On sustainability – part three

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’.

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7 Comments

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7 responses to “On sustainability – part three

  1. David, While it’s certainly true that social innovation can be sustainable by means of donations, grants or trade, the ‘social business’ approach may be a driver of sustainability in that it is used to create new wealth flows where the absence of these that hampered the community and its people to begin with.

    This is a change the output side of the social organisation, using its profits to stimulate local economic conditions. Both we and Muhammad Yunus have reasoned that this is an alternative way to invest both foundation funds and CSR budgets for long term sustainability rather than on charitable handouts which are spent once and gone.

    It can be argued that charity creates dependence which ensures poverty is also sustainable.

    http://www.muhammadyunus.org/Social-Business/social-business/

    it’s an argument which can also be made of any paradigm, economic or environmental. A systems which requires infinite input against finite resources is ultimately unsustainable.

    http://www.muhammadyunus.org/Social-Business/social-business/

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  2. Agreed. It seems to be taken as fact that the higher portion of ‘earned income’ a SE can have, the better…but, a good spread of incomes seems more sustainable to me.

    While there is money swishing around in grant and donation form (particularly from big companies that have illegitimately earned the income in the first place), why not make the most of it?

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    • Isn’t the reason not to take grants from big companies that have illegitimately earned the income is that you are seen to condone their illegitimate activity and to encourage others to copy it?

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  3. Beanbags admin

    Absolutely. If a grant’s available, I’d always advocate taking it and making the best possible use of it. Although, as Jeff suggests, a legitimate reason not to make the most of available grants is that one of the aims of your social venture may be to create a self-sufficient local business that stimulates the local economy.

    Running a business that’s commercially viable through selling goods and services, while delivering wider social benefit, is a positive social goal in itself. But there are also things that I think are worth doing, that are commercially uneconomic.

    The problem (or a problem) with the current sustainability debate is that organisations delivering uneconomic activities are being encouraged to shoehorn those activities into a commercial model and sell them – with predictable results.

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  4. One of the downsides of corporate sponsorship arose recently in local conversations about taking on a local authority owned environmental education centre. The sponsor who “pays the piper” often having expectations of using the sponsored facility which exceed the value of the donation.
    When one trades, the product or service has been provided and money exchanged in a transaction which has no further obligation, then one’s presence in the corporate supply chain can be seen as enhancing their commitment to social responsibility.
    There could also be an ethical dilemma when the sustainability of the social enterprise depends on supplying those discovered to have been involved in violating or simply disregarding a human rights violation.

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  5. Surely you should contract to deliver the social benefit rather than some tangential product? For the donkeys example, contract with members of the public to care for a donkey for every N people that sign up to package N.

    I don’t understand why all that donkey-related merchandise is suggested. That looks like a punchbag argument, created purely to fail. People obviously don’t want an unlimited amount of cuddly toys, so it will fail. It’s also not the core business of the social enterprise. Trade the core social-benefit-delivering service as directly as possible: sometimes that will be a product, like things made from a sustainably-harvested forest, or an obvious service, like web hosting, but sometimes it won’t.

    It may be that people don’t want to help the donkeys that much and it is always going to be a carousel of donors, but that will happen sometimes. It’s no bad thing to be a charity. Fundamentally commercially uneconomic things probably can’t be viable social enterprises. It doesn’t make any of social enterprise, charity or sustainable economics wrong in itself.

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  6. “What is wrong is the assumption that selling stuff is inherently more sustainable way of generating income than the rest.”

    Actually, the above claim is thrown in near the end and I feel it’s not really justified.

    I would say that selling is more sustainable than accepting donations because you are a more equal party in the funding relationship, which is inherent to contracting compared to donation.

    For example, it’s clear when the agreement starts and ends, what it is worth and what each party is expected to do. Donors, on the other hand, often give occasionally and irregularly (and get irritated with chuggers in the street and on the phone trying to pressure them into standing orders or unethical direct debits). There’s no strings attached to donations (or shouldn’t be), but it’s also not clear how your success or failure will be measured when the donor is considering giving more money.

    However, as my earlier (now-realised-to-be-incomplete) answer stated, this is about trading the social benefit as directly as possible, not about selling stuff. If you try to sell barely-related stuff, it won’t work well.

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