Social enterprise and ‘the ailing third sector’

A couple of readers may have noticed that there’s been a shortage of Beanbags posts in recent months. This is mainly because I’ve working on lots of other writing including:

but blogging is important and I’m keen to respond to Andy Brady’s recent post: “Can social enterprise revive the ailing third sector?”

While umbrella leaders will point out the many charities to which the problems raised are not directly applicable, it’s a good overview of the challenge for the particular part of the professionalised, service-delivering voluntary sector that’s currently facing up to the end of government grants and increased competition for other grants and donations.

My instinctive responses to the central question were: (a) to note that it might’ve revived the ailing (section of) the third sector already, and mostly hasn’t and (b) to wonder what problems social enterprise solves that traditional voluntary sector approaches don’t.

Social Enterprise has been the next big thing for a really long time

On (a), Andy’s blog focuses specifically on the example of Furniture Resource Centre (FRC). FRC are one of a handful of long-established, relatively large social enterprises – HCT and Greenwich Leisure are other, larger examples – who (while they have existed for longer) came to prominence and began to grow significantly in the early-2000s New Labour golden era of social enterprise.

These organisations are rightly acclaimed for their successful track records but – with the possible exception of some public sector spin-outs – it’s not clear that there is a new generation of social enterprises emerging with the ability to operate at a similar level.

As a self-confessed social enterprise nerd, if a friend or family member asked me to name some social enterprises they might have heard of, I’d still name either these examples or some of the handful of famous consumer-facing social enterprises from (roughly) the same era: The Big Issue, Fifteen, CafeDirect, Divine Chocolate.

These 7 organisations would have been 7 of the 10 (off-the-top-of-my-head) most famous social enterprises in 2005 – I probably would’ve added The Co-Operative Group and The Phone Coop, and possibly John Lewis – and would still be 7 of my 10 now.

Aside from London Early Years Foundation (LEYF, which existed in 2006 but wasn’t a prominent social enterprise), there’s no obvious new entrants to the list in 2016.

While we may have seen a big increase in overall social enterprise activity over the past 10 years, and a few large contract-focused charities such as Turning Point and Catch 22 have rebranded themselves as social enterprises, we haven’t seen the emergence of a significant number of widely recognised social enterprise brands.

This is not to assume that a social economy characterised by growing numbers of large, well-known social enterprises is necessarily desirable but I think many of us expected it would’ve emerged by now and it hasn’t.

Taken for granted

When it comes to (b), Andy gives a decent overview of some of the difficulties facing the traditional charitable sector over recent years, followed by the FRC example of a social enterprise that has been successful providing services that have a viable trading model – through the combination of local government/housing contracts and people buying furniture.

I’m not sure how far this helps us to understand whether or how social enterprise is an alternative to grant and/or donation based models.

With the (possible) exception of The Big Issue, all our two hands full of famous social enterprises – and the relatively big newer social enterprise spin-outs we haven’t heard of – have succeeded by entering existing markets and competing successfully with private sector providers.

This is difficult because they have to:

  1. provide products and services that people want to buy
  2. provide those products and services at a price people want to buy
  3. do additional social good either in the process of provide those goods and services, or on top of providing those goods and services

But it’s not as difficult as trying to trade in a market that doesn’t exist.

As we at Social Spider CIC found out when trying to create a commercial model for a mass circulation mental health magazine , it’s hard enough when the reason that a market doesn’t exist is that there’s some people who plausibly might buy your product or service but they choose not to.

Unfortunately, the situation for many of the most socially vital grant/donation funded charities is much worse than that: they are operating in situations where there isn’t a market because a customer does want and/or need their service – whether it’s a food bank or mental health support group – but can’t pay for it.

Taken together, the facts that:

  • your charity exists because the market doesn’t meet a particular social need
  • the government is unwilling or unable to pay you to meet that need
  • and you can’t get (enough in) grants and donations to meet that need

do not add up to ‘social enterprise is the answer’. They are more likely to add up to ‘we have to close’.

LEYF, my single example of a new, well-known social enterprise emerging in the past 10 years, are a phenomenally rare example of a charity taking (an adapted version of) their grant funded service, flipping the business model and selling the service successfully in an existing commercial market.

There is definitely more than one charity in the UK with the potential to do that but it’s highly unlikely that there are thousands.

The question is whether, if grant/donation funded charities can’t just sell their grant/donation funded services to a market, social enterprise can enable them to do something else.

If you’re currently a grant/donation funded charity: does your social track record provide you with any kind of commercial advantage that would help you to create a viable trading business? And will the business you could create help you to meet the social need you were previously meeting through grant/donation funded activities?

Charities who can’t answer a strong “yes” to both of those questions shouldn’t set up a social enterprise. Just because there are fewer grants and donations to be had, that doesn’t make trading a better model for paying for products or services that no one wants to/can buy.

Where that potentially leaves us with is gaps where the market is not meeting social need, government is not meeting social need and the organisations that were created in response to market failure have themselves failed to attract grants and donations. And that’s the gap for social enterprise. Where do we sign?

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9 Comments

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9 responses to “Social enterprise and ‘the ailing third sector’

  1. Thanks for this David, really interesting response. The original article was aimed at the non-social enterprise nerd market and thus used fairly broad brushstrokes, but I agree that social enterprise is not a simple answer to any question. If I’m giving a workshop on the subject I bend over backwards to stress that it’s probably more difficult to set up a sustainable social enterprise than it is a conventional business (which is hard enough). The wider point in the article was the engagement of business (kind of muddled up with social enterprise) via b-corps, which seem to promise much but make clear definition of social enterprise difficult, and may even outflank it I guess. Look forward to reading your reports! Andy

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    • Beanbags admin

      Hi Andy, thanks for your comment. I understand the context of your post and my blog is a response in terms of exploring some thoughts I had while reading it, rather than a sign that I disagree with the general message.

      The B-Corp stuff is really interesting.

      While believing (as the numbers you’re quoting suggest) it’s been vastly over-hyped, I generally quite like B-Corp as an idea at a global level but I’m very concerned about their role in a UK context, where B Lab has ended up being (a possibly inadvertent) part of the government’s apparent plan to cannibalise the voluntary sector with the ‘mission-led business’ agenda.

      Some points on this from last year here: https://beanbagsandbullsh1t.com/2015/10/01/private-view/

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  2. Yes David, I think social enterprise is being sidelined. What’s interesting to me is how the argument for social value has migrated into conventional business. Characters like Richard Branson and Paul Polnam of Unilever now presenting precisely the same arguments used to make the case for autonomous social enterprise, where profit is used for social benefit rather than shareholder returns. Can we trust them?

    Your last paragraph reminded me of an obsevation made by a pioneer at the time of an economic crisis. ‘The term “social enterprise” in the various but similar forms in which it is being used today — 2008 — refers to enterprises created specifically to help those people that traditional capitalism and for profit enterprise don’t address for the simple reason that poor or insufficiently affluent people haven’t enough money to be of concern or interest. Put another way, social enterprise aims specifically to help and assist people who fall through the cracks. ‘

    There seems to be an insistence, among social enterprise pundits that the business must be directly related to the cause supported and as you point out, they end up with products or services which few have need of.

    Why not do business to create profit, changing the output, the direction of profit.

    A key point about business which operates for social benefit is in the challenge to what has become known as shareholder primacy. In 2009, I introduced it to B Labs, who along with John Mackey of Wholefoods and Marc Benioff of Salesforce, have recently come on board, albeit in a way which dilutes the concept of people over profit.

    https://www.linkedin.com/pulse/people-before-profit-jeff-mowatt

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  3. Hi David – interesting points. I think that social enterprise is spreading, but just not in the ways that ‘the usual suspects’ promote. We have a number of universities that are now declaring themselves as social enterprises and they fit all the definitions. One of the problems is that the sector is very narrow in what it defines as social enterprise and largely concentrated on the small end ‘social business’ debate.

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    • Beanbags admin

      Hi Lucy, thanks for your comment. Do (most) universities fit the definition of social enterprise in terms of independence from the state?

      Either way, I take the point that more organisations like universities (or housing associations or Foundation Trusts) viewing themselves as social enterprises is an interesting development.

      I should also add that I’m not arguing that we don’t have lots of social enterprises compared to 10 (or 15) years ago. We definitely do – and lots of them are really good.

      The two points I am making are that:
      (a) we’re not seeing lots of new (as in 10 or fewer years old) social enterprises making the leap to become widely recognised and/or leaders in the field when compared to mainstream businesses or conventional charities
      (b) social enterprise rarely offers a directly applicable to grant/donation funded charitable activity

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  4. LucyFindlay

    Hi David – in answer to your question, yes they do fit the independence test if they have the Social Enterprise Mark! I agree that we are not seeing a lot of ‘new’ social enterprises become leaders maybe because a) it takes time and b) there seems to be a small pool that are looked at as social enterprises (who ‘fit’ the small clique). Maybe we should be looking outside ourselves and the ‘established sector’ a bit more?

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  5. Beanbags admin

    Hi Lucy, not entirely sure what you mean by the ‘small pool’ point.

    The government reckons there’s 741,000 social enterprises in the UK: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/507236/SOCIAL_ENTERPRISE-_MARKET_TRENDS_2015.pdf

    I find that slightly implausible but I’m not, for purposes of the current discussion, actively contesting it.

    Are you saying that there are some relatively new, well known social enterprises that the public is aware of but the ‘established sector’ isn’t aware of?

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  6. David

    Thank you for mentioning LEYF and appreciating the challenge of moving from charity to independent social enterprise. I think you are right to challenge what the movement of social enterprise looks like in 2016. we need a High Street of social enterprises before we can truly say we have cracked it!

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  7. On the matter of universities and social enterprise, a decade ago Oxford was something of a lone voice. What both they and New Labour were promoting was actually social entrepreneurship driven by charitable foundations. In the case of Oxford, Ebay billionaire Jeff Skoll’s foundation.
    At the same time, Ruthie Glimore of Incite!, a black women’s activist group was speaking out about the rise of foundations, the “nonprofit industrial complex” as she put it, driven by neoliberalism, a climate in which it had been impossible to build autonomous social innovation.
    It was upon this model that our social enterprise support organisations were established and funded, Perhaps good reason to see autonomous social business as a threat.
    Its been interesting to learn of late, that Pamela Hartigan who directs the social entrepreneuship centre for Skoll say that “social entrepreneurship is a distraction”, it’s mainstream capitalism that needs to change.
    At Davos a couple of years ago, the man who made social entepreneurship support government policy, Tony Blair, sat with Richard Branson and Bill Gates at the philanthropic roundtable sponsored by oligarch Viktor Pinchuk who has made significant donations to Blair’s Faith Foundation The discussion was about a new capitalism which delivers both social and financial returns. The session began with a lament of a social crisis which had recently turned to violence on the streets of Kiev.
    Cambridge has joined in more recenty, with Judge Business School, a customer of ours 10 years ago, when they showed little interest in social enterprise. They too are sponsored by corporate interests. Another department at Cambridge is sponsored by oligarch Dmitri Firtash.
    The direction of social innovation is being shaped it seems, by whoever pays the piper.

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