Where is the Mark Zuckerburg of the UK social sector and who, if anyone, is going to help him to get his organisation from his bedroom to the point where’s it’s delivering positive social change on a significant scale?
That’s the question raised by Craig Dearden-Phillips is this typically provocative blog post. In a response last week, Nick Temple rightly highlighted the need for support for non-tech social enterprises, but the general points that Dearden-Phillips is making apply to social innovation in any branch of the social sector(s).
The Mark (or Martha) Zuckerberg of the social sector is currently, according to Dearden-Phillips: “just coming to the end of a small social entrepreneur development award and wondering where it’s next investment is coming from… He is over-trading massively already (trying to show his model works) and he only has nights free to work on the five year P & L* and cashflow being demanded by a po-faced group of former bank staff who are now running his social investment fund.”
The difficulty with that is that: “… he hasn’t a clue about his P & L, or the scale-up potential of his model. He just knows he has something which works and that he wants to devote his next five years to showing this to be true.”
The ‘po-faced former bank staff’ are having none of that: “they see his rather rough-cut plans, give him a hard time about the mistakes and send him packing on the grounds that this risks being good money after bad. Everyone feels like they have done a good job and another sector changing idea quietly dies.”
As a result: “Our Mark Zuckerberg figure, now 30 and broke, is forced to get a job as a social enterprise investment adviser (there is always funding out there for those) and the world continues to turn.”
Dearden-Phillips verdict is that: “Today’s social innovator has to walk a fine line between telling a good story of revenue today and a ton of jam tomorrow. If they can’t do this, they don’t get through the kind of assessment processes that are too hard too early (and indeed cost more to run than the amounts they invest).”
Dearden-Phillips thinks the problem is that UK social investors are too risk averse. One of many recent reports on social investment to support that conclusion was The First Billion last year’s Boston Consulting Group report for Big Society Capital which noted that: “the demand for social investment will be focused on a set of higher-risk financial products, such as unsecured lending or quasi-equity, where returns are linked to the financial success of the organisation” whilst the vast majority of existing social investment is in the form of secured loans.
It’s definitely the case that, if there’s going to be any link between social investment and social innovation, social investors need to be willing and able to take bigger risks than non-social investors. The current situation is particularly bizarre because social investment intermediaries are currently simultaneously dependent on subsidy to keep going and not making risky investments. So you have organisations with, on average, 55% of their operating costs covered by grants, spending (a significant proportion of) those subsidies on conducting complicated due diligence process that enable them to prudently decide not to risk money on socially innovative proposals from organisations that don’t own a building.
This model may need some tweaking but while the social investment sector clear has many questions to answer, it’s not entirely to blame for our failure to match voluminous rhetoric around social innovation in the UK with real life successful social innovations.
Part of the problem is that we’ve apparently embraced the idea that supporting social innovation, and investing potentially profitable trading charities and social enterprises to enable them to scale up and grow, are the same thing. In reality, they’re separate activities which sometimes overlap.
The work of the RNID in transforming NHS audiology services is an example of spectacular social innovation that was based on a funded partnership between the between the public sector and a charity. It was the scaling up of an innovation – new hearing aids and ways of providing people with them at a low cost – rather than the scaling up of a business.
Similarly Star Wards – which provides ideas for improving inpatient mental health care, based on the experiences of patients – is an innovative way of delivering social change that is scalable at low cost, while remaining primarily grant-funded.
Social innovation means developing ideas for positive social change and making them work. While wondering about how the UK social sector can support its up and coming equivalents of Mark Zuckerburg and Facebook, we should also be considering how we could support the people developing our equivalent of Wikipedia – not necessarily an online organisation but an organisation with a similar ability to deliver a significant and sustainable social impact without aspiring to turn its core operations into a trading business.
There’s no reason why social innovation can’t also take place within services delivering directly by the public sector. There is no evidence that charities and social enterprises are inherently innovative nor, as RSA chief executive Matthew Taylor pointed out in a recent interview with me for Pioneers Post, is there any evidence “that the private sector has got some kind of secret capacity for innovation which is absent in the public sector.”
Writing for The Guardian‘s Social Enterprise Network, minister for civil society, Nick Hurd, envisions a ladder of progress for social enterprises from the early stage support provided by the government’s Social Incubator Fund on to the Investment and Contract Readiness Fund, on to ‘real impact at scale’ based on ‘attracting serious investment’. Even if the social investment market can be made to work (and that’s clearly a big if) the primary focus of this model is on building businesses (to deliver public services) not on delivering social innovation. Building socially innovative businesses is a good thing but we also need to consider how to support and, if appropriate, scale-up ideas that deliver positive social change but aren’t businesses.
*For those of you not in possession of an investment readiness training grant, P&L means ‘profit & loss’.