Last week, in the discussion element of a lecture I was giving for students on the MA in Social Entrepreneurship at Goldsmiths College, we ended up considering the apparently unavoidable question of which models of income generation for social ventures* are the most sustainable.
As discussed previously, the current received wisdom is that charities and other voluntary sector groups should be aiming to move away from ‘grant dependency’, while social enterprises should, in theory, never have been grant dependent in the first place. The answer, we’re told, is to increase income generation through trading activities.
For me, this received wisdom amounts to a misleading distillation of several points which make a lot of sense when considered seperately.
These points include (but are not restricted to):
- charities and voluntary sector groups shouldn’t expect to get a chunk of funding every year just because there’s no one else in their local area trying to do the sort of work that they do
- organisations shouldn’t expect to receive large amounts of ongoing funding, from the public sector or elsewhere, to sustain their activities unless they deliver clear benefits at a price that represents good value
- the sensible idea of ‘full cost recovery’ needs to include the possibility of reducing costs, as well as demanding more money in order to cover them
- in some sectors, giving people who use services personal budgets to buy the services they want has the potential to empower people who use services, while improving the range and quality of services on offer
- if you can sustain your social venture – and deliver positive social change – by selling goods or services to people or organisations who want to buy those goods or services, you should do
- if you can turn your services – wholly or partly – into a product that can be sold, it is sensible to do so
I think it’s important for the broader voluntary sector to be considering all these points. I don’t, however, think that these points amount to an successful argument that the (theoretically) charitable approaches to income generation, grant-funding and donations, are inherently less sustainable than the (theoretically) socially enterprising approach of trading activity (including contracts to deliver public services).
This argument – or some of the silliest but most politically convenient variations on it – depends partly on the implied contrast between a limited number of grant funders and a limitless number of (potential) paying customers for the goods or services that social ventures are providing. And partly on the idea that sales to multiple customers are easier to sustain than from multiple donors.
In both cases, the practical reality depends on what you’re trying to do.
In the latter case, my guess is that, if you’re looking to generate core income to look after retired donkeys who don’t have previous owners to pay for their retirement, then donations based on public sympathy for the donkeys’ situation are more likely to be a sustainable income stream than trading activities.
The donkeys aren’t going to pay for the service themselves and there’s limited scope for directly-related commercial activity to sell goods and services to anyone else. The sustainability of donations as an income stream depends on people’s sympathy for donkeys, and your ability to find the people with sympathy for donkeys and convince them that their donation will help donkeys. Some additional income could potentially be generated by selling merchandise but if you tried to set-up a donkey-related merchandise business – selling mugs, calendars, tea-towels, cuddly toys – to generate profit to run your service, it wouldn’t be any more or less sustainable than any other business selling donkey-related merchandise.
In the former case, there clearly there is a limited supply of grants available from funders but, if you’re looking to provide training with specific local relevance for small community groups in a deprived area, there’s also a limited supply of potential paying customers. The chances of successfully delivering the training unsubsidised on a commercial basis are a lot smaller than the chances of getting a grant to cover the entire cost. The grant-funded route is sustainable if you keep getting grants – which you may do if you can demonstrate that there’s enough groups who need your training and value it, but can’t afford to pay for it. This is an instance of grant dependency, the service wouldn’t exist with a grant to pay for it, but trading is not a more sustainable way of delivering this service – it’s more likely to be a way to lose money trying to deliver the service and failing to do so.
The received wisdom around social ventures increasing sustainability through trading activities is not wholly wrong. It’s right for social ventures to explore (and continue to be open to) as wide a range of ways of generating income as possible and find the mix of sources that’s most likely to enable them to do what they want to do, for as long it’s needed. What is wrong is the assumption that selling stuff is inherently more sustainable way of generating income than the rest.
Social entrepreneurs, however, may rightly raise the point that there could be situations where generating income primarily through trading could be more difficult than generating income through other sources – but also be better in terms of overall social outcomes. That’s a question for part four.
*I’m using ‘social ventures’ to describe ‘ongoing activities to deliver positive social change which are not provided directly by the state’.