When I was doing a talk at a conference last week, a number of people thought it was strange that School of Everything was set up as a company. So I thought it might be worth setting out why we chose this structure and some of the things we've built into the model that make us a bit different.
Legally speaking School of Everything is a company limited by shares registered in England and Wales. It's the most common form for any company in the UK and the form that almost any internet start-up here takes.
The reason we chose that structure is the flexibility it gives. This comes from the way that you raise money as a company - in our case through investment. When you go out for early stage investment you start with what you (as founders) want to do. Then you get investment when you meet investors who share your worldview and believe that your idea and the way you plan to go about making it real will work.
If, by contrast, you set yourself up as a not-for-profit or charity and choose to apply for grants, you start from an application form with questions on it. We tried a few but found ourselves straining to fit the criteria of another organisation. It made us think do we actually want this money anyway?
We chose not to be a community interest company because of the extra administrative burden it adds (and there seems to be more confusion about how to make it work as very few organisations have done it so far). Neither are we a social business as Muhammad Yunus has defined the term, because we haven't chosen to limit the return our investors get back to what they put in.
The other advantage of being a straight-forward company is we get talked about as a 'silicon valley-esque' startup. We were chosen as one of the 20 most promising start-ups in Europe for Seedcamp last year. And some Techcrunch coverage has cemented that impression. But it's not quite as simple as that. We still have some scepticism about the silicon valley model of investment. Umair Haque is raising the right questions in this article.
The way we've made sure we keep true to our original mission is to choose our investors carefully. They include a charity (the Young Foundation) and a public service broadcaster (Channel 4) who, while they want to see a return on their investments, have social motivations written into their organisational DNA that fit very closely with our motivations as founders.
We're very happy with the way that things are working out so far but I'd be very interested to hear what others think about the way we've chosen to do things. Is setting up a company the best way for us to change the world?
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I think these are all good points but there is another important reason why it sometimes makes sense to be a business even if you aim to achieve some kind of social goal.
When we (the Young Foundation, an investor in the School of Everything) encouraged Paul and the others to set up the School of Everything as a business, the main reason was to get better access to start-up funding. The biggest advantage businesses have is being able to raise large amounts of money by giving away some of their shares. In the case of the School of Everything, our judgment was that they would struggle to raise even a quarter of the amount they needed for the first round of investment if they had been looking for grants. And it would have required more funders, each of which would impose slightly different conditions and reporting requirements.
Part of the reason for this is that our experience is that many grant-making foundations don’t like the risks associated with start-ups and they don’t really have an appetite for web-based initiatives. There is a real need for more UK-based web entrepreneurs to set up grant-making foundations that are not afraid to get stuck into this field.
Because the School of Everything is not a charity, it doesn’t have some of the regulation and external supervision by the Charity Commission that is designed ensure it sticks to its mission and delivers social impact. However, as Paul says, the motivations of the management team and key investors and the culture they foster amongst staff might be a better safeguard. And the Young Foundation is itself a charity so subject to all that formal regulation.
I do, though, think that the School of Everything is a Social Business. I think Muhammad Yunnis uses a very narrow definition and I prefer the definition of a from socialinvestments.org: “Social, mission-driven organizations. Enterprises that provide a business response to a social problem.”
Yeah - I'd fully agree with all of the above. As a web-based start-up, you'd do well to get any substantial grant from a trust and foundation. That was my experience at the Global Ideas Bank for many years...
Similarly, Paul's story above matches what we tend to say about social entrepreneurs: they choose the legal structure best fit to helping them achieve their mission (based on where their money will come from, what governance they want, what regulation they are prepared to put up with and so on). Outcome-oriented, rather than process-oriented.
As for CICs, which you mention in passing: they are falling a bit between two stools at present (not many foundations will give grants to them, though this is changing), and they can't take (pure) equity investment. Which means your earned-income business model has to be pretty stellar and need no pump-priming whatsoever. [interestingly, ECT Recycling, one of the UK's biggest CICs, has just been taken over by a private sector company...]
I guess the bigger challenges for School of Everything might come later on, if it needs greater investment (there aren't many with social motivation in their DNA), or, even, if it floats on a stock exchange. The transparency you display (here and elsewhere) then becomes key to proving your 'social' credentials....
Linked to this post on the SSE blog too.
This makes a lot of sense. But it raises a couple of questions.
(i) Why is it still, after a decade of banging on about social enterprise, so difficult to find investment and the right vehicles. Particple also looked into being a CIC and it's far too cumbersome.
(ii) I am not sure MY's definition of a social business is the only one. Is a social business measured by mission, impact, rates of return, use of profits, governance arrangements.
In my talk at Lisbon Next Rev confs raised the question of whether domestic soap was a social innovation. It helped people en mass get clean and produced huge social benefits. But it was made for profit by Lever Brothers.
I think you are exploring what it means to be a social business when social and tech innovation need to work together, public innovation sustained by private funding.
Final, thought. Do you want to position yourselves as a complement to traditional education or a challenge to it?
C
hi paul
i think you probably nailed it when talking about 'flexibility'. In my (limited) experience a lot of other structures are less generative.
but it can't just be about the individual choice of structure - the outcomes are also dependent on the broader ecology. that was my interest in trying to join the dots between social innovation camp, minibar and Umair Haque.
also, limited companies are themselves the outcome of particular historical drivers. however good the individuals who start them, or who invest in them, they're still (surely?) single bottom line organisations i.e. it's about financial return on investment.
and maximising return to investors can end up as a defence (i got that from a high-level google exec who was defending their actions in china).
while CICs might not be any kind of answer, i suspect that others will start to evolve, driven by the needs & values of the participants. even charities have tried to evolve (clumsily, and for the wrong reasons) by combining charitable & trading entities.
previous eras evolved mutuals and coops as a way of recognising the common value underlying business & service activity. what seems fun to me is the way that digital affordances are throwing up a lot of new-old questions again. see, for example, the blog post from edelman uk's digital guy about what anarchism can teach us about organisations in the internet age.
all power to school of everything's elbow
dan
Paul,
Speaking from a distance - in Brazil the legal structures are somewhat different - your choice of structure is based partly on needs (flexiblity, etc.) and partly on views (financial return is good, etc.). I like that approach.
At sitawi, we don't advocate for one single answer for all the 'social enterprises' - that we define as organizations for social impact ran 'like' businesses, regardless of the legal structure.
We are very pragmatic and more concerned in effectiveness of operations that generate positive social/environmental impact (beyond typical economic development measures such as jobs and taxes).
Of course, if you generate impact in the what you produce + the way you produce it + whom you employ + whom you buy from + whom so sell to + how you distribute the economic returns, the better. But we would rather you have an effective organization to generate impact in only one of those dimensions than an ineffective organization that tries to do/be everything to everyone.
About the legal structure, as you can see, it is not our priority.
Good luck!
PS - By the way, we don't think the Yunnus definition is a golden standard either ('non-dividend distributing business after initial investment has been recouped). The ability to recoup the initial investment is on a nominal basis? Is it corrected by inflation? Or by risk free interest rate? Of which country? Or by opportunity cost?