My Guardian piece on the Big Society Bank seems to have generated a fair amount of (mostly supportive) reaction so it my typically difficult way I want to start by partially disagreeing with myself. The Guardian’s sharp, engaging headline and intro serves to slightly over-emphasise my scepticism about the Big Society Bank. I am sceptical about the level of hype around the Big Society Bank – in both its current and New Labour incarnations – but I don’t think it’s a bad thing. In fact, I think it’s likely to be a broadly good thing (and the ideas shortlisted by Nesta all sound potentially valuable).
My main concern is that the Bank is likely to be a vehicle to perpetuate the misguided thinking on social enterprise finance that I discuss in the rest of the Guardian article. My contention is not that people coming up with ideas to achieve social change through new financial models is a bad thing, it’s that it’s a relative side issue in the discussions about how to support socially enterprising people to deliver positive social change in the UK.
At the start-up stage or in the early stages people need to work out whether there’s a need for what they do and whether there’s a market for it. Overdrafts can be very useful but generally, while I can think of lots of specific exceptions where a loan might be the right vehicle to undertake that process, these exceptions cover a very small percentage of the overall number of new or early-stage socially enterprising ventures in the UK right now.
Over recent years, it hasn’t been unusual to attend events on social enterprise finance where there’s been presentations from two, three, sometimes four different flavours of social enterprise loan fund but little or no mention of (declining in many sectors but still relatively extensive) grant opportunities or, more importantly, ways of getting up and running without significant start-up finance.
I agree with Rod Schwarz’s view that, in the case of the kinds of social enterprises that potentially would benefit from significant investment, a lack of social enterprise investment propositions is a bigger problem than lack of cash. And I also very much agree with the approach of Schwartz’s company, Clearly So, in seeking to match social businesses with people who are willing and able to provide the kind of finance that’s relevant to their specific needs – whether that’s donations, equity investments or loans. Loans are potentially helpful but they’re a tool, taking a loan is not a socially beneficial activity in itself.
Part of the trouble is that elements within the social enterprise lobby see the use of loan finance of proof of virility. Social enterprises take loans and pay them back because they’re real businesses not wussy charities that take just grants and spend them on helping people. And don’t we have a significant growth in turnover this year.
Social enterprises (or enterprising charities) striving to be sustainable businesses – or get as close to they can to being sustainable through trading – is a good thing. The problem is that the bit of it that really matters is being able to provide some goods and services that people want to buy. Specialist providers do offer something to businesses that have got there, need finance to get to the next level and can’t get it from mainstream banks – but the number of social enterprises in that position is far too small to justify seminars, conferences or flagship government policies.
While I accept that part of the difficulty is that you’re more likely to get a decent turnout at (even an ultimately useless) event called ‘how to get some money for your social enterprise’ than you are at event called ‘practical tips based on my really difficult experiences starting a social enterprise with no money’, I still think social enterprises support agencies, business support agencies and other state-funded advice providers have a major case to answer.
With the exception of SSE and Unltd, these organisations have shown a worrying lack of focus on either helping people to do stuff or putting them in touch with people who might be able to. I doubt this is through choice. It’s likely that it suited New Labour to fund a never-ending roadshow of mostly irrelevant financial products and inter-lobby networking. A key challenge for the current government is to make the Big Society Bank doesn’t contribute to more of the same.