Misunderstood enterprise

Anyone that has ever attempted to become a social entrepreneur will tell you that it’s hard work. I’ve no idea if it’s any more difficult than becoming any other type of entrepreneur because I’ve never tried that – my interest has always been in creating social value through enterprise, not creating financial value through social problems – but there are definitely a number of unique challenges presented when starting a socially-focussed company.

All risk – no reward

I’ll start by talking in financial terms. If you want to start a socially-focussed business, by default you take on the financial risks. Whichever legal structure you choose for your business, you are ultimately responsible for the financial wellbeing of the company, and thus you are (directly or indirectly) carrying the financial liability.

You need capital to start a business. Sure, it might not be a huge amount, but simply registering a limited company will cost you around £40 online, before you’ve even started thinking about materials, marketing and website costs. I started ZLS Theatre with just a few pounds, then added a few pounds more, and within a few months I’d “loaned” the company nearly £400. I won’t see that money in the foreseeable future. When I closed down Sweet Opportunity, my last social enterprise, I did so with the company owing me nearly £600.

No one will give you that money. There are funds out there that will provide you with a loan – possibly even a grant – but even then you are financially liable for the repayment and/or delivery of the services.

If you’re lucky enough to start making a profit, chances are that you’ll want to reinvest that profit in your social mission – after all, that’s the point of running a social enterprise.

The goal is to get your company into a position whereby turnover is at such a level that you can both reinvest surpluses into your social mission and pay yourself a salary. But for the first few years you’ll be constantly torn between the two. If, like I do, you believe firmly in your social mission, you may well feel that the surpluses are better served delivering the services that you set the company up to delivery.

There is a case to be made that if you can’t pay yourself a salary then you’re not running a sustainable business – another concept that I find myself in conflict with. Let me tell you why.

No money = No money

I had a little rant on Twitter a few days back about people not understanding the concept of having no money. This is particularly true in the business world, and magnified further in Brighton & Hove, where even the most basic of start-ups has money behind it. This stems from the fact that most people starting businesses are from middle-to-high income backgrounds and thus aren’t as immediately at risk from a failing/flailing start-up.

Working class “no money” = No money. No savings. No food. Bills unpaid. Possible eviction.

Middle class “no money” = Down to last few thousand in savings. Better call Mum and Dad. No holiday.

So why am I mentioning this? Because if, like me, you’re trying to start a business while working part-time, you’ll have no disposable income and nothing in your savings. I’ve just maxed out my credit card to order the fliers for the upcoming Acting Skills for Life course, and invested the only money left in the ZLS account in the room hire. If this goes wrong I’ll be back at the start, only I’ll be working with negative figures and my chances of developing the business will be limited.

My business contacts don’t understand/care about this. They see a new company starting something ambitious and thus expect that there is money behind it, and let’s be honest – why should they care? In Britain we don’t like to talk about money, and this is detrimental to the aspiring social entrepreneur for a number of reasons.

“I don’t get it”

“If you’re not doing it to make money, why are you doing it at all?”

The business world is built on business principles. Understandable. The world is becoming more socially conscious – but is that because there is money in socially-conscious products and services, or are there socially-conscious products and services because there is money in it? Whichever way you position yourself as a social entrepreneur, you’ve got a problem. The business world may applaud you for making money, but the socially-conscious consumer may not feel that making money from a social problem is a good way of doing business. Go too far the other way and the business world won’t understand your agenda, while customers may look at you with suspicion.

“I don’t get it – what’s a social enterprise?”

I’ve banged my head on so many desks trying to explain this one. I’m not going to do it here. There’s an explanation and the ZLS model as a simple example on the Social Enterprise page of the ZLS Website. The point here is that if there’s any confusion, both businesses and consumers will look upon you with suspicion. And even if you manage to explain it well…

“So, it’s like a charity? Why don’t you have charitable status then?”

*Bangs head on desk again*

Social entrepreneurs choose the social enterprise way of doing things for their own reasons. In my case this comes down to control. I don’t want to give ultimate control over my company to a board of trustees, and I don’t want my activities to be limited by the company’s charitable objectives. Plus there’s the paperwork. But mainly, it’s the control issue. A lot of people don’t understand this on any level. In their minds, if you’re a charity, you’re definitely doing something good – because the Charity Commission has said so. But heaven forbid you’re an individual running a limited company – even one limited by guarantee that can’t pay dividends to shareholders. You can’t possibly be doing anything good. There must be something dodgy about you. You can’t be wanting to make a difference – you must be skimming money off for yourself!

Incidentally, this is the attitude of most funding bodies, so we shouldn’t be surprised that the general public don’t get it either.

The introduction of the Community Interest Company (CIC) and Charitable Incorporated Organisation (CIO), this has also raised doubts over the validity of any company claiming to be a social enterprise but operating with a different legal structure. Again, funding bodies are convinced that the asset-lock of a CIC means that their investment is safe. I hate to tell you this, but it isn’t. I know of at least two CIC companies that were set up with a pure profit motive. They’re just as easy to remove assets from as any other business if you know what you’re doing, and in my opinion all they’ve done is legitimised crooked entrepreneurs posing as social entrepreneurs.

Stuck between a CIC and a hard place

It’s easy to see why the public get confused. If you’re a charity then they can give you a donation. The government adds 25%. You do this one thing, and you do it well. And you rely on them to give you money and provide you with help. Call up any business support service and they’ll give you a discount for being a charity – regardless of the turnover. You can have billions of pounds in the bank and you’ll get a significant chunk of the regular price knocked off. (By the way, this isn’t a bad thing, and I hate criticism of charity that goes along the lines of “They’re spending too much on admin costs” – as if everything that a charity does should be free, and everyone that works for them is a volunteer – but hey, that’s a post for another day.)

If you’re a business, you sell goods and/or services. What you do with that money is your own concern. We just bought the product/service from you, what you do after that doesn’t concern us, because you didn’t ask us for the money.

But if you’re a social enterprise… Hang on, you’re asking for help? But you sell goods and services. I don’t know about that – this must be going into someone’s pocket. WHY CAN’T YOU PAY FOR IT YOURSELF? What do you mean you’re a start-up? You’re a business – you must have money behind you! No, I don’t care about your social mission – I’m not helping you.

You also have to pay full price for everything. No cheap room hire. No charity reduction on premises. There’s also no tax incentive for businesses to help you unless you’re a CIC and open to investment (and therefore for-profit).

So the business world doesn’t support you, consumers view you with suspicion, and all you want to do is do the thing you’re passionate about. It’s a lonely life.

Anyway, I’m doing my own thing. I may blaze a trail, I may fall off a cliff edge. But I have a vision for ZLS Theatre – one that is strongly socially-focussed – and that vision will not be improved by bowing to bureaucracy.

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