The popular notion (without the social enterprise lobby) that social enterprises are better equipped that conventional businesses (or charities) to survive the current economic downturn (and presumably others) is explored in New Philanthropy Capital‘s report Are social enterprises more resilient in times of limited resources.
The starting point for the report is a wider evaluation of the work of the School for Social Entrepreneurs (SSE). While that evaluation clearly provides valuable and statistically meaningful data on the impact of SSE’s work on its students – and their impact on the wider world – the attempt to compare experiences of SSE students to those UK businesses and charities without usefully comparable data is statistically flimsy. The ideas are interesting, though.
Writing on Guardian Social Enterprise Network, the report’s author, Eibhlín Ní Ógáin, suggests that social enterprises are more resilient (less likely to go bust) in times of hardship because “social enterprises have a diverse mix of funding. Yes, they rely on commercial income but substantial proportions come from public sector grants and contracts as well as grant-making trusts.”
She adds that: “It is interesting that it is not the commercial activity per se that lies at the heart of their success but their ability to balance commercial income with traditional charitable sources of funding, particularly in the start-up phase.”
One reality that this alludes to is that it’s easier for a (not-for shareholder profit) social enterprise to generate, for example, £100,000 a year than a conventional small business if that social enterprise gets a £25,000 grant to support its work. Despite the fact that the days of organisations getting grants simply for turning up and doing good work are mostly behind us, it’s still true that if a funder pays upfront for you to do lots of activity you’re usually – though not always – in a better position than a company that has sell all its goods and services to commercial clients.
This is really a point about a socially enterprising approach, though, as opposed to the characteristics of self-styled social enterprises or social enterprise model (in the unlikely event that social entrepreneurs could come anywhere near agreeing on what that model might be). Charities that take a socially enterprising approach, whether or not they choose to call themselves social enterprises, have the option to trade, access a bigger range of grants than CICs or companies limited-by-guarantee and also to get gift aid on donations.
There are, though, a few clear advantages – in terms of surviving a recession rather than in terms of general effectiveness – that organisations with non-charity social enterprise structures are likely to have.
One is that social enterprises are more likely to have executive directors (and are often very small companies, most of whose employees are executive directors). In that situation, it’s far easier to stave off short term financial problems by delaying wage payments. And, even when wages are being paid, in many cases social enterprise directors are (relatively) happy to take lower than voluntary sector market rate wages in exchange for the extra autonomy afforded by not having to answer to a volunteer board of trustees.
A second factor – connected to the first – is that in a social enterprise the outlook of the people taking the decision about whether the company continues to trade is different. It’s a caricature to suggest that charity trustees are conservative and terrified of risk but their responsibilities (as custodians rather than active participants) are different and, clearly with many exceptions, they’re more likely to prioritise an orderly winding down of a charity over a period of months than to keep battling away until they’re forced to stop.
For executive directors of (particularly small) social enterprises, who risk losing both their job and their hopes of delivering the social mission which caused them to start their business in the first place, the incentive to carry on through the pain for as long as they possibly can is much greater. The job factor also applies to the directors of conventional small businesses but they don’t have the added emotional pull of the social mission to contend with – so may be more likely to go off and start another business that sells things that people do want to buy.
On that basis, there clearly are logical reasons why social enterprises might be more likely to battle through the economic downturn than conventional businesses or charities. I’m not sure if those reasons necessarily do much to promote social enterprise as a career choice, though.