cut back on excess wrapping. To this day, customers have still been complaining on this matter.
Amazon’s carbon footprint remains unknown to the public but it does not take a genius to assume that it’s probably bad. As a result, employees at Amazon’s Seattle headquarters protested over Amazon’s climate policy in September 2019. They requested that Amazon reach zero carbon emissions by 2030, cut ties to oil and gas companies, and stop funding lobbyist groups accused of spreading climate denialism.
Conclusion
Disclaimer: you probably noticed that a lot of highly successful companies were cited in the “failure stories” examples. The goal here was to illustrate how costly scandals and general issues could have been avoided with a stronger CSR policy in place. Also, scandals usually reach our ears when the company already made a name for itself ;).
On the other hand, the success stories illustrated how taking your company’s societal impact seriously is beneficial on many levels, drives performance and is a useful indicator of your company’s health.
