Money makes the world go round, right? Wrong. It is a common mistake to believe that you need funding in place before you start your social enterprise. By being savvy, communicating with customers and scaling on a budget you may not need initial investment to fund your social enterprise. Here are three common misconceptions and how you can tackle them:
1 You have an idea for a B2B product, and you need to build it before going to customers to try to sell it to them. Talk to your customers, show them mockups, process diagrams and samples. They may help fund your development or at least offer you criticisms and tell you how to improve your idea.
2 You are building a new product, and you need to spend money on advertising/marketing. Scaling can be done without spending huge amounts of money. Gabriel Weinberg's blog and Ryan Holiday's book, Trust me, I'm lying, are great resources. If you still think you need money for advertising, the problem might be the concept; if so, return to step one.
3 You need to pay someone to develop your website/product because you don't have the technical skills. Ideas are cheap, and if you don't have the skills to build even the basics then you are just a component of your founding team. You will need to talk to people and build your tribe: get people to work with you, not for you.
What to do if you do really need money
There are many sources of money for social enterprises. UnLtd, the Startup Loan scheme, the SEIS and EIS schemes. There are grants available from UKTI, Nesta and many more.
Tax reliefs are also available. HMRC schemes are there to help you finance your research and development spend and national insurance contributions, and accelerators are popping up all over the place, providing early stage finance, office space and mentoring.
It's never been easier to find funding for a UK social enterprise. However, securing investment can be complicated, but the acid test is simple. If you're ruthless with yourself, it's hugely effective: write down every single assertion, projection and assumption in your pitch, then justify or remove each one in turn. Whoever you ask, you will have to demonstrate the same three things:
Credibility. Are you – and your other team members – the best people to do this? If not, can you build the perfect team, and is there a clear route to financial and/or social return?
Planning. Have you identified what your team, product and market look like for at least the next year? What is your strategy, and what are your milestones?
Progress. Do you have orders, customers, signups, written letters of interest? Does it "work"?
The job of most investors is two-fold: to safeguard money and make a return. Most startups focus on the latter – financial or social return. Instead of focusing on the impact, social entrepreneurs need to be realistic and focus on how they are going to pay the money back and on demonstrating they have sorted out their credibility, planning and progress.
Scaling up: what are your priorities?
Scaling up often follows the same protocol, but with larger UnLtd programs, bigger Nesta funds and backing from social investment funds, social banks and even conventional venture capital funding.
But here, it is essential to ask yourself a different set of questions. What does scale mean to you? Does it matter if you are copied? Is scale about control and revenue, or is it about delivering greater impact?
If your primary purpose is to grow the impact or revenues of your organisation, then you may need to raise more capital (offices, people and equipment can be expensive). If your primary purpose is to scale your impact, think deeper than money. Look at franchising, open-source, training and network/partnership models. If you're really ambitious, consider incubating other ideas, people and startups, before spinning them out to new regions or markets. This way you can deepen your impact and create sustainable, resilient structures.
The critical question when you start up is, "Do you really need money?", and, when it comes to scaling-up, "What does scale mean to you?" You need to explore these questions before you start your journey because they will define how you'll live and breathe for the next five plus years of your life. Good luck!
Jonathan May is the chief executive of hubbub.
For more news, opinions and ideas about the social enterprise sector, join our community.
