It’s not dead, it’s trading?

Earlier this month, The Guardian‘s Voluntary Sector and Social Enterprise networks published ‘The Voluntary Sector is dead. Long live the voluntary sector‘, an article by Tim Smedley looking at some of the different ways that voluntary sector organisations responded to the (growing) financial challenges they faced in 2013.

While the article started with the line: “Throughout 2013, the fate of the voluntary sector hung by a very thin thread” the key argument is not that ‘the voluntary sector’ (define according to taste) is literally facing an existential threat but that, as argued towards the end: “The voluntary sector as we know it may have reached its breaking point in 2013, with a fragmented sector now following different paths.

In order to explore those different paths, the article links to case studies of organisations responding to funding cuts (and related problems) through merger, consortium-building, corporate fundraising and (as you might expect) social enterprise.

Smedley notes that: “Another area of growth is social enterprises – effectively charging for services rather than providing them for free with the aid of grants” before linking to a case study of (award-winning and really good) Darlington-based social enterprise, Patchwork People.

The idea that social enterprise is the answer (or one of the major answers) to problems of  the voluntary sector is not a new one. It’s an idea that was already becoming popular when I got my first job in the voluntary sector in 2000.

In the post-2000 New Labour period, the move towards social enterprise was more about ideas than it was about financial necessity. For politicians and some sector leaders, being a business with customers was newer and better than being a charity meeting need – largely irrespective of what this meant in practice.

There was plenty of money. According to figures from NCVO’s UK Civil Society Almanac, the voluntary sector’s income from the state was increasing from £9.1 billion in 2000/o1 to a high point of £14.3billion in 2009/10 and while (old model) grants from (different bits of) the state totaled £4.6billion in 2000/01, reached a high point of £5.6billion in 2003/4 and by 2009/10 had almost halved to £3billion, this didn’t mean that most voluntary sector organisations were getting less cash. Income from contracts with various bit of the public sector jumped from £4.5billion in 2000/01 to £11.3billion in 2009/10 – an increase of over 150%. 

Some of this money was new income – with larger national charities (in particular) winning contracts to deliver services previously delivered by the pubic sector – but at the local level a lot was the same grant money was being repackaged as trading income.

The move ‘from a grant-based model to a commissioning model’ happened in different ways and at different times in different areas. It had a big impact on processes – reporting requirements were usually more onerous and financial penalties for non-delivery were possible, and local charities were more likely to find themselves competing with each other for a single block of funding to deliver a particular service or function in their local area – but it didn’t lead to large numbers of local charities fundamentally changing their underlying business models. Ultimately, they’d gone from providing services for free with grant-funding from the council to providing services for free based on a contract with the council – and supplementing that contract income with a mixture of donations and grants from elsewhere.

Now though, the money has run out and the question unequivocally is about survival rather than ideas. My entirely anecdotal research suggests there’s at least as many people in the voluntary sector who think the idea of turning your charity into a social enterprise belongs in the New Labour past as there are who now believe it’s ‘the future’.

In a Twitter discussion with me and other earlier this month, Toby Blume – formerly chief executive of Urban Forum and now working on, amongst other things, Lambeth’s co-operative councils programme – suggested than of the voluntary sector organisations claiming to be social enterprises: “Many are really just charities but clearly see that as a less valuable/valued ‘brand’. shame. Has the idea of charity been so devalued that we rather pretend to be social enterprises than be charities?” before questioning whether the demand that charities become more entrepreneurial had gone too far.

Blume is certainly right to point out that many of the organisations that claimed to be social enterprises in the New Labour years only noticeably differed from ‘traditional charities’ in the sense that they said ‘we are a social enterprise’.

On the the hand, plenty of social enterprises like Patchwork People – that focus on generating as much income as possible from a range of sources of trading income – do exist and do work. The problem is their stories don’t necessarily offers any clear pointers to established local charities trying to find a new way to keep going.

For charities that are in the position of losing some or all of their regular funding and considering social enterprise as a possible route out of the mire, there’s lots of points to consider and these are four of them:

Things about social enterprise which are true:

  1. Social enterprise can be a tool for charities to grow their income – this guide that I wrote for Social Enterprise UK give some ideas about how
  2. If the money for doing what you used to do is no longer available, social enterprise might offer a way to help the people you exist to help by doing something different

Things about social enterprise which are not true:

  1. A social enterprise model is inherently more sustainable than a grant/donation based model – it’s not.
  2. The way to save a (financially) failing charity is do anything and everything you can think of that involves selling something and call it a social enterprise

It’s the headless chicken-flavoured: ‘let’s open a community cafe in the training room run by volunteers who can also repair your shoes while painting your portrait and teaching you to do yoga’ approach that’s ultimately the most dangerous in the current climate.

Even its harshest critics, would accept that one good thing about ‘the end of grants’ under New Labour was that, in most cases, it wasn’t real and there was enough money sloshing around for people to waste money enthusiastically attempting to become sustainable by doing a load of unsustainable nonsense.

Now there really is no (easy) money.

It’s very unlikely that a charity that sets up a small business doing something it doesn’t know how to do in addition to (what it perceives to be its core services) will avoid losing significant amounts of money running that small business. Expecting that small business to make enough profit to replace your lost council grant/contract is (in practical if not legal terms) an even worse idea than blowing the remainder of your reserves on lottery scratchcards and hoping for the best.

Now is a good time for charities and other voluntary sector to be considering whether social enterprise is for them, and how the assets of their organisation might be used to create a business. It’s the worst time to ever to panic and hope that setting up or re-branding yourself as a social enterprise will enable you to magic some money out of thin air.

 

 

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3 Comments

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3 responses to “It’s not dead, it’s trading?

  1. I don’t think it’s about brands, names or labels – I think it’s about business.

    What is the business of community? That’s the first question to answer if the desire to diversify income streams is for real.

    I do feel particularly sorry for those organisations that are having to make the painful transition from not-for-profit to for-profit but that’s where they need to be headed if they’re going to survive. Some might see that as being headless chicken behaviour but i see it as having a go at diversification of income.

    The Federation of Small Businesses should be tapped up by NCVO or SEUK to work with community groups, charities and other good causes so that they can develop business plans that meet the needs of the community.

    Like it or not market forces are at play now but the good news is that the voluntary sector has a head start on the private sector has far as having a social purpose is concerned but now it needs to begin captialising on it.

    If anyone reading this blog wants a bit of advice then I’m happy to help if i can: @mikeriddell62

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    • By coincidence Mike, that’s where we began, by suggesting that a business could operate for the benefit of the community, should the directors and shareholder agree and embed this purpose in their company charter.

      Profit for purpose is the term we used to describe this approach

      It was argued that business had much more freedom to operate where nonprofits (US) were constrained by the IRS. Many foundations were limiting their program related investment to the 5% minimum demanded by law. The rest being invested in financial instruments which were based on conjouring money into existence as debt.

      Our first question was this “Isn’t the purpose of business and economics about people?”

      I agree with the idea of building a relationship with the FSB. In fact the local representative introduced me to the council’s economic development officer. When I’ve introduced him to social business however, he doesn’t bite.

      A few days ago, an article I offered the Guardian social enterprise hub in 2011 was featured by the 2 degrees network on Managing Sustainability.

      https://www.2degreesnetwork.com/groups/managing-sustainability/resources/what-if-business-put-people-first_2/

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  2. Beanbags admin

    I’m not arguing against diversification of income. I am arguing against the idea that attempting to replace grant income with trading activity necessarily makes your organisation more likely to survive. It might do and it might not.

    If social organisations grants are being reduced or cut entirely that creates gaps in the market but in many cases there won’t be a market in the gap to deliver the same service on a commercial basis. A mental health service user group that used to be funded by the council and loses its grant might be able to continue to exist funded by members but it’s unlikely to be able to employ a paid support worker.

    The potential market for social organisation’s to generate income from trading activities unrelated to the core social activities is unrelated to their ability to raise funding for their social activities.

    There isn’t much grant funding around for mental health service user groups but that situation doesn’t create demand for cupcakes made by people who want to fund a mental health service user group and aren’t any good at baking cupcakes.

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