Tag Archives: red button design

Lost in definition

Yesterday I (metaphorically) slung my beanbag over my shoulder, picked up my Oyster card and headed off to talk to some socially enterprising people. Other than being clever people with lots of good ideas, one thing that Amanda Jones of Red Button Design and Toby Blume of Urban Forum (interviews to follow in the next few weeks) have in common is that their organisations would not fit the current government and Social Enterprise Coalition definitions of a social enterprise.

In the case of Urban Forum, as Toby reflected ruefully, this is because a drop in public funding has meant that members have less resources available to buy their services so they no longer get 50% of their income from trading activities, for Red Button Design, the ‘problem’ is that – as many social enterprises claim to do – they really are seeking to provide a business solution to a social problem and they’ve raised money from private investors to enable them to do so. To put up £250,000 of their own cash, those investors need to be able to get a reasonable return.

These are just two examples of the ongoing problems we have defining social enterprises. Enter the Third Sector Research Centre (TSRC) with a piece of research that raises some serious questions about current descriptions of the scale of social enterprise and the varying definitions used to produce those figures, based on analysis of a number of surveys conducted in recent years.

The Social Enterprise Coalition currently claims that there “are 62,000 of them in the UK, contributing over £24bn to the economy, employing approximately 800,000 people“. In claiming this they site  “2005-2007 data from the Annual Survey of Small Business UK“.

The new TSRC paper doesn’t challenge whether or not this is true but questions what it actually means. The starting point for the Annual Survey of Small Business (ASBS) figures is this:

“This is the most quoted sources of information on social enterprise in the UK, being found in political documents and speeches of politicians of all parties as well as a range of lobbying organisations, and academic publications. The data presented in the past has been superficial, providing a single overall figure of a minimum of 55,000 social enterprises (rising in 2009 to a minimum of 62,000 based on a three year rolling average for 2005 – 2007).”

The biggest problem with the 62,000 figure is the process used to produce it and the large degree of interpretation involved. Based on the then DTI’s definition of social enterprise – ‘a business with primarily social/environmental objectives, whose surpluses are principally reinvested for that purpose in the business or community rather than mainly being paid to shareholders or owners‘ – small business completing the survey were asked to self define (or not) as social enterprises based on four conditions.

They should:

think of themselves as a ‘social enterprise’ (Q37 in the 2006/07 survey)

never pay more than 50 per cent of profits to owners/shareholders (Q36)

generate more than 25 per cent of income from traded goods/services (or receives up to 75 per cent of income from grants and donations) (Q34A)

think that they are a very good fit with the DTI definition of a social enterprise (Q38)

The 62,000 figure is based on a stratified sample so the actual number of small business (big enough to have employees) surveyed that identified themselves as ‘social enterprises‘ on this basis was 151 out of 2535 businesses surveyed. 88.7% of those 151 ‘have a legal form than places no constraints on the distribution of profits‘.

This 88.7% – reasonably enough – have stated that they ‘never pay more than 50 per cent of profits to owners/shareholders’ but have not answered (because they’ve not been asked) the implied question from a social enterprise point of view ‘do your governing documents allow you to distribute more than 50% of profits to owners/shareholders?’

As the TSRC’s researchers suggest: “The retention of at least 50 per cent of annual profits for reinvestment within the business is not unusual for growth oriented businesses and would not in itself be indicative of a social aim.” The point being that there’s no clear evidence from the ASBS that 88.7% of the notional 62,000 social enterprises in the UK are anything other than fast-growing small business choosing to invest half their profits or more in employing more staff.

For those of us who believe that ordinary companies limited-by-shares who are primarily focused on social outcomes are just as likely to be social enterprises as any other company formation, it’s not evidence that some or all of these companies aren’t social enterprises but it’s not evidence that they are – and it’s certainly not evidence that they’re social enterprises on the Social Enterprise Coalition or the government’s terms. And it leaves us in a situation where, if the 62,000 figure is worth the paper it’s written from, that paper probably didn’t come from a sustainable source.

That said, the conclusion to draw from this is not that there’s necessarily less than 62,000 social enterprises in the UK. The TSRC research also points out that as the ASBS is targeted at organisations that regard themselves as small businesses and therefore misses many social enterprises who regard themselves as part of the third sector. So according to the ASBS figures, there are only 8,000 social enterprises that are Companies Limited by Guarantee, Co-ops, Friendly Societies or Community Interest Companies, while the 2008-2009 Cabinet Office-funded National Survey of Third Sector Organisations found 16,000 third sector social enterprises that self-defined as social enterprises, while 21,000 third sector organisations were generating more than 50% income from trading but not self-defining as social enterprises.

If you’re still with me at this point I imagine your head might be beginning to hurt. And ultimately, if you’re a social entrepreneur, you probably spend little or no time wondering about whether there’s 37,000, 70,000 or 230,000 social enterprises in the UK. You’re interested in delivering social change while somehow managing to pay the bills. But this stuff matters because the social enterprise lobby and politicians use these stats to justify their own status, in the case of the lobby, and their spending decisions, in the case of politicians.

It’s perplexing that the Social Enterprise Coalition are happy to continue to use the ASBS 62,000 figure to explain the scale of social enterprise in the UK when 88.7% of those business do not meet its definition of social enterprise, would not be eligible for the Social Enterprise Mark and would not receive services and support from their organisation. Readers can judge for themselves the extent of any meaningful connection between the TSRC’s report and the comments issued by Social Enterprise Coalition Chief Executive, Peter Holbrook, in response to it.

The reality is that the social enterprise movement is not agreed on the definition of what a social enterprise and the lobby currently has no meaningful evidence on the scale of social enterprise activity meeting the definition it supports. The TSRC report mainly serves to highlight the extent of the confusion. The TSRC researchers conclude with the statement that:

It is recommended that future surveys are clearer about what they are measuring, which sample frames they are drawn from, and most important, why they are doing so.

This is sensible advice but the bigger lesson for the social enterprise lobby might be that we’ve reached a point where they should consider spending less time about talking about the volume of social enterprises in the UK – however they’re defined – and more about the positive social change that is being achieved and could be achieved be social enterprises and social entrepreneurs operating under a wide spectrum of organisational structures.

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