Saturday, September 18, 2010

Out of the Blocks

Its official. I am in business. Stepping Out was born on Wednesday at 3.30pm. It was swaddled in an email from my accountant, saying that, despite a few difficulties, everything had gone OK. I held the Certificate of Incorporation in my hands and looked at it lovingly, muttering promises to myself about its bright future.

Of course, it wasn't this simple. `Stepping Out' is actually the name of a Community Interest Company in Wales so I couldn't be called that so, after a couple of iterations, came up with `Stepping Out Business Development Services Ltd'. Catch or what? Fortunately, I can trade as Stepping Out, as long as I put the longer name on my letterheards.

Oh, the letterheads. The logo. The website, the new bank account. The VAT registration. Finding a book-keeper. Getting insured. Writing terms and conditions. Three-year P & L and Cashflow. The 0845 number. All the stuff that is filling my life as I try to actually sell something, fulfil on orders and do all my normal stuff like this.

Three things have really struck me about starting-up all over again. The first is the generousity of other people in business in terms of time, advice and freebies. Incredible support with no expectation of payment. The second is just how bloody hard it all is. During my last year as a CEO, I hardly touched a piece of paper unless it had been placed in my hand. Now it's all down to me. Thirdly is how bloody alive I feel. Although I was and still am scared to death by the whole thing, I feel that my future is in my hands - fly or bomb.

As observant readers will know I am setting up a private business. I toyed with a social business but, given the risks I was taking financially and reputationally, a business from which I could only ever draw a salary seemed a bit crazy, if I am honest.

Is this not a bit contradictory of me, given that Stepping Out exists to help social businesses grow out of the public sector? Well, no, actually, because there is an important distinction to be made between the social entrepreneurship of a local authority manager coming out to lead a new social venture and the blood-and-guts of pure start-up.

First of all, the risks are different. Everyone in these ventures is coming out with income guarantees and contracts. Secondly, nothing is asked financially of people up-front. And finally, the focus of these businesses is explicitly social - while mine is only indirectly so.

The whole experience of starting-up has caused me to reflect on the nature of social entrepreneurship. My own reluctance to start another one did reflect a desire to be rewarded if my risk comes off. Were I to have registered as a CIC, while the downside of failure would be the same - me broke- the upside would be a very constrained gain on my investment and risk. It would, in fact, be more rational to just go and work for a social enterprise than start one.

For this reason I think we need to think afresh if we want to see more social entrepreneurs actually setting up businesses from scratch, as opposed to joining them as managers or from the public sector. I believe that the risks people take have to be more explicitly rewarded than is now the case. CICs don't currently offer enough to the entrepreneur him or herself.

Would the raising or even abolition of the caps on dividends and growth in equity-stake help to incentivise more social entrepreneurship? In some cases, no, it wouldn't. Many social entrepreneurs are not remotely interested in the money, like I wasn't aged 25. Others don't need it or, as you see more and more now, have already made a lot of it.

But this isn't most people. Most of us have tons of financial responsibilities and a basic choice between either a job, self-employment or setting up a business, each progressively riskier. If we want people to go from socially-oriented lifestyle businesses (which is what a lot of social enterprises really are) to proper, high employment, high turnover businesses, the incentives have to be there. They perhaps don't need to be as high as in the private economy, but they have to be pretty damn good.

This post is not in any way knocking social entrepreneurs or public sector managers who are about to lead a new social venture. All are worthy of respect and honour. None are taking the easy route of a nice job. Some will indeed take financial risks too. What I am trying to say here is

1. There are nowhere near enough social entrepreneurs - founders of high growth businesses
2. That the reasons for this could be linked to the lack of reward.
3. That we probably need to find a way within the social enterprise sector to link risk and reward in a more sensible way than is the case now.
4. That the goal of `more, bigger social enterprises' can only really be achieved by a larger number of social entrepreneurs with big ambition.
5. Ergo, the social entrepreneur him or herself has to be treated as a special case when an enterprise they create really succeeds.

I would be very interested in views on this. My own life at the moment feels like a move into a new place. I am struck by how powerfully motivated I am both by ownership and control - and by the prospect of creating a successful business that will give me not riches (if you see my car, you'll know riches don't excite me) but choices. It feels like a force for good. Indeed it is encouraging me to move forward much quicker than if I was working for someone - or if the venture returned the same, more or less, as a job over the long haul.

This is not Greed is Good. Far from it. But as humans, we all judge risk and reward fairly well. We have complex motivations. Social enterprise touches on many of these. But it leaves others ignored. For it to have a big future, social enterprise needs to embrace the range of our motivations, the whole person.

Then we really will be in business.

7 comments:

Claudia Cahalane said...

Craig - have you read the Moneyless Man? Why do you need financial rewards from your business anyway? What about living a more simple life ;)

Not that I, myself, would ever invest more than a few quid/hours of my time and money in something very risky just because it was going to help people mind you. I've thought about it many times, but I'm still trapped in this state of mind where I like stuff and I feel as though money is security (although since recently reading the Moneyless Man, I feel less like this).

Perhaps you want to make money from your business so you can 'do good' with it elsewhere?

Jeff Mowatt said...

We seem to have come at this from the opposite direction - conventional business which migrated to one of social purpose.

For my part, self-determination was the original motivator. Many small businesses do little more than provide their owners with an income, a degree of freedom and often a lot more responsibility than working for someone else.

Likewise in Russia, a social purpose approach to leverage investment in microfinance helped around 10,000 people in one city achieve this kind of autonomy as small business owners. Prior this many had been nuclear scientists working for the state.

The cost of making this happen was less than $20k.

There's so much focus now on the turnover and scale of social business. These "quants" now seem to undervalue the high impact efforts, some of which are difficult to quantify. For example, if the weapons scientists in Russia had plied their skills to an unstable regime.

In the context of re-investment, there's quite a spectrum of social business perception. From some of the US B-Corps which invest 1% to the total commitment described by Muhammad Yunus. It's up to the individual to decide what commitment they want to make.

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David Floyd said...

Congratulations on getting up and running!

Although I fall into the 'not interested in money' camp - or more accurately the 'realistic about the chances of earning lots of money doing the work I want to do, irrespective of company structure' camp - I agree entirely with this as an overall analysis in terms of risk/reward and social enterprise.

It's also part of the reason why loans aren't going to replace grants as a major stream of funding for social projects with low (or no) profit margin.

(Sensible) people don't take major financial risks unless there's a decent financial reward on offer.

andrew campbell said...

Not focusing on cash flow and monetary reward is naive. If you are doing good work, then make lots of money, so you can do more good!

Social value and monetary value, while often separate, can also sometimes align.

If you are helping people, then you are creating value. It is your challenge as a business owner to turn this into cashflow so you can be sustainable.

Toughen up and get disciplined and hungry for the cash.

mike chitty said...

Cheers Craig. You provoked me into this...http://localenterprise.wordpress.com/2010/09/23/social-enterprise-and-good-work-provoked-by-craig-dearden-phillips/

Andrew Storey said...

Craig, I hear you loud and clear.

Having sat on a lot of stools in my time, I know what you're talking about.

Good Luck

Andrew Storey