Going large

You don’t need to go beyond the executive summary of Making It BigNesta‘s new report on ‘Strategies for Social Social Innovations’ to see just how confused the UK’s leading thinkers are about the subject.

In sentence two we’re told ‘Many social innovations have become part our daily lives – think pre-school education, first aid, e-petitions‘ while in sentence three we’re told that ‘In the developing world, organisations like BRAC and Pratham are approaching transformative scale, starting to solve the social problems they set out to tackle.

From this we can deduce that social innovation could be a new branch of an existing sector, an essential basic service or a new method of communicating your views to people in power. On the other hand, it could be a large NGO that provides huge range of different services designed to help poor people.

It may be that it’s not useful to define ‘social innovation’ beyond the suggestion that it’s something with a social aim that seems to work but what about ‘scale’? According to Making it Big: ‘Social innovations can be said to have scaled when their impact grows to meet the level of need‘.

On that basis, pre-school education and first aid are a long way off reaching (worldwide) scale while many would argue that e-petitions reached scale some time before the first one was set up (apologies to radical hippies and Shoreditch libertarians who oppose both pre-school education and first aid but love e-petitions).

No more heroes

Making It Big isn’t a bad report – it’s a good report that reflects a confused situation. As Nesta boss Geoff Mulgan reflected at the recent launch event, 10 years ago the dominant view in (newly emerging) social innovation policy circles was that the UK would see an explosion of Ashoka-model, Richard Branson-style heroic social entrepreneurs.

(He didn’t add that) a few years before that Charles Leadbeater’s The Rise of the Social Entrepreneur had seemed to herald the approach of a disparate army of new social leaders who, between them, would replace outdated public services aided only by five disgruntled local people, a 30 minute crash course on how to do proper business from a kid on KPMG’s graduate scheme and their terrifyingly passionate personality.

It wasn’t a good idea but it was an intellectually coherent one. Unsurprisingly, it hasn’t worked. No heroic social entrepreneurs at all have solved a global social problem (or even replaced a relatively small existing public service) by scaling up themselves and doing their passion. The heroic social entrepreneur model has now become so discredited that at this year’s Skoll World Forum many of the world’s leading heroic social entrepreneurs were refusing to associate themselves with (the heroic image of) themselves.

In the UK, it just quietly didn’t happen. So Making it Big successfully reflects a landscape where we know being a great person and really meaning it is not enough. It does a good job of outlining different potential routes to scale: influence and advise, build a delivery network, form strategic partnerships and grow an organisation to deliver.

Do more vs. doing more good

It’s useful to look at scaling social innovation from two angles simultaneously. One is operational scale. Are you doing the thing you do either in the most efficient way you can or delivering it at the most efficient volume possible? Any of the available routes might be the best one to reach that point.

Have you reached the point where you’re doing something to the greatest possible extent that your skills, the resources available to you allow and the markets – in the broadest sense of the term – you operate within allow you to and are you able to keep on doing it?

Then the social impact question might – at that optimum operational level – does the social bit still work. Do the social returns diminish, why and by how much? Does the service that worked brilliantly for people in Norfolk, work just as well for people in Wales – and does it still work as well for people in Norfolk now you’re trying to deliver it in Wales, too?

Unfortunately, the trade-off between operational and social will probably involve taking a position on some difficult questions. Do you want to make your social good available to the biggest possible number of people or the people who need it most? Clearly, both but what if you have to make a choice?

What if the best way to make your social innovation simple enough for millions of people to use is to make it in a way that means particular groups of people can’t use it? What if ensuring your social innovation fits the market for helping for a particular group of people means you have to design it in a way that means it will never have a wider application?

It’s too much to demand that social innovations need to have entirely solved social problems to have been regarded as having scaled but how do we work out which scale model we should be aiming for if we want to achieve the best possible of operational effectiveness and social impact.

Markets don’t care about your social innovation

What remains under-addressed – both in Making it Big and in current UK social innovation debates in general – is the trade off between (scaling) social innovation as a technical process and social change as a battle for resources.

In Section 4, we’re told by Ted talk hero, Simon Sinek, that “people don’t buy what you do; they buy why you do it” and therefore you need a ‘clear vision’ to scale up. The may be a great piece of advice in some contexts but it’s problematic in many of the social sectors.

In the social sectors people often buy what you do – in terms of giving up their time to engage with it – because they’re desperate, lonely, bored, or a combination of all three. That’s also true in purely commercial sectors but, in social sectors, the fact that your service is being used is (hopefully) not enough.

In conventional economic terms, many of the people who most need many social innovations don’t buy anything because they don’t have the power to do so. On the other hand, the people who do have the power – the people who might actually pay for the scaling of your innovation – buy whatever the hell they want irrespective of what you do or why you do it.

Breaking into many major social markets isn’t really about you and your social innovation at all. Do you have a scalable model for helping people back to work in the UK? Would unemployed people like to use it? Frankly, who cares? The Department of Work and Pensions aren’t going to pay for it through their lowest common denominator Work Programme scheme.

Unfortunately, there’s not much room in the think pods at Nesta for discussions that acknowledge the fact that some people have more power than other people, and research that considers how that affects both the kind of social innovations that emerge, and the projects, products and businesses that succeed.

Without that, some good stuff will happen but the broad state of confusion the social innovation world will continue.

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How do we build markets when customers don’t pay?

Despite its popularity with politicians (or perhaps partly because of it) public service marketization is rarely discussed in a practical useful way…. ” – the first in a new monthly series of blogs I’m writing for Pioneers Post on social innovation and public service reform. Next two are on: ‘Who pays when the state can’t?’ and ‘Do all public services have to be delivered by professionals?’

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Social investment explained

There’s no shortage of exciting rhetoric about social investment in the UK but what does the market actually offer to charities and social enterprises? What questions do you need to ask before you decide whether to look for social investment at all or to help you decide which forms of investment might be relevant to your organisation?

Over recent months, I’ve been working with Social Enterprise UK – Nick Temple in particular but also Dan Gregory and other members of the team – to write Social Investment Explained, a new guide commissioned by Big Lottery Fund, that hopefully provides an accessible introduction to social investment in the UK. It would be great to here what you think of it.

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Social Enterprise: What’s love got to do with it?

Is love an essential requirement for a successful social enterprise? Or is it actually a by-product, the mechanism or even the result of one?

In recent months, my social enterprise, Social Spider CIC, has been working with Intentionality CIC on Social Enterprise: What’s love got to do with it? – a report on the role of love in social enterprise. The report is available to download here. It would be great to hear what you think.

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Sustainable business models: Avoiding an ‘annual cycle of finger-crossing’

Popular grant funding body, Big Lottery Fund, have set up a website, Your Voice Our Vision, to stimulate discussion about how they’re going to spend £4billion between 2015 and 2021. They’ve been asking various people to chip in with blog posts on how they view the current and future funding situation for civil society/the voluntary sector/VCSEs (delete or replace entirely according to preference). Here’s my contribution:

… As Managing Director of a small social enterprise and, until recently, vice chair of my local CVS, I’ve observed many different attempts to answer the question of what to do when the money runs out. Understandably given the pressure of the situation, many of them aren’t very well thought through...” – full blog here.

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Time to get the builders in?

There’s no shortage of challenges for leading figures in UK social investment and even the good news isn’t always quite as good as seems. For example, those investors and intermediaries who hope the social investment market will (at some point) be catapulted to relevance by a massive increase in the numbers of social ventures delivering public services will have been delighted by last week’s credulity-busting claims*, in research from Northampton University, that social ventures have been less likely to ‘cease operating’ over the past 30 years than PLCs listed in the FTSE100.

Unfortunately, even if you’re prepared to swallow the ideas that: (a) this is true and (b) this revelation will somehow make public sector commissioners more keen to give contracts to charities and social enterprises, the researchers also expect you to stomach the idea (see page 24) that the 100th biggest ‘Third Sector Organisation’ in the UK in terms of trading income is an organisation, Oasis Charitable Trust, that’s currently doing just £234,000 worth of business.

Given that, as we’ve been told, the model of social investment supported by wholesale finance institution, Big Society Capital, only works without subsidy for deals worth £250,000 or more, and (unless you’re a dot com start-up) you generally need to be doing a lot more than £234,000 worth of trading to take on a £250,000 investment, this would suggest there’s far fewer than 100 organisations in the UK currently in a position to take on unsubsidised social investment.

That’s fewer than 100 organisations that are literally big enough to take on these investments. That’s before you even begin to consider whether they’re actually profitable businesses that would be able to repay an investment. By the end of 2013, Big Society Capital’s cash had been drawn down by 57 frontline organisations with only £13.1million of a projected £600million pot spent in the process.

The situation can’t really be quite that bad (can it???). I’m pretty sure there are more than 100 charities and social enterprises in the UK with a trading income of more than £234,000 – I’d be amazed if there weren’t at least 500 – but there clearly aren’t so many more that University of Northampton’s finest were able to identify them. Even if my anecdote and gut feeling based optimism is correct, that’s still nowhere near 1% of all UK social ventures/third sector organisations/VCSEs/social sector organisations (delete according to taste).

Against this backdrop of staggering mismatches between what 99%+ of charities and social enterprises need, and what (the most prominent element of) the UK social investment is able to offer, Robbie Davison and Helen Heap’s work on developing the idea of ‘Builder Capital’ is particularly timely.

Davison, of Liverpool-based social enterprise, Can Cook, has been a long-term critic of ‘Social Finance’ in the UK and published ‘Does Social Finance Understand Social Need?‘ (the answer was ‘no’) in January 2013 before teaming up with Heap, then working for charity, Tomorrow’s People, to publish ‘Can Social Finance Meet Social Need?‘ in June 2013.

Once again, the answer was ‘no’ and in their new book, The Investable Social Entrepreneur, Davison and Heap, reiterate their critique of the current ‘social finance’ market: “Social Finance, as it is currently arranged, is mostly about not losing money – avoidance of risk in order to protect existing assets. It is nothing more than debt finance and debt finance alone will not address social need anytime soon; it’s the wrong type of short-term money trying to attach itself to problems that take a long time to solve.

They then outline their solution, a new form of social investment known as ‘Builder Capital’. Builder Capital basically involves a social investor putting between £250,000 and £2million into a social enterprise on the basis that they’ll receive no financial return at all for the first seven years. From then on, assuming the business succeeds, they receive a set percentage of the enterprise’s revenues every year until year 20 – resulting in anything from simple repayment of capital to a 5% annual return (depending on the percentage agreed).

The plus side of this approach is that it’s a model for social investment that genuinely offers social enterprises something that isn’t on offer from either grant funders or mainstream finance providers. Grant funders might offer social enterprises money that doesn’t need to be paid back but they’re unlikely to give them 7-years’ worth to spend on developing a business – rather than delivering a monitored set of outcomes. Mainstream finance providers (and most providers in the current social investment market) might offer a social enterprise a mortgage or other forms of loan finance but only if the enterprise can begin to repay the money immediately at commercial rates, which makes it very difficult to both build a sustainable enterprise and meet social needs not already met by mainstream business or the public sector in the process.

The obvious downside to Builder Capital is that it doesn’t currently exist, with an apparent lack of investors keen to put large amounts of money into social enterprises on the basis that they may get it back, eventually, over a 20-year period, being the biggest problem. Davison and Heap are clearly aware of this problem and are planning to do something about it. They’re running a series of events to discuss how to make Builder Capital a reality, starting with this one in London on July 10th. After these discussions, the plan is to establish a ‘Builder Capital Hub’ that will bring together investors, entrepreneurs, customers and beneficiaries with the ultimate aim of ‘developing and growing a market for Builder Capital that we estimate could soon reach a size of around £50million per year‘.

Given that the latest available figures (albeit, figures from a couple of years ago) tell us that the entire market for all social investments other than secured loans was worth £19.8million per year, this seems relatively ambitious but whether or not they achieve that target, Davison and Heap’s work on Builder Capital is an important step towards to making social investment more relevant to ambitious charities and social enterprises with the potential to grow into sustainable businesses meeting social needs.

 

*The claims are true, as long as you’re prepared to accept that a PLCs merging with another company is the same as ceasing to exist. 50 companies from the 1984 FTSE are not in the 2014 because they’ve been acquired. Examples include popular pharmacy group, Boots, which is now part of Alliance Boots. Alliance Boots had a total turnover of £25.7Billion in 2013/14. Only 3 companies that were in the 1984 FTSE100 have gone bankrupt.

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Revving the trust engines?

In a period where social sector policy ideas increasingly seem as disposable as the managers of struggling premiership football teams, many more casual observers of developments in social enterprise wonkery may have entirely missed ‘Trust Engines’.

In August 2013, social entrepreneur support organisation, Unltd, was plugging the concept of these ‘mechanisms that allow social entrepreneurs to articulate, evidence and then protect the social value and social purpose of their organisations’ with zeal and purpose.  

Unfortunately, a read through Pushing Boundaries, the organisation’s recent publication on ‘Why some social entrepreneurs are using a for-profit form and how they are embedding their social mission’ suggests that it’s all gone wrong ‘Trust Engines’. The idea is as prominently featured as David Moyes in next year’s Manchester United team photo. 

On reflection, ditching ‘Trust Engines’ may have been a mistake. It is a silly name but the things that it’s a silly name for, the mechanisms for articulating social value, are potentially interesting enough to write a 48-page report about.

Unfortunately, the vast majority of Pushing Boundaries is not about that. The starting point for the research is that ‘A growing number of social entrepreneurs are choosing for-profit legal for their social ventures‘.

Based on that starting point, there’s at least three interesting angles worth exploring:

(i) to ask whether an increase in numbers of for-profit social ventures is a good thing – why it might be and why it might not be

(ii) to look at why there’s an increase in numbers of for-profit social ventures – is it because markets are changing? is it because funding is changing? is because attitudes are changing? is it because different people are starting social ventures?

(iii) to explain how for-profit social ventures are combining meeting the needs of shareholders with delivering a social mission

Pushing Boundaries deliberately avoids (i) and attempts to cover (ii) and (iii) solely by asking 25 (mostly early stage) social entrepreneurs who use a Company Limited By Shares (CLS) structure what they think.

As someone who spends a considerable part of their professional life asking social entrepreneurs what they think and turning it into blog posts and publications, I’m a big supporter of the practice but it’s difficult to learn much from anyone’s personal opinions about anything unless you put them in some sort of context.

The lack of context in Pushing Boundaries isn’t a mistake, it’s a position of principle, as the conclusion explains: ‘The key focus of this research has been on social entrepreneurs’ voices rather than on external assumptions about how organisations should act‘.

The problem is that unless you engage with the ‘external’ arguments about why you didn’t chose some other structure that someone else might want you to, or the particular market or funding situations that have motivated your decision, there’s nothing very interesting you can say about ‘motivations for choosing a CLS’ (which is the focus for section 1).

With the exception of one entrepreneur who made the choice based on a principled belief in demonstrating that profit and social purpose can go together, all the others apparently chose the form either based on it being simple and/or the best structure for taking on investment. Fair enough.

The section on ‘Attitudes to securing social mission’ doesn’t deliver many surprises either. Some of the entrepreneurs think legal locks and guarantees don’t matter because it’s what you do that counts, others worry about ‘further down the line’ when ‘suddenly people start rubbing their hands together’ and prioritising profit over social mission. Fair enough. Maybe we could compare some examples of where for-profit social ventures have scaled up and protected their mission and where they’ve been unable to do so?

The section on ‘Embedding Social Mission in Practice’ is the only section that amounts anything other than ‘this is what some entrepreneurs think about their business’.

It outlines some of the approaches interviewees have used to embed their social mission:

  • structure-based approaches – such as putting the social mission in your articles of association
  • legal models such as golden shares held by charities
  • publishing evidence of social impact
  • commitments to profit distribution

A table at the end of the section shows some of the interviewed organisations are using two or more of these approaches while others aren’t explicitly using any of them but may be amongst those believing that social impact is ‘in our DNA’.

In the final section, ‘Experiences of Being a CLS’, ‘external assumptions’ get a look in on the basis that they might have a negative impact on an organisation’s ability to get grants or generate sales. At one point, one entrepreneur reflects: “It would have been a lot easier to set this up as a charity with no commercial purposes – there’s just something in the word ‘charity’ that makes people very comfortable. And I think that’s fallacious – that’s just a matter a perception.

Believing that it’s better to buy from a charity is a matter of perception but it’s a perception based on a legal registration process and an ongoing system of regulation, and possibly on that customer’s beliefs about what it means to do social good.

Pushing Boundaries primarily consists of Unltd getting some social entrepreneurs to tell their customers and wider society (at great length) that the way they structure their organisations is none of anybody else’s business. Not many of those customers or members of wider society were interested anyway. The message to anyone with any ‘external assumptions’ is sod off.

 

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