Why aren’t there more social entrepreneurs?

At a social investment conference last week, a number of lenders and intermediaries stood up to say there aren’t enough good businesses in the sector to accommodate all the people wanting to lend them money.

They accepted there were good reasons for this: most social businesses are relatively new, and will take longer to grow their governance structures, financing strategies, and media relations, than it does to secure a promise of future cash.

Another obvious explanation, though, is a shortage of would-be social entrepreneurs.

Perhaps they do not like the risk-reward ratio. Social entrepreneurs often have to put a lot of their own time, and sometimes their own money, into their businesses, but don’t get much out at the end of it.

A regular entrepreneur, in exchange for the risk he takes, may get really, really rich. A social entrepreneur may get to be the boss, and have his name on the door, but he gets little else if it goes right, and he still loses the same amount if it goes wrong.

This same lack of financial reward for the people involved also goes some way to explaining the relatively small numbr of mergers among charities and social enterprises. Many mergers in the private sector are driven by the financial ambition of the major shareholders, the senior staff and the non-executive board. A merger means they get rich.

In the third sector, even if everything goes well, all the top people get is a lot of work. If it goes wrong, they get the blame. Whether it goes well or badly, many of them will end up out of a job.

Take the recent example of Craig Dearden-Phillips, who founded Speaking Up, a charity and social enterprise which recently merged with Advocacy Partners.

Dearden-Phillips put in loads of work to build the business, and was rewarded with its success and the recognition of his peers. But when the merger went ahead, he walked away with only a good reputation and a lot of time on his hands. When he began a new business, he started from scratch, with no great personal resources.

Of course, he knew what he signed up for, and seems happy with his choice. And many would argue that all social entrepreneurs be happy with only the numinous rewards he received.

It’s a worthy belief. But it’s a bit much to ask people, if they’re forgoing the chance to get wealthy, to risk their financial security to build a business they don’t own. Or, having done so, to selflessly walk away when the time is right. Some people with excellent ideas will inevitably be dissuaded by these high standards.

So how to get around this?

One school of thought says the sector should just take a much more relaxed approach to personal profit on behalf of a social entrepreneur. Another, which I prefer, says existing sector bodies should step in to remove some of the risk: provide more start-up support for people with good ideas, and more funding for organisations that want to merge.