Why the Better Business Act could help UK start-ups

Andy Fishburn is Managing Director at Virgin Start-up, Virgin’s not-for-profit incubator. 

Today is Better Business Day. A day when campaigners are calling on the Government to acknowledge the Better Business Act. 

It’s a campaign that aims to change business for good by making every single company, whether big or small, align the interests of their shareholders with those of wider society and the environment.

Last year, 774,420 new businesses registered in the UK, up 3.5 per cent from 2021. 

Britain’s entrepreneurial spirit is alive and kicking and many would argue the UK is still one of the best places in the world to start a business.

But the wider landscape of skyrocketing cost-of-living, wide levels of inequality and the climate emergency, make it a tough environment for new business founders and are issues that require urgent action.

The problem solvers

Start-ups can play a crucial role in helping us find solutions to some of these big problems. 

Given the right support to innovate and invest from the beginning, there is huge potential for these founders to make a difference both collectively and as they scale-up sustainably.

After all, the small businesses of today are the big businesses of tomorrow.

In the past decade, Virgin Start-up, as a delivery partner of the Start Up Loans Company, has supported tens of thousands of early-stage founders, providing access to more than £70million to help more than 5,000 new founders start-up.

In that time, we have seen an encouraging increase in the number of purpose-led businesses. 

Organisations like Change Please, a social enterprise that’s using coffee as a vehicle to support homeless people by offering them training and employment; Dash Water which tackles food waste by turning unwanted fruit into fruit infused water; OddBox which ‘saves’ fruit and veg that would otherwise be discarded and delivers it directly to customers’ doors or UpCircle, which uses discarded ingredients and upcycles them into a range of sustainable skincare products.

From modest beginnings – and with the support of a start-up loan – these incredible businesses are now having a profoundly positive impact at scale.

 Many investors continue to be driven by the need to generate quick returns, prioritising short-term quick-wins over long-term, sustainable growth.

Creating and running a responsible, purpose-led business has many benefits. 

Research shows that mission-led businesses are more confident in their future growth, have higher levels of innovation. 

Some 43 per cent B Corp SMEs have applied for, or received, R&D tax credits in the past three years, versus 6 per cent of the wider SME population. 

They have also been more successful at securing equity finance – 70 per cent of B Corps who sought equity finance secured all of the required amount, versus 56 per cent of the wider SME population. 

However, a recent study by the British Business Bank also shows that 85 per cent of UK SME intermediaries think that the current economic conditions are an obstacle to SMEs becoming more environmentally sustainable.

So how do we make a purpose-led approach the rule as opposed to the exception, and what’s currently holding back the founders?

Updating investor mindset

In our experience, while there is a great deal of noise about purpose-led businesses and social impact, the reality is that many investors continue to be driven by the need to generate quick returns, prioritising short-term quick-wins over long-term, sustainable growth.

Without incentives from the investor community, start-ups are encouraged to operate with the same short term, profit-only goals – making it more challenging to run and scale a successful start-up that is purpose-led.

The willingness from businesses to go against the tide and act as a force for good is there. But to nurture these founders through the early hurdles of business ownership and then harness this at scale, we also need a change to the law to ensure all businesses, both big and small, are creating long-term value.

As the law shifts, this would in turn force a change in investor mindset.

The Better Business Act is pushing for change

The Better Business Act is a campaign backed by nearly 2,000 businesses, which wants to amend Section 172 of the Companies Act to fundamentally change how businesses are governed so that every business aligns the interests of people and planet with profit.

At Virgin Start-up, we’ve supported the campaign since 2021 because we believe it is a crucial step in unlocking the potential of the UK purpose-led start-up market by providing a strong foundation for them to thrive in the long-term.

We are delighted to see how much the coalition of supportive businesses has grown in that time, and we look forward to welcoming more, larger businesses into the fold.

It’s a tough world out there for new business founders but as someone who speaks to passionate new business founders daily, I also see a bright future ahead.

Now more than ever we need to support Britain’s purposeful entrepreneurs and nurture their ideas for radical change. 

Only then will we get a vibrant start-up landscape that supports the innovative, solutions-focused businesses that we need to help solve the UK’s biggest problems.