On sustainability – part two

When pursuing the holy grail of sustainability, as all charities and social enterprises must now at least claim to be doing, the major emphasis is usually on developing new sources of income.

As the National Council for Voluntary Organisations (NCVO) Sustainable Funding Project explains: “Increasingly charities are being told to move away from grant dependency, become more business like, earn income, develop an asset base and consider loan finance. And opportunities for delivering public services are increasing. Enabling organisations to see the bigger picture and develop the skills and resources to take control of their future is critical.

One problem this creates, as already discussed, is that organisations attempt to diversify their income by carrying out activities that they don’t know how to carry out and which end up losing money rather than generating a surplus.

Another problem is that the emphasis on new income streams doesn’t encourage organisations to look at the other side of their balance sheet. If you can get funding for doing new stuff that aims to increase sustainability, you’re less likely to focus on not doing old stuff that decreases sustainability.

At a very basic level, it’s often possible to make small but meaningful cuts in your costs without making any significant changes to what you do. The vast majority of social sector organisations that produce printed materials spend far too much on printing and, if they contract it out, on graphic design. These industries are viciously competitive and, in the case of printing, half an hour’s work on the internet will enable you to find out whether you’re currently getting a good deal.

Obviously, the value of doing this depends on the situation. If you’re printing a few hundred business cards, it’s completely justifiable to pay over the odds (£50 rather than £30) to support a local printing business. If you’re printing thousands copies of a magazine (£5000 rather than £3000), it probably isn’t.

Beyond just not paying too much for stuff, it’s also worth looking at spending on things that are useful but not absolutely essential. For example, does everyone in your organisation need to have their own phone line? If you’re the Samaritans – or any service that people need to be able to contact in an emergency – the answer is probably ‘yes’. If you’re an organisation doesn’t specifically deliver services via the phone, it’s probably “no”.

The specific examples will be different but it is possible to save enough to pay a part-time salary by doing the equivalent of cutting your print bill and having fewer phone lines. I know because my organisation has done it this year.

Unfortunately, though, for most of us the biggest costs aren’t either direct costs (what businesses call cost of sales) or overheads. Our biggest costs are salaries and – while finding ways to spend less money on printing can be good fun (if you don’t work for the printing company that’s losing the business) – making people redundant is usually a horrible experience for everyone involved.

The combination of the horror of redundancy and the entirely commendable desire to continue to provide work for valued colleagues does not always produce good decisions. While there are sensible things than can be done – reduced hours etc. – to keep a staff team together over short period of time, it’s vitally important that this doesn’t slip maintaining roles than aren’t being paid for by either grants or trading income on the basis that ‘something will turn up eventually’.

As someone running a charity or social enterprise, your job is to deliver positive social change for the people who depend on your activities, goods and services – not to find ways to keep people in work. And even if the specific aim of your organisation is to create jobs, that doesn’t include jobs that nobody is paying for. Failing to understand that might be comforting in the short term but it just makes things worse in the long term.

Assuming you’ve been employing sensible, hard-working people, it’s not going to be possible to make people redundant without reducing the ability of your organisation to carry out tasks but – faced with limited resources – it’s important to choose which tasks you continue to carry out based on the extent to which they’re actually useful.

For example, one consequence of New Labour’s capacity-building binge era was that many relatively small organisations have been encouraged to develop a wide range of complex systems to produce detailed financial information to enable them to compete for public sector tenders. In many cases, even if these organisations succeed in winning small tenders, the surpluses generated from doing so will be less than the cost in person time of generating the information.

It’s important that organisations do fulfil legal requirements and have a good understanding of their financial position but beyond that you running the risk of spending £10,000 worth of person time discovering the details of your £10,000 budget deficit. If the public sector is not giving you money to waste money doing this, it’s probably a good time to stop doing it.

Once again, specific examples will vary but most organisations will have some tasks that they’ve been carrying out – initially for good reasons – that, in a situation where there’s less person time available over all could just not be carried out.

None of these points are arguments against diversifying income but, getting people to give you more money to do stuff if not easy and is a process that is only partially controlled by you. Relatively speaking, spending less money is quite easy.

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4 responses to “On sustainability – part two

  1. David, What this really brings home to me is the division in social enterprise between the not-for-profit grant sustained approach and the self-sustaining profit-for-purpose approach. One seems to be a charity becoming a business, the other a business becoming a charity.

    Now although the point about being self-sustaining has been made for many years, it was made most prominently 5 years ago in a proposal for a national scale social enterprise initiative which opens with this point about sustainability and goes on to describe business with embedded social purpose:

    “An inherent assumption about capitalism is that profit is defined only in terms of monetary gain. This assumption is virtually unquestioned in most of the world. However, it is not a valid assumption. Business enterprise, capitalism, must be measured in terms of monetary profit. That rule is not arguable. A business enterprise must make monetary profit, or it will merely cease to exist. That is an absolute requirement. But it does not follow that this must necessarily be the final bottom line and the sole aim of the enterprise. How this profit is used is another question. It is commonly assumed that profit will enrich enterprise owners and investors, which in turn gives them incentive to participate financially in the enterprise to start with.”

    http://en.for-ua.com/analytics/2007/08/09/110003.html

    Publishing a strategy proposal in a magazine may seem radical. There were reasons not relevant here.
    Five years later, you’ll find the same case for business with embedded social purpose being made by Professor Michael Porter in his pitch for creating shared value. You’ll find the same definition from the European Social Business Consultation. You may even find CSV being referred to on the Transition Institute website.

    As I told Allison Ogden-Newton recently. This isn’t theory from an American univeristy, it’s the practical application of a UK based social enterprise and the ‘Marshall Plan’ described above, one of it’s social products.

  2. Beanbags admin

    Well, I agree there are difference in approaches to sustainability in the primarily grant-funded and primarily trading-based worlds but I think there are also similarities – and the need to find ways to spend less money on stuff you don’t need to do is something that applies equally to both.

    That said, I think primarily grant funded organisations sometimes avoid doing things more efficiently on the basis that they’re worried funders might ask for money back if it’s not spent exactly in the way spelt out in the budget. So if your print budget is £10,000, there’s no point spending £6,000 if you don’t get to keep the £4,000 you save to spend on other things.

    In terms of non-state grant funding, this tends to be more of a problem of perception than reality – funders are generally quite pleased that their money’s been made to go further, as long as spent on extending work that they support. Public sector funders aren’t always so sensible.

  3. That’s clearly a problem David. Still there’s a case to be made for saving money such that it’s deployed for other benefit.

    You’ve reminded me of something. In 2006 we’d made the point that the current US spending in Iraq of 1.5 billion dollars a week might be deployed over 5 years in a social enterprise initiative where democracy would be more welcome. In November 2008 the same idea struck Barack Obama when as a presidential candidate, he declared his intention to create a social entrepreneurship agency paid for by closing tax loopholes and and ending the war in Iraq.

    I’ve been keeping a lid on part of our story which involves a fax to US government in February 2008 and a ‘bombs to isotopes’ initiative which offer the seasonal message of Peace, Love and changing capitalism:

    http://www.ecademy.com/node.php?id=171835

  4. Pingback: On sustainability – part three | Beanbags and Bullsh!t

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