6 Questions Every Impact-Conscious Founder Should Ask
Through The Trampery’s Evo Programme, I’m finding it inspiring to meet a constant stream of founders who are striving to build businesses that embrace social and environmental factors, as well as profit. The latest cohort of Evo Scale is a great example. However, it’s clear many founders feel baffled by the tangle of different terms, legal structures and certifications in circulation.
Here are 6 questions that can help a founder cut their way through the confusion, and identify a path that’s right for them. The legal structures I mention are valid for the UK, but similar structures exist in most other countries as well.
- What’s my priority: profit or impact?
As a starting point, you must have a clear understanding of your priorities. If your sole purpose is impact and all trading is directly contributing to this, you should consider structuring as a Charitable Company, registered with the Charity Commission.
If a social or environmental objective is your primary goal, but you want to undertake commercial activity to support this, you should consider establishing a “Social Enterprise”, which can be structured as a Company Limited by Guarantee or Community Interest Company.
If the commercial and impact factors are equally important to you, consider setting up a “Purpose-led Business”. This can be structured either as a Company Limited by Shares or a Company Limited by Guarantee, with a certification (such as B Corp) to lock in your impact objectives.
Fourthly, if you’re purely interested in profit with no interest in impact, this is probably not the article for you ;-)
“This year it was good to look over our entire practice and say can we do better in any areas? The main principle of our work is it is possible to do better and be ethical at every step of the supply chain.”
Genia Mineeva, Founder of BEEN London (Evo Scale participant, 2021)
2. Do I want to exit the business?
The startup industry promotes venture capital investment as the way to prove your skills as a founder. However, if you go down a path of raising equity finance (selling shares in your company to venture capital funds, angel investors or via equity crowdfunding) you are making a binding commitment to exit the business in 5–10 years, either by selling it to another company or by listing on a stock exchange. You will have a legal obligation to run the business to achieve an exit, even if you later decide you’d prefer to carry on without exiting.
If you don’t want to exit your business, or you want to keep your options open, then you should avoid equity finance. That means you’ll either need to bootstrap your growth through earned income, or finance growth through loans.
3. Grow or stay small?
The startup industry emphasises rapid growth and scaling, but that’s not the right path for everyone. As a founder, you need to put the conventions aside and decide what’s right for you. Your ideal might be a business that remains at a small scale, providing an income for you and a few other people. It could be a company that evolves organically, reinvesting profits in growth, but without ever seeking external finance. Or you might indeed want to establish a solution then scale it as rapidly as possible. There aren’t any right or wrong answers, just what’s right for you.
“Even before this year, we were always really clear that we didn’t want the brand to grow massively. People seem to think you can only be an influential fashion business if you’re massive. But we want to prove that you can be. We want to be impactful, not in size, but in that the amount of other small business who feel like they can do things their own way, rather than having to do things in a traditional way, after us.”
Huw Thomas, Co-Founder Paynter Jacket Co.
4. What’s the theory of change for my business?
It’s easy enough to say “I want to give back” and bolt a green initiative onto your business. However, if you’re serious about impact, you should take time to work out a detailed “theory of change” as an integral part of your business plan. This is a thorough analysis of the effect your business will have in the world, and how it will address the social or environmental factors you’re targeting over time. Drawing up your theory of change at the beginning will help you work out what legal structure and financing strategy are best suited to your objectives.
5. Do I care about getting rich?
The startup industry assumes all founders want to get rich, and this is their main motivation for starting a business. As with all unquestioned assumptions, following it blindly can lead you down a path that turns out not to be right for you. Before starting your business it’s essential to be clear about what your material objectives are, and how they relate to your impact goals.
The higher you prioritise personal wealth, and the more rapidly you want to achieve it, the less scope there will be for impact. If you can achieve a secure and comfortable lifestyle for yourself and your family, will that be enough to satisfy you? Are there specific material or lifestyle goals you care about? If your priority really is to become a billionaire by the age of 30, do you have a clear understanding of why that’s so important for you?
6. Will I need grant funding?
Earlier questions have touched on bootstrapping, loans and equity finance. Another financing option is grant funding. If this is likely to be an important part of how your business is resourced to achieve its objectives, then you need to select a structure that’s compatible.
A Charitable Company will be able to secure the widest spectrum of grants but will be tightly restricted for trading and commercial activity.
A “Social Enterprise” structured as a Company Limited by Guarantee or Community Interest Company represents a midpoint; free to trade, but also able to secure a wide range of grants.
Finally, a “Purpose-led Business” structured as a Company Limited by Shares will be able to raise equity finance, but will not be able to access grant funding easily.
If these questions have been helpful, and you’re ready to take the next step, you might consider applying for Evo Start, a fully-funded course to help you work out the right structure and strategy for a business with an impact dimension. You’ll find details and the application form here, deadline is 23:59 on 11th May!
The Trampery is a purpose-led enterprise that provides workspaces and courses for ambitious businesses. As part of our mission, we support entrepreneurs from under-represented backgrounds and promote forms of business that embrace social and environmental impact. Learn more here.
