Tuesday, November 23, 2010

Bionic Powers

One of the most startling things about setting up a new business is the new awareness you develop around both costs and risks. It’s as though a bionic implant has been put in to alert you to where you might be paying too much – or where the risks of doing something are too high. An sensor goes off when something isn’t right.

Of course, there’s no implant, it’s the entrepreneur’s survival instinct kicking in. This is perhaps one of the biggest differences between entrepreneurial and established businesses. In the former, the person making the decisions has ‘skin in the game’. Financially. Emotionally. Reputationally.

In an established business, and I include mature social businesses here, the decision maker is normally one step removed from the consequences. She might hear the sensor going off, but instead ignores it. Or, more likely, leave it for someone else to worry about.

I have not attempted to hide the fact that my new business is 100% mine. There are a number of reasons for this. I do not want to be someone else’s plaything. I don’t want to deal with all the bullshit that comes with getting grants. But most of all, I didn’t want to insulate myself from that bionic sensor that you acquire when you have skin in the game. So when I needed money, I borrowed it.

Of course, not all entrepreneurs have skin in the game. Some, including some social entrepreneurs, will seek OPM (Other People’s Money) in the early stages. Often this is because they have nothing or can’t borrow.

However, my guess is that more of the OPM people fail, give up, get ripped off or don’t recognize risk as accurately as those who, from the start, use their own resources. Their bionic sensor is that bit duller than those with something of their own on the line.

This isn’t me having a go at anybody in particular. Success comes in many packages. Stelios, for example, used his Dad’s money at first. And social entrepreneurs are heroes of our society, whoever’s money they use. They are taking risks - period.

No, my point in writing this is to say that you are a better business person if you have skin in the game. A big financial commitment, in particular, switches on the bionic instinct that the salariat don’t use. My worry, if I have one, is that social entrepreneurs, because they are often using OPM, can lack this vital wiring for survival.

Wanna be a successful social entrepreneur? Go to the bank and take out a loan.

1 comment:

Rob Fountain said...

In part I agree with the principle of this post, but I'm not sure I would follow you all the way to your conclusion.

As a general rule, committing to your own idea before you ask others to is a pretty uncontentious one. But is it really that easy for a social entrepreneur to just get a loan?

That's undoubtedly the path for an entrepreneur (minus the social) - where you are geared to securing profit which will repay the loan; where you gamble on yourself to bring more in than your set up costs.

But working in public services, seeking social ends, focussing on more than financial return - I'm not so sure it is as easy or appropriate as you make it sound.

For one, I'm not sure that those with the ideas and experience and desire to set up a SE are always most able to take a financial punt. Remember, not everyone has the capacity to opt out of a salary, to self-finance for a while. Choosing to work in the third sector (and not being at the top) often removes your ability to build surplus; diminishes your appeal as an investment to regular banks newly on the look out for sub-prime risks. So just going out to get a loan is maybe not so easy.

And I also disagree that you have to have your own financial balls on the line to really feel it. If you're cutting out on your own, believe in your idea and want to make it work, I think you're pretty focussed, determined, able to be alert. I think commitment to your cause - or anxiety about your reputation - can switch on the bionic instincts as much if not more than red pound signs on a bank statement.

Not feeding organisations with open ended grants I agree with. I just think there is a place for social investment for individuals and organisations with social ends. Discouraging profligacy and promoting value for money by giving this in the form of loans is right. But those loans need to understand and support the social entrepreneur and their world.

Risk and reward do not - I would argue - play out the same for entrepreneur and social entrepreneur.

If you want to benefit personally from the financial rewards of your enterprise then, yes, get yourself to the bank.

But if you're looking to run an enterprise that wants to combine social ends with paying its way, well, perhaps we need not to cede totally to the market just yet.