Donation of ideas is better than just cash

First published in the Financial Times on 29th October 2013

It is often better for a business founder to build their own social enterprise than join an existing one

The intelligent way for business founders to give to charity is not simply to donate money. They could instead consider setting up their own non-profit organisation.

In the past few weeks I have helped start two. The first was The Centre for Entrepreneurs, a think-tank devoted solely to entrepreneurship. I thought of this a few years ago but never got it off the ground. My belief that Britain needed such a group never wavered, so after meeting a backer recently, I decided to put my theories into action.

A partner and I recruited a director and a cohort of advisers, drew up a business plan and decided on a launch date. Now we have to make the project succeed, and have various pieces of research and events in the pipeline. The aim is to research entrepreneurship and educate the media, politicians and citizens about the economic and social importance of entrepreneurs.

I came to the second cause later in its gestation. I was recruited as chairman of Career Colleges, an initiative of Lord Baker, who has been interested in education since his time in government, when the scheme was almost fully formed. It is a charitable endeavour that will promote new channels provide training for 14- to 19-year-olds in specialist subjects that include hospitality, healthcare and construction. Industry will be engaged from the start by providing almost half the governors of each college, for instance.

Such vocational education is highly effective in countries such as Austria, Germany and Switzerland, which is part of the reason they have such low rates of youth unemployment. Britain should emulate their models.

Both ventures should do well. But as with any new initiative, there is always a risk of failure. Nevertheless, the excitement of building something from scratch is hard to beat. And that is perhaps why it is often better for a business founder to construct their own social enterprise or charity, rather than join an existing one, even if it is harder.

Many entrepreneurs are not temperamentally suited to involvement with established non-profits. Such organisations tend to be institutional, even bureaucratic – rife with process, governance and history, and highly risk-averse. Also, the entrepreneurs are impatient to make things happen, are used to calling the shots without debate and thrive on uncertainty and constant innovation – all of which are anathema to most charities and their trustees. Moreover, entrepreneurs are inevitably somewhat egotistical and probably like the idea of leaving their own legacy.

However, many charities are arguably too small to operate as effectively as they could. Frequently too much of their income is absorbed in administration, meaning an insufficient proportion of their funding reaches the intended recipients. Consequently I would propose that every entrepreneur who wants to contribute something avoids adding to the clutter of micro- charities as a matter of course.

But for those entrepreneurs who do have an original idea and charitable mission – and the energy and time to devote to the project – the emotional and intellectual rewards can be considerable. And their engagement with the voluntary sector is a way to harness their start-up skills for public good. In health, education and the arts, outputs are typically delivered by government or charities. But it can be easier to pioneer inventions via a third-sector initiative than expect the state to experiment. Legislation is slow and politicians and civil servants are fearful of public mistakes. Trialling new activities can be easier via an independent non-profit: if the concept flops, there is likely to be much less criticism than if taxpayer resources are lost.

Social enterprises are at the heart of the entrepreneurial scene among younger founders. Many are relatively uninterested in wealth accumulation but relish the idea of real community impact with their endeavours. Such social entrepreneurs possess a similar spirit of adventure as their for-profit colleagues. I suspect that, like other models such as venture philanthropy – applying principles of venture capital to philanthropic initiatives – social enterprises are an important part of the future of the charitable sector in the 21st century.