The Ultimate Guide to Starting an Ethical Business in 2021
The ethical sector is booming and it’s not showing any signs of slowing down, so it makes sense that you’re looking into starting an ethical business. But you’ve probably got some questions…
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Questions such as:
What makes a business ethical?
Is the market big enough?
And, what do I actually need to do to start a business?
Well, we’re here to help with our ultimate guide to starting an ethical business in 2021.
Chapter One – Ethical Business
How Big Is The Ethical Sector?
Put simply, it’s massive. At the end of 2019, Ethical Consumer reported that consumer spending and finance in the UK reached a record level of £98bn, up from £87bn in 2018. And whilst the pandemic has been a challenge for a lot of sectors it’s pushed the ethical conversation higher up the agenda for many consumers.
For example, Ethical Consumer reported in December 2020 that Fairtrade grocery sales increased by 13.7% between October 2019 and October 2020. And this is set to grow even further as 28% of people plan to purchase Fairtrade in the future compared to just 15% pre-pandemic.
Click here for the full report on pre and post-pandemic ethical consumer spending.
If you’re looking to launch into the business to business sector sadly there’s no SIC code (‘Standard industrial classification’ which the Government use to classify businesses) for being ‘ethical’.
BUT, there are three types of business you CAN identify which are CICs (Community Interest Companies), Social Enterprises and Charities.
Currently, there are about 19k CICs growing by 20% year on year, 470k social enterprises (official 2017 Government estimate) and 168k charities.
So from approximately 6 million registered businesses in the UK, 10% come from these 3 sectors, suggesting those are organisations that are more lead by their ethics and what they refer to as a ‘triple bottom line’ (TBL focuses as much on social and environmental as on profits).
This is then where the guesswork comes in to extrapolate out of all the 6million UK businesses, how many others beyond that 10% are ethical and sustainable? But we would ask, why bother? How many customers are you looking for as a business to business company? If you can already see that there’s over 600k in the UK alone it gives you a pretty good idea that there’s plenty of opportunities out there.
What Is An Ethical Business?
In essence, an ethical business goes above and beyond its legal duty and does what is morally right in all parts of its business.
That covers how you treat and pay your staff and suppliers, how you source your products, how your products are made and what they’re made of, the life-cycle of your products, including the end of its life, how you treat your customers and how you run your business day to day.
For an ethical business, the end goal isn’t just about making a profit, it’s also about having a positive impact on people, animals and the planet.
The Three Pillars Of Ethical Business
Ethical business practices can be categorised into three main areas:
This covers how you treat your staff, your suppliers and your customers. For example, do you pay your staff a living wage? What benefits are available to them? Are they treated equally irrespective of gender, race and physical abilities?
Do you pay your suppliers on time? Do you pay them a fair rate for the products or services they provide? Have you ensured that the suppliers you work with also treat their staff fairly?
And when it comes to your customers, do you have a comprehensive customer service process in place for pre, during and post-purchase? Is it easy for them to raise a complaint and do you have a process to ensure that they are dealt with properly?
How we treat other living creatures is just as important as how we treat other humans. So you need to ensure that there hasn’t been any animal exploitation within the manufacture of your products. As well as ensuring that none of the ingredients used were tested on animals.
If you plan to run a service-based business you may think you don’t need to worry about this side of business ethics. But it may surprise you to know that even something as innocent-looking as getting your marketing materials printed can contribute to animal cruelty. However, it doesn’t have to be that way.
Read our article about how to ensure that your business uses cruelty-free printing.
Last, but by no means least, is how your business impacts the planet and our environment.
Planet focused ethics are centred around the fact that nature has value and it’s not here for us to exploit for profit and our own needs.
Sadly, our modern economy takes more resources each year than our planet can regerneate. Which is contributing to the severe loss of habitat and biodiversity, and is a key driver of climate change.
As an ethical business, you should look to ensure that your business is sustainable and ideally leaves the world in a better place than you found it. This also applies to your supply chain. For example, there’s no point in you ensuring that your office or shop is sustainable if your supplier is involved in rainforest logging.
The Challenges of Running An Ethical Business
There are two main challenges when starting and running an ethical business, and they’re scalability and profit margin.
Sadly, ethics don’t come cheap.
We live in a world where the focus is predominantly on maximising profits and in order to maximise profits sacrifices are made.
Sacrifices can come in all shapes and sizes, from the exploitation of workers and unsustainable sourcing of materials to poor customer service and compromised product quality/life span.
This means that it can be hard to find suppliers and partners to help you scale up that tick the ethical box. It also means that you will have to pay more for ethical products and services. This means your profit margins may be smaller if you absorb these costs rather than building them into the cost to your customers. You may also find that you have to turn down investment opportunities to stay ethical.
But, as far as we’re concerned, these are small prices to pay when your goal is to be a force for good.
Chapter Two – Planning & Research
Define Your Why
Before you start your own business you need to be clear on why you want to start one.
Is it to give yourself a better work-life balance? To influence change? To solve a problem? To earn a fortune?
The road ahead of you is not always an easy one. There will be times when you’ll question your decision to start your own ethical business, or any business for that matter. So having a clear reason and goal will keep you motivated and focused on those hard days, weeks or even months.
Define Your Customer
If you don’t know your target customer how are you going to market to them?
So, take some time to create a customer avatar by answering as many of these questions as you can/are relevant to your business idea.
– How old are they?
– What gender?
– Do they have children?
– What is their employment status and income?
– Where are they? Town/region/country.
– What is their education level?
– What hobbies do they have?
– What challenges are they trying to overcome?
– What are their goals?
– Where do they spend their time? Both physically and online.
Is there anything else you think will be important to establish about your future customer? For example, what is their political view? Or, their religion? Where do they go to get their news from?
Research Your Competition
Knowing your competition is just as important as knowing your customer.
Researching your competition is a vital piece of market research as it will help you to understand where your new business will fit into the current market and how it can stand out. It also helps you to get a feel for how viable your business idea is.
There are some key areas to look at when you research your competition:
– What their customers say about them
– How and where they sell to their customers
– Their brand identity
– Their messaging
– How and where they market themselves
– Their pricing
– Their strengths and weaknesses
– What opportunities you have to offer a better product or service
Define Your USP’s
Know that you know your target customer and your competition it’s time to establish your unique selling points, also known as USP’s.
It’s important to be clear on where your ethical business stands out and what you do differently to your competitors. Your USP’s are the things that make people choose your product or service over your competition. They form a large part of your marketing so you want them to be as strong as possible.
Test Your Business
Before you jump into launching your business fully it’s a good idea to test your idea first to make sure it will work.
For example, Lee and I (Kayleigh) soft-launched Kakadu Creative whilst backpacking after leaving our corporate careers. We had a handful of customers who we worked with remotely and it helped us to clarify which services we wanted to focus on (goodbye social media management, hello green hosting) and whether it was a business that could support us and scale.
Testing your business also gives you the opportunity to refine your USPs and customer avatar, meaning that you will be in a much stronger position when you officially launch.
Chapter Three – Getting Started
Write A Business Plan & Sales Forecast
A business plan and sales forecast are important documents to invest your time in. Writing them helps you to ensure that you’ve thought about all of the areas of your business, how it will work and ensure that it is financially sustainable.
Your business plan doesn’t have to be as long as War & Peace, but it should cover your goals and objectives and what you need to do to achieve them.
The Prince’s Trust is a great resource to use when writing your business plan and sales forecast. They have a guide on the different sections as well as several templates you can use to help you to write yours.
Funding Your Ethical Business
Now that you’ve written your business plan and sales forecast you may be in a position where you need to get funding to launch your idea. There are several ways to do this:
Also referred to as Bootstrapping, self-funding gives you 100% control of your business and is generally achieved through utilising savings, credit cards, personal loans or releasing equity in your home.
The main drawback with this option is that it can be slower to scale your business if you need access to larger pots of money.
Friends & Family
This is a slightly tricky option to choose, not necessarily from a money perspective, but from a personal perspective.
Funding through friends and family can be good as they generally don’t ask for an immediate or specific return. However, should your business fail it can be a hard conversation to have when there’s no money to give back.
So, before you go down this route ensure that you’ve thought carefully about who you ask and under what terms you agree.
This can be a great option to raise funds, especially if your business has a product or service that will excite the marketplace.
Essentially, you can get your customers to buy your product before it’s on the market. Giving you liquid capital to develop and launch your business with customers ready and waiting.
Find out more about crowdfunding here.
Angel Investors are high worth professionals who use their capital to invest in promising and exciting new start-ups.
The investment they provide is in return for a stake in your company, normally 20/25% so utilising this route will mean you’re giving away a part of your profit. However, they also provide mentorship. So it’s worth doing your research and finding ones that you think will not only bring capital but also valuable support and experience.
Grants are a great option as they’re essentially free money. Funded by Government, you get a cash injection to use towards setting up your new business without the pressure of having to pay it back.
However, there’s serious competition for grant support so don’t rely on this being the way you will fund your business.
They are also given based on specific criteria and uses, for example, purchasing equipment, working with consultants, or digital development such as website builds.
Get Grants is a good resource to look for grants in the UK, but if you’re further afield a good place to start is speaking to your local council or government organisation.
Name Your Business
What’s a business without a name?!
This can be one of the hardest parts of starting a business. You want something original, memorable, relevant and there are so many options.
We recommend starting with a big sheet of paper. Write down all the things that are relevant to your business – your location, your service, your products, your sector, your sector’s history – get as many relevant items down as you can and then start writing down names and words that relate to each one. Think giant spider diagram.
Write down everything that you can think of/find through research and don’t veto anything at this point.
Then, once you’ve filled the page, start going through it, editing the list down and developing ideas.
As well as being memorable and relevant, a name should have a story. It’s a big part of your businesses brand identity so take your time to get it right.
Find out where the name Kakadu Creative came from.
Determine Your Business Structure & Register It
The legal structure you choose for your business will determine how you pay your taxes, what paperwork you need to file and your own personal risk/liability.
There are several different legal structures, but the four most common ones are:
This is the simplest business structure to set up, and also the lowest cost, but you are personally liable for any business debts.
As a sole trader, you’re considered to be self-employed and need to submit annual self-assessment tax returns.
Despite what the name suggests, you are able to hire employees as a Sole Trader.
If there are two business partners then the simplest option is to use the Partnership structure. As a partnership, you are equally, personally responsible for any business debts and each partner must register as self-employed and submit a separate tax return.
Limited Liability Partnership (LLP)
With an LLP you’re able to have more than 2 partners and there must be at least 2 ‘designated members’ who are responsible for filing annual accounts.
Each member of an LLP must register as self-employed and the LLP must also register with Companies House.
The benefit of the LLP structure is that it protects its members’ assets, limiting their liability to however much they’ve invested and any personal guarantees they may have given when raising loans.
A limited company means that your personal finances are completely separate from the businesses finances. Your personal assets are protected in the event of company insolvency, but money invested in the company may be lost.
They’re more complicated to set up and they come with more reporting and management responsibilities.
A limited company is incorporated and limited by shares that are held by shareholders. Company directors run the company on behalf of the shareholders. You can be both.
Limited companies do come with set up costs and your annual accounts and financial reports are publicly available.
When choosing a structure we advise speaking to an accountant to get advice about what will be best for your business, personal situation and long term plans.
Open A Bank Account
When starting an ethical business you need to be conscious of not only what your business does, but also what your suppliers do.
And banking is a sector that once you scratch the surface you quickly find unethical practices. For example, Barclays Bank, a big player in the business baking sector, have invested an estimated $3.2 billion into the fossil fuel industry since 2015.
BUT, not all banks are alike. And thankfully there are ethical options out there such as The Co-Operative and Triodos. Here at Kakadu Creative, we bank with Starling. They don’t have any business account charges, it integrates with our accounting software, Xero and they were voted Britain’s Best Bank 2020.
Write A Code Of Ethics/Mission Statement
As an ethical business, it’s important to write a mission statement and code of ethics as they ensure that everyone within the business is aligned and unified on the way your business operates and what you’re all working towards.
A mission statement is a short statement that summarises your businesses ‘why’.
Your code of ethics outlines your businesses ethics, employee code of conduct and code of professional practice. It ensures that everyone in your business knows right and wrong and how you expect them to behave and represent your business.
Find Your Service Providers
There are many examples of companies falling foul of their suppliers’ unethical practices. Issues around environmental damage, slave labour, and animal cruelty are all things that can cause major damage to your brand and reputation. And to be honest, they’re not things you would ever want to be associated with as an ethical business.
So, choose your suppliers wisely.
Create A Brand Identity
Every business needs a brand.
We could go on and on here about the different elements that make up a brand, but we’ve already done that with our page dedicated to branding and what it includes.
Chapter Four – Preparing For Launch
Write A Sales & Marketing Strategy
Armed with that information you now know where your customers can be found, what makes you unique and what makes people buy from you.
Now’s the time to take all of that information and use it to make a plan for how you’re going to reach more customers and what your messaging will be.
It’s a good idea to have a structured marketing plan with a timeline and goals as it means that you can analyse results and see what is and isn’t working.
Be aware that your sales and marketing strategy will not stay the same from day one of your business to day 1,000. It will evolve based on what you find has worked and also to support the changing goals of your business.
Build A Website & Get A Professional Email Address
If 2020 taught us anything it’s that having an online presence is vitally important, especially if you sell products or services.
But, even if you don’t retail there are still some key reasons why your business needs a web presence:
– Your customer will expect it
– It gives your business credibility
– It builds trust
– You control the message
– You’re ‘open’ 24/7
– You can be found on search engines
– You can trade further than your local area
– Your competitors will be online
You should treat your website as an important investment for your new business and a vital tool in your marketing strategy.
When planning your site and it’s content think about these two key areas – what will your customer want to know and what do you want your customer to do when they are on your site.
As for the build and design, there are several online builders to choose from, or you can work with a professional. If you’re not sure what to do our article all about the pros and cons of online website builders should help.
And while we’re on the subject of websites. Make sure that your website hosting gives you domain-specific email addresses. There is nothing more unprofessional-looking than telling someone your email address is [email protected] If you’ve got myethicalbusiness.com make sure that your email is [email protected] -well, that’s as long as you’re name is Jim.
You’ve got your brand, your website, your marketing and sales strategy, now all that’s left is to put it to work.
You will also need to secure the handles for the social media platforms you intend to use. It’s best practice to use the same handle across all of your social media channels as it makes it easier for your audience to find you no matter where they look.
One other tip on social, don’t spread yourself too thin. It’s best to focus on one or two platforms and do them well. Engage with your audience and build fans, rather than just posting and running.
Protect Your Business
You should ensure that you have trademarked, copyrighted and have patents in place for your business. They should cover your business name, logo and any software or products that you’ve developed.
You should also use NDA’s (Non-Disclosure Agreements) when discussing and sharing sensitive information with external partners.
Hire Your Team
The people within a business are just as important as it’s products or services, and even more so in an ethical business.
Take the time to find people who can not only do the job but also align with your ethics. There’s nothing better than working with people who are equally enthusiastic and driven to achieve your companies goals.
Not all businesses need extra staff, but if you do you must ensure that you’re fully compliant with employment law and regulations. Meaning it’s a good idea to either create an HR department or work with an HR consultant before you recruit.
And there you have it. That’s the ultimate guide to starting an ethical business in 2021. We’re so pleased to be able to help you on your journey to starting something amazing.
If you’d like to discuss working with our ethical design agency to help bring your business idea to life drop us a message with the form below and let’s arrange a time to talk.
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