The business of doing good: How to start a social enterprise

The business of doing good: How to start a social enterprise
Dan Martin, editor

The social enterprises sector is not as small as you might think. There are around 55,000 such operations in the UK with a combined annual turnover of £27bn. They account for 5% of all businesses with employees, and contribute £8.4bn per year to the UK economy.

And it’s not just small community groups. Jamie Oliver’s Fifteen restaurant is a social enterprise, as is The Big Issue, Café Direct and the Eden Project.

In these days of increased public concern for the world around us, many entrepreneurs are finding that having a social or environmental cause as the main driver behind their business is a highly rewarding way to make a living. But while such companies are well placed to address such demands and solve society’s problems, social entrepreneurs competing in highly competitive markets will often will have to perform even better than traditional businesses driven purely by profits.

Finding the cause

Social entrepreneurs differ from their traditional counterparts in the way they view the world. If your sole concern is to expand your own bank balance then the sector isn’t for you but if you want to make a difference beyond putting the odd pound in a charity box, setting up a social enterprise could be the perfect way to achieve your aims.

Whatever you decide to do though, you need to find a cause in which you believe. Look around your local community to see whether there’s a particular social need that’s not being met by the traditional public or private sectors. Maybe, for instance, better recycling services are required or elderly residents could do with public transport.

How you decide to invest your profits is another key early stage decision. Some businesses give away their income, while others provide a product or service which directly benefits a social cause and reinvest the profits back in the business for staff and product or service development issues.

So just who is getting involved? Unsurprisingly, many social entrepreneurs come from charitable, non-for-profit organisations but an increasing proportion previously ran traditional, private sector businesses. Long term marketer Sam Conniff, founder of socially-responsible youth marketing agency Livity, is one example.

‘A general awareness began to dawn on me that there are only so many new trainers, mobile phones, computer games and fizzy drinks that the world needs,’ he explains. ‘Marketing is without doubt one of the most powerful influences on the lives of young people and I came to realise there are so many challenges and issues out there that I wanted to be part of the solution.’

John Mulkerrin, founder of financial services social enterprise Quotes4Charity, has also combined his traditional business experience with a desire to change the world. During a career break trip to south east Asia, he was exposed to extreme poverty. It was this that gave him the idea for his company.

‘I’d done reasonably well in my career but I’d reached a plateau and want to move on,’ he explains. ‘Part of that was me wanting to take on the challenge of building my own company and because of my experiences while abroad I was provided with the extra motivation to make a difference. To be able to reflect what I care about through what I’m good at is a nice idea.’

Only the committed need apply

At the end of the day, social entrepreneurs are running businesses and need the same qualities and challenges as any other type of business. They should be flexible, persistent and adaptable in their approach to deal with issues such as cashflow, competition and generating sales. What’s different is that social entrepreneurs need go one step further.

‘You need to be an entrepreneur and then some,’ says Conniff. ‘You’ve got to pay the rent, deal with staff and find clients just like any business but in addition there are real social measures you have to mark yourself against.’

These social measures must permeate through everything a social enterprise owner does. They must live it, walk it and talk it; without such a commitment the overall aims will not be met. And be warned, you will face challenges which other entrepreneurs won’t have to deal with.

You may find, for example, that possible investors, clients, customers or staff just don’t get what you’re trying to do. The perception of social enterprises as a bunch of tree hugging, do gooders still pervades in certain circles so a willingness to accept and deal with such views is crucial.

Cliff Prior, chief executive of social enterprise funding body UnLtd, believes persistence is key. ‘It’s tougher for social entrepreneurs because they’ve got to watch a double or even triple bottom line rather than solely cash and profit,’ he explains. ‘They will face some obstacles and lack of understanding from potential investors or business partners so they must have an extra degree of resilience to tackle it.’

Keeping traditional company principles in mind however will help social entrepreneurs overcome such misunderstandings.

It’s very easy for social entrepreneurs to get carried away with the fact they’re doing good and forget that they’re running a business. When trying to sign up investors or business partners, make sure you’re offering a quality product or service. Get that right and combine it with the added bonus of social aims and you’ll be well away.

When introducing the social angle to customers and clients, it’s a good idea to do so gradually. Sam Conniff says some companies – particularly the larger ones – may be put off by the social element so you need to allow them to see the benefits to their business. His clients are directly targeting the youth market so being able to interact directly with the young people Livity employs is hugely beneficial.

The tactic has paid off for Conniff who has signed up Sony BMG, one of the world’s biggest record labels, to run an apprenticeship scheme which has so far provided full time, full paid work for four young people from disadvantaged backgrounds.

When trying to get stakeholders on board you should also always remember who you’re talking too. ‘If I’m talking to a bank, it’s all about pounds and pence and the social element doesn’t come into it,’ says John Mulkerrin, ‘but if I’m talking to a charity partner then we focus how our income is helping good causes.’

Which format should I choose?

Deciding on the formal structure of their operations is one of the biggest decisions a social entrepreneurs will make. Several options exist; limited companies, charities and community interest companies (CICs) among them.

It’s hugely important that you don’t make the decision without seeking specialist advice. Guidance is on hand from several sources including UnLtd’s legal clinic. Cliff Prior admits that which structure to adopt is the most common question fielded by the clinic’s lawyers.

‘Going down the charitable model means that you’ve got tax advantages and you can attract donations from the public or trust funds,’ he says, ‘while the limited company route allows you to look to equity based investors who will want a profit on their investment.

‘If you go down the CIC route, it may look like it’s perfectly designed to be in the middle but actually you don’t have the tax advantages, nor do you have the equity investment option. It is something which needs to be done with real care as it’s full of traps. Often the route that looks easiest for year one can prove a bottleneck a few years down the line.’

Despite Prior’s warning, the CIC option has proved perfect for Quotes4Charity. John Mulkerrin says he originally intended to run a limited company alongside a charity but changed his mind after discovering the CIC legislation.

‘A charity is restricted by its own covenant in respect that it can’t really trade,’ he says. ‘But you need the charity element to make people aware you are different. The CIC branding, the fact that a regulator’s there and I’ve got a status that can be stripped if I don’t satisfy community tests all clearly distinguishes me from my competitors.’

Quotes4Charity is the first such social enterprise in the UK financial services sector and the CIC routes appears to be working. But for Sam Conniff, a limited company was always going to be his only choice.

‘I would tell any social entrepreneur to be an entrepreneur, to be a limited company, to be profitable, to be successful, to challenge themselves, put themselves into the marketplace and succeed whilst also having a responsible, social and ethical business,’ he says. ‘That is the only way we’ll get the likes of Sony BMG to realise there are business and social benefits and how we’ll change the world.’