For those of us who worked closely with ambitious start-up social enterprises during the tail end of the first dot.com bubble, the business strategy known as ‘build it and they will come’ is a familiar one. In those days, most thrusting young (or, at least, young at heart) web-based social entrepreneurs had a varation on ‘build it…’ as their elevator pitch. It was a great elevator pitch, you could get it across easily even if you were only going one floor and the pitchee was concentrating on something else for most of the journey.
The least painful stage for ‘build it and they will come’ to fail at is stage 1. While it seems frustrating, those web-based social entrepreneurs who generally lost least money (theirs or other people’s) in the early years of this century were the ones who didn’t actually manage to find the elusive techie who could complete the website to their detailed specifications based on their tiny budget. Slightly more cash was frittered away by those who managed to build something but quickly gave up on the tedious slog of trying to get people to come to it. The real nightmare, though, awaited those who built a website, successfully got some people to turn up and then kept spending for several years at the invisible third stage ‘and then it will be easy to develop some revenue streams.
While ‘build it and they will come’ may be most clearly identifiable in the case of online businesses, it’s clearly not a solely web-based phenomenon. Online, ‘build it’ is latest incarnation of the eternal problem that a need that exists in the abstract – ‘lots of people like ethical products, wouldn’t it be great to have a portal where people could buy all the ethical products they want to buy in one place’ – doesn’t actually exist in the world of the customer – ‘I want to buy ethical stuff, cheaply and quickly at a supermarket or from a website where I can also buy other things that I want’.
Beyond online services ‘Build it’ is a strategy that’s particularly prevelant in the infrastructure world. Social enterprise certification product, The Social Enterprise Mark, for example, was primarily set-up to tackle the abstract problem that the UK had 64,000 organisations calling themselves social enterprises but no clearly agreed definition of what a social enterprise was. So the ‘build it’ was a definition of social enterprise (controversial or otherwise).
Other difficultes aside, the Mark has faced the challenge that solving the abstract problem it was set up to solve – while arguably useful to society as a whole – has no clear commercial value to anyone. The semi-detached commercial question that Mark answers is ‘does demonstrably conforming to this definition of social enterprise give my organisation sufficient commercial adavantage to justify paying this annual fee?’ is a ‘yes/no’ question that needs either robust evidence and/or a very low fee to provoke a ‘yes’ answer.
As watching Dragons’ Den often show us, solving problems that paying customers don’t want solving for cash is not a problem restricted to social enterprise. Where social enterprise often leads the way is in terms of the disconnect between a genuine abstract need and a commercially viable response. Enter, the Social Stock Exchange.
As a business in itself, the Social Stock Exchange, which has received an £850,000 investment from the Big Society Investment Fund, faces some of the same difficulties as the Social Enterprise Mark, albeit from a slightly different angle. The government clearly believes that the idea has social value in terms of promoting a sustainably business-like vision of social enterprise but, paradoxically, that doesn’t mean there’s a clear business case for the Social Stock Exchange itself.
Lots of leading figures in social enterprise, including Social Enterprise UK Chief Exec. Peter Holbrook, have shown enthusiam for the idea. Talking in May 2011 about the possible launch of the exchange, Holbrook told this blog that: “I think it’s fundamental in connecting individuals with a true social purpose. I’ve got my pension in an ethical fund which is environmentally light green if it’s green at all – it’s probably turquoise. I would love to be able to say to my pension fund administrator: ‘Actually, I don’t want your turquoise or your light green fund – which just pulls out the very, very worst offending companies: tobacco, arms and similar activities. Actually, I want to invest in companies that are genuinely socially beneficial and therefore I want you to invest my pension in the Social Stock Exchange.’”
If Holbrook is right, that’s a potential solution to half the challenge faced by the Social Stock Exchange – find some people to invest in the stock. More problematic, based on the UK social enterprise as it is now, will be finding some stock for those investors to invest in. Equity investment in social enterprise – as pioneered in the UK by Merism Capital – is something that I’m very enthusiastic about but there aren’t yet very many social enterprises in the position to take equity investment at the level that Merism is offering it, let alone hold an Initial Public Offering (IPO).
According to SEUK’s 2011 State of Social Enterprise Survey, only 12% of current UK social enterprises are companies limited by shares, and therefore able to take equity investment in the event that they want it and investors want to provide it. The Social Stock Exchange is clearly not being launched on the basis of large numbers of current social enterprises seeking to hold IPOs and being prevented from doing so because the infrastructure is not in place. But if the companies selling their stock on the Social Stock Exchange aren’t going to be existing social enterprises in their present form then the obvious question is who are they going to be?
Is the expectation that existing social enterprises will alter their structures (and possibly their whole approach to business) to float on the Social Stock Exchange? Will new social enterprises spring up to fill the gap? Will existing business not currently defining themselves as social enterprises attempt to assume the social mantle? The aim seems to to be to set up the infrastructure and then work with new and existing social enterprises to make use of it. It’s not necessarily a bad idea but, based on the starting point, if it’s successful it’s difficult to predict what that success might look like.