Sunday, October 2, 2011

Which is the Mark for Me?

In the next couple of months I will post my first year's results on the Companies House website. One of the most conspicuous things that you will notice (if you look) will be that while Stepping Out has made a pretty decent profit and put 20% of it aside to set up the Stepping Out Foundation, one thing is missing. Salaries. Because, in year one, I didn't actually pay myself. Or rather, I put the money I would have paid myself into paying back loan, reinvesting in the business and setting up the Foundation.

I could have been a social enterprise, had I wanted. It would have been oh-so-easy. Had I actually bothered to pay myself, rather than pay what I owe and reinvest, I would hardly have made a profit at all. A sliver of one. And, if I then gave half of that sliver of profit to a Foundation I could, with pride, declare myself to the world as an 'official' social business.

See where I am going here? What I am saying, I guess, is that it is quite easy to pass muster as social business without necessarily doing a great deal of good for anyone. Just pay yourself a decent whack of what would otherwise be profit and you're away. Then simply declare a small profit, give 50% of it away and give yourself a pat on the back, social businessman.

So why haven't I done this? I haven't done it because to do so would have been bad for our business. Stepping Out, like any new business needed to be profitable so that it could first survive and then see this profit reinvested in the business.

In year one, this was more important than paying me (and it takes an entrepreneur to understand this logic). I have lived, as most entrepreneurs do, on savings and by counting my pennies. I don't take a wage until it's safe to do so. But I know that if and when the business succeeds, I will do well enough from it to compensate for these early risks and privations.

Social enterprise logic - and I hear this a lot - is very different. There are normally fewer early privations. Indeed why should there be? For there is nothing down the road to point to as compensation. Therefore, to be reasonably expected to start a SE, , one has to to put oneself, as Founder, on a decent wage right from the off. But this is hard for the business: The enterprise then has massive need for cash to pay you ahead of secure revenue streams, making survival less probably and funds for reinvestment less likely to be there. In short, social enterprise can cut off the oxygen supply to new ventures which comes from entrepreneur's financial self-sacrifice.

I am saying this because I think it is time we opened our eyes to the fact that the term 'social enterprise' should not be restricted a corporate structure that discourages personal risk-taking by making difficult reasonable long-term reward for founders. Companies starting need to 'borrow' from their founders in every way. Starting businesses on full costs is simply very difficult - and dangerous for the business. It is only right and proper that is repaid generously to founders once the business is a success.

Fans of Ed Miliband please note, this is not 'something for nothing' behaviour . It is not greed which motivates entrepreneurs lany more than it is greed that makes it a requirement for social entrepreneurs to pay themselves good wages from the off. Indeed., how else are social entrepreneurs of the officially sanctioned variety to be compensated for their risk?

You will notice that there is rival 'Social Enterprise Mark' now available. It reads something like 'For Profit Businesses, Creating Shared Value'. It invites for profit businesses that can demonstrate tangible social value through the way they do business to join the social enterprise movement. Of course, at the moment, this is a shadow movement, outside the mainstream. For profit means, for many in this movement, that you're essentially in it for yourself, not social, at least not in the way they are.

I refute this. Why? Because I could, with one stroke of an accountants' pen, be a social enterprise tomorrow. And have a pocket full of money to go spend on a new car or two. But I care about my business and what it is here to do - socially & financially- a lot more than that. My business needs investment. Its Foundation needs cash (we pay 20% of profit into it). As an entepreneur - and yes a bloody social entrepreneur - I want to be free to create long-term value, not hemmed in by a structure that stops me doing that.

And for that reason, I know which Mark I will be using on our new website when it comes out later this month.

1 comment:

David Floyd said...


I agree with the spirit of your post if not necessarily the specifics of it. I think you're absolutely right about the failure of arbitrary criteria to deliver social value.

On the specifics, as I understand it, your approach to profit distribution wouldn't - in itself - stop you from signing up to the (official) Social Enterprise Mark.

The (official) Mark doesn't demand that 50% of profit is actively given away to the community, it demands that no more than 50% of profit is paid out to shareholders.

Money used to pay off loans to the business or reinvested in the business is fine. Many large conventional businesses would be practically capable of fulfilling the 50% non-distribution criteria without changing their approach to business - they just would to write this non-distribution into their mem & arts.

The only thing that stops you signing up to the (official) Mark (at least, this year) is presenting the way you've distributed profits as a principled business decision rather than a position of principle.