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Instruments of confusion

I’ve enjoyed attending a number of social enterprise events since the beginning of the year, including the CIC Association’s CIC Start 2010 and SEL’s Social Enterprise Question Time. It’s clearly a big year for social enterprise – with a new chief executive at the SEC and a growing political warmth towards social enterprise as a concept.

One thing that’s beginning to worry me, though, is the apparently growing focus on new financial instruments. It’s difficult to move in the social enterprise world without bumping to someone who’s got an exciting idea for a new bond or quasi-equity model that’s going to solve the problems of social enterprise finance. This is not a bad thing in itself. I’m supportive of these developments and either personally know and like, or know of and respect many of the people involved in developing them.

What I’m worried about is the prospect that people running average-sized social enterprises – the median annual turnover for UK social enterprises according to this is around £175,000 – are going to events and getting the idea that the key issue for their business is finding the right instrument to channel a big chunk of finance into their business.

‘Scaling up’ is (rightly) an issue for ‘the sector’ because ‘the sector’ wants to prove that social enterprises can be bigger business solving big parts of big social problems. But the vast majority of social enterprises  – like the vast majority of conventional small businesses  – either can’t or don’t want to become big businesses, they want (and need) to find a sustainable way of operating on a fairly smallscale while delivering significant social benefits.

One danger is that smaller social enterprises could be annoyed by ‘the sector’s’ focus on lauding and supporting those who want to scale up but a more worrying one is that they’ll think they need to join in the race to raise big finance despite its practical irrelevance to their aims.

The social enterprise world is unusual because it’s made up of a wide range of disparate organisations notionally group together based on perceived social mission rather than based on how big they are, what they do or who they do it for.

A social enterprise that wants to build and run a new clinic clearly needs a lot of cash to get started. And an organisation that delivers really good services to a particular group of people in one area and wants to do the same in five more area also needs some cash to take that step.

At the other end of the spectrum, a small social enterprise operating in the creative industries (of which there are lots) really, really, doesn’t need to spend ages trying to find the right investor to give them a £200,000 quasi-equity loan. They need to stop faffing around and start selling their services to someone.

The majority of the new financial packages currently being developed are primarily of use to social enterprises in specific sectors and/or at specific points in their development. And I’d estimate that 90% plus of currently trading social enterprises are never likely to be in position where these packages would be right for them, even if they could get hold of  them.

That’s not to say they’re not needed and they’re not valuable but it would be a shame if people in the early months and years of running a social enterprise were confused into thinking that finding an exciting specialised source of finance is a major priority for their business – when for most social entrepreneurs our most important aim should continue to be to work harder, get better at doing what we do and get more people to buy our goods and services.

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