Tag Archives: Social Enterprise

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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Learning from experience – part one

In a comment on my previous blog on the pipeline of bad ideas in social enterprise, Nick Temple offers a partial defence of the actions of social entrepreneurship support organisations, noting that their work often involves supporting ‘biographical social entrepreneurs’ – people for whom a social entrepreneurship is a response to personal experience.

In another recent blog, Tackling Heropreneurship, Daniela Papi-Thornton of Skoll Centre, makes some points similar to mine but also bemoans the fact that she has: “watched more and more students focus their ventures on problems they haven’t lived, such as building an app for African farmers when the founding team has neither farmed nor been to Africa“.

They’re not wrong. There is no question that personal experience is important in social enterprise. The challenge is to understand how and why it’s important. The post is part of a series of (at least) two and the other one will be more positive!

How does it feel?

Nick makes the point that the fact that biographical social entrepreneurs have: ‘experienced the problem they are/were trying to solve… in theory at least, gives them some understanding of the problem’.

At a basic level, this is self-evidently correct.

If you are (or have previously been) long-term unemployed you know how it feels to be long-term unemployed – in the sense that you know what long-term unemployment feels like for you.

If you have a diagnosis of a mental health condition, you know what it’s like for you to live with that condition.

In both of these examples (and many others) people with experience are experts in their own experience but there are at least two fundamental questions that this experience  does not (in itself) answer:

  1. To what extent does someone’s specific personal experience enable them to usefully understand a wider social problem beyond that specific personal experience?
  2. In the event that the answer is ‘to a great extent’ – to what extent does that understanding enable them to use their understanding to solve a problem for enough paying customers (including grant funders and donors) to create a viable business?

In terms of question 1, there are many factors that determine whether someone’s experiences enable them to understand other people’s experiences and the practical challenges flowing from them.

One is where that specific experience sits within that individual’s wider life experience: Has the long-term unemployed person (Nigel/Nigella) ever had a job? Are they unable to get a job at all – or unable to get a job in their chosen profession? Do they have dependents?

Another is where Nigel/Nigella’s experience sits within a wider social and economic context: Is the problem that Nigel/Nigella is unable to get one of the jobs that are available in their local area? Or are there no jobs in the local area to apply for?

The point is not that one experience of any of the possible permutations is more valid or real than another but that the relevance of those experiences to the creation of a social enterprise to ‘solve the problem’ will vary greatly.

More bluntly (and this may seem obvious but experience from the world of social entrepreneurship support suggests it isn’t) the fact that Nigel/Nigella has failed to get a job over a long period of time – either at all, in a particular industry or based on a series of specific challenges – doesn’t (in itself) qualify them to help other people get jobs.

Nigel/Nigella’s experience of failing to get a job may give them a strong desire to start a social enterprises to tackle unemployment, along with some ideas about services that might be helpful. It doesn’t (in itself) mean that those services are likely to work.

In other cases, the specific nature of someone’s experience may mean they just don’t know how that experience feels for someone else.

This is my truth, don’t tell me yours

Once again this maybe be because of their personal situation. So while that fact that Oliver/Olivia’s diagnosis with a mental health condition was followed by immediate specialist treatment at a private hospital doesn’t make their experience of that condition any less real, it does limit their ability to immediately understand the situation of someone who is currently waiting 18 months for an NHS appointment to help them live with the same condition.

In other instances, one person’s experience may make them less rather more able to empathise with other people who experience a similar situation in a different way.

For example, Oliver/Olivia may have found that, for them, medication is not helpful but the combination of meditation and exercise enables them to manage their condition successfully.

That perspective is valid and relevant but, if setting up a social enterprise with a general aim of helping people live with their condition, it needs to be understood as an individual experience – which may or may not be other people’s experience too.

A big danger for ‘biographical entrepreneurs’ is that they risk not being able to distinguish between their individual personal experience and ‘THE TRUTH’ about a social problem – and their social enterprise ends up as a mission to impose their truth on other people (and prevents them for understanding whether/why other people might need/use a product or service they offer).

While question 1 break down into lots of other (more complicated) questions, it’s ultimately the easier one to answer. You can use your personal experience as the impetus to develop a broader understanding of a social problem beyond your personal experience if you want to.

Sounds great, who’s paying?

What it comes to question 2, the answer is shorter but the problem is bigger.

In his latest book, The Frugal Innovator, Charles Leadbeater notes that: “An innovation is only successful if it can answer several questions and risks: will the technology and the product work?; will consumers want it?; can it be made reliably at scale and can a business make money from it? An innovation can fail at each of these stages.

Experience-based understanding of ‘the problem’ might in some circumstances enable a social entrepreneur to answer one or both Leadbetter’s first two questions but it’s highly unlikely to provide answers for the third and fourth ones.

Nigel/Nigella’s personal experience might provide the starting point for a great idea for a service that will help long term unemployed people get a job but it’s unlikely to be a significant factor in whether their social enterprise can generate income as a Work Programme sub-contractor.

Oliver/Olivia’s personal experience might enable them to come up with a great scheme that supports those who want to manage their mental health condition through meditation and exercise to do so, it won’t help them work out what combination of grant-funding, NHS contracts and self-funding payments is necessary to make the numbers add up.

The mistake that social entrepreneurship supporters have often made – either explicitly or through omission –  is to assume that personal experience of a social problem inherently represents meaningful research into the market conditions for solutions to that problem. It doesn’t.

None of this is intended to suggest that being a ‘biographical social entrepreneur’ is a bad thing but we need to think more carefully about what it takes to get from the impetus to solve a problem based on personal experience to a viable social enterprise.

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I started a social enterprise to save the world but all I ended up with was a failing t-shirt business

Over the years I’ve attended quite a few events where people in the process of starting new social ventures* ‘pitch’ their idea to a panel and/or wider audience. And on several occasions I’ve been one of those people. Even when allowing for our individual pitching abilities, many of these ideas are transparently absurd (at least, to everybody else).

The stereotypical starting point (type one) for wannabe social entrepreneurs – even once they’ve had enough absurd ideas to be tagged as a ‘serial social entrepreneur’ – is that they have an idea that offers significant social impact but doesn’t work as a business.

They want to do x thing for x group of people, there’s at least a plausible suggestion that x group of people might want it and it might really be useful but x group of people have no money to pay for it. So the type one social entrepreneur faces the (often insurmountable) challenge of finding *some other way* of paying for it.

At the other end of the spectrum (type two), there are nice people who want to start a business doing something they’re good at and, because they’re nice people, they feel compelled to contort their business plan in a bizarre way to include what seems to outside observers to be an entirely unrelated social element.

Social sourdough

So fictional social venture ‘Pizza, Love and Understanding’ is a pizza parlour but it’s going to deliver real social change for ‘disadvantaged groups (specific group – tbc)’ by using the profits to pay for them (the ‘disadvantaged groups’) to take part in workshops which will generate art with a strong social message to be displayed on the wall of the pizza parlour.

And because it’s important that disadvantaged groups are recognised as real artists they will be paid for their art (possibly in pizza).

Type two is mostly ignored as there’s no point wasting energy being rude to well intentioned people who will (in most cases) soon recognise their mistake and get on with trying to run a pizza parlour. That’s a good result. Pizza parlours that sell good pizza and pay decent wages are a good thing.

Extreme basket weaving

There is a type three, though. People who, once again with the best of intentions, find themselves pursuing an idea for a social venture that combines the absence of a business model with a lack of clear potential for social impact.

Are you building an online one-stop-shop for young people who want to bring communities together through the medium of extreme basket weaving?

Is the business model ‘corporate sponsorship’?

If so, look away now.

Once again, while the real life equivalents of fictional social venture ‘ComYOUnityBasKITcase’ are far less actively stupid, the basic recipe is the same.

Ingredient one – something you (at best) know how to do well or (at worst) have recently heard of

Ingredient two – a positive but non-specific and essentially unrelated social aim

Ingredient three – a broad category of funder/customer that you think has lots of money to spend on good things

Method – Attend pitching event. Get a grant from Unltd. Don’t sell anything. Attend conference to complain that funders/investors/customers never fund/invest in/buy innovative ideas. Repeat for 1 to 5 years.

I can’t say for sure whether type three social venture ideas are becoming more prevalent but there is certainly a strong, well established pipeline and it’s not clear that social entrepreneurship support organisations have a humane strategy for putting them (the ideas, not the people who have them) out of their misery.

Youth hostelling with Chris Eubank

As Alan Partridge memorably demonstrated, some of the worst ideas (many of which the advent of digital TV has since brought to fruition) are motivated by the toxic mix of panic and desperation. But, while parody TV hosts need to have terrible ideas, aspiring social entrepreneurs don’t.

There is another route. That is to start by putting some time and effort into researching the social change you want to make. It’s not necessary for all social entrepreneurs to single-handedly solve a problem for the whole world in the Ashoka style but it is necessary to solve a problem at some level for someone.

The best way to do that is to work out what the problem is. What annoys me most about the prevalence of stupid ideas for social ventures is that it’s not as if we have a shortage of problems for clever, socially-focused people to take a look at.

How do we look after people who are living longer but need additional help to have a good quality of live in old age?

How do we support people with severe and enduring mental health problems when institutional treatment is both unaffordable and undesirable?

How do we connect with the young people who would really like to weave baskets in an extreme way to help their communities, and give them the online tools they need to do it?

Creating a successful business to address a social need is really difficult but working out where to start is not as difficult as some of the organisations theoretically supporting social entrepreneurship and social innovation in the UK currently make it look.

Ephemeral tosh

If you want to start venture (and you live in a major metropolitan) it’s virtually impossible to avoid support designed to develop your basic business skills – and plenty of support for (often, small and unproven) social ventures to ‘scale-up’.

There’s very little work being done to help social entrepreneurs actually become skilled and knowledgable in the things they’re trying to do – or to put people who are skilled and knowledgable together with people who’d just like to do something good to see if they could do something together.

In that context, it’s not surprising we end up with so much ephemeral tosh and so few successful social ventures addressing real social need.

Keep it stupid

None of this means it’s desirable to discourage people from pursuing really stupid ideas for social ventures.

Lots of great (or, at least, quite good) ideas emerge from the dregs of really stupid ones. Pizza, Love and Understanding’s incongruously worthy arts workshops might ultimately be the starting point for the creation of an arts organisation that does create some great art and/or some positive social change while not needing to be connected to a pizza parlour.

And the social entrepreneur who created ComYOUnityBasKITcase might come out the other side with the hard-earned practical experience they need to do much something more useful next time.

It’s not social entrepreneurs and our stupid ideas that’s the problem, it’s the dearth of support and funding to help us develop the knowledge, and find the time and space to move beyond them.

 

*In this context, a ‘social venture’ could be a charity, social enterprise or other any organisation/activity initiated with the aim of make the world a better place (at least partly) by selling stuff

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What’s Next For Big Society Capital?

“… With new CEO, Cliff Prior, poised to take up his role in March 2016 and growing interest in setting up similar institutions elsewhere in the world, it is worth considering the extent to which this principle is currently being fulfilled. As it stands, to what extent is it accurate to describe BSC as a wholesaler? … ” – My blog as part of the Flip Finance ‘What’s next for Big Society Capital?’ series.

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Another year over and is social enterprise really the answer?

As 2015 draws to a close in a haze of turkey and prosecco, it’s a good time to revisit some of the social enterprise world’s oldest chestnuts and see what they’ve been pickled in this year.

Old Chestnut One – Now that grants (and grant-style block contracts) really are disappearing, is social enterprise really the answer?

Those of us old enough to have been around in the glory days* of New Labour will remember that social enterprise was once the answer to the end of grant-funding. Fortunately, in the 2001-2011 that was a fairly easy role to fill because grant funding wasn’t actually ending.

According to NCVO, grant funding by government to the voluntary sector peaked at £6 billion in 2003/4 before falling to £2.2 billion by 2012/13 – but in many local areas the end of grants just meant a switch to models of commissioning that, though more bureaucratic, were ultimately broadly similar to grants.

Now public funding for local organisations to do some good stuff in their local area – however labelled – is disappearing fast. Contract income reached a high of £12.1 billion in 2009/10 and but was already down £11.1 billion in 2012/13.

At a local level in Waltham Forest (where my social enterprise, Social Spider CIC, is based) local charities (excluding housing providers) saw a 34% drop in income between 2010-11 and 2014-15. And with remaining council contracts coming up for renewal in December 2015 and March 2016, that picture is about to get much worse.

The grim reality is that the story that copiously grant-funded social enterprise advisers spent the 2005-2012 period telling charity leaders about grant funding is finally true. State support for the voluntary sector is on the same trajectory as Dunwich but (with apologies to both present and former residents of Dunwich) leaving a slightly bigger social and economic absence in its wake. So this should be the point where social enterprise steps in to fill the gap with some ‘sustainable’ revenue streams.

According to Social Enterprise UK’s 2015 State of Social Enterprise report, Leading the World in Social Enterprise: “27% of social enterprises have the public sector as their main source of income, an increase on 2013 and 2011” – but are social enterprise doing something different and more viable than what conventional charities are doing, or is just that the ones that are keeping going are taking a bigger percentage of an ever smaller pot?

As public sector outsourcing collapses, is social enterprise really the answer?

The decline in government contract income for the voluntary sector outlined above is just one relatively minor act of violence perpetrated against the deeply unwell horse of public service reform in the UK.

Left-wing critics of public service outsourcing have spent much of the past 20 years tugging at their beards and scuffing their sandals in despair at the thought of private companies generating huge profits at the expense of the poor. Unfortunately, if you’re one of those who thought that was bad, you might not be much keener on the new, updated version – private companies failing to generate huge profits at the expense of the poor.

A quick case study is offered by Serco: everything was going swimmingly in 2010, the seas of surplus were becoming choppier by 2012, and by 2015 that whole, humoungous contract-guzzling oil tanker of privatisation was seemingly headed for disaster. Tune in this year for the next hilarious episode.

Some might regard the news that Serco along with outsourcers A4e (amongst others) are handing back contracts as good news but is it really? Serco, A4e and colleagues are really good at slashing costs to a minimum to deliver contracts while making a profit. If they’ve slashed everything in sight and the numbers still don’t add up, what does that mean for those of us who want to deliver added value?

In some sectors, such as social care, the problems are particularly stark, even with some extra money on the horizon.

The winners of Big Society Capital’s Business Impact Challenge – charity, Catch 22, in partnership with construction company, Interserve and investment managers, Club Finance – will receive up £5 million worth of investment to:  “create an independent vehicle that enables community organisations, charities and social enterprises to deliver public services at scale.”

Will what could be tagged a ‘social Serco’ succeed where Serco is now struggling? Good luck!

As social investors continue to ask ‘what can we spend all this government money on?’, is social enterprise really the answer?

The run up to Christmas saw afore-mentioned social investment wholesaler, Big Society Capital, publish its first set of ‘deal-level data’ – that is information about where their money’s gone (along with deals made or arranged by two organisations – Charity Bank and Clearly So – that they’ve invested in directly).

Elsewhere, Pioneers Post‘s Quarterly Dealflow Update, does what that title suggests for the wider social investment market (or those bits of it willing and able to report the flow of the deals).

2015 also saw Engaged X publish The Social Investment Market Through a Data Lens before being forced to pivot away from overall analysis of the social investment market, apparently because no one would pay them to continue to do it.

The social investment market is, for better or worse (or possibly mixture of both), finally making the leap from rhetoric to reality. The headline news is that – even leaving aside social impact bonds – there’s now lots going on in the social investment market. As the Access Growth Fund starts to invest its fabled ‘blended capital’ next year, even more will start happening.

One way or another, by this time next year we’ll have a clearer (if still not fully developed) picture of the extent to which a ‘social investment market’ is an idea with a long term future and, if it is, what that means for social enterprises. And both social enterprises and social investors will have better idea of where they fit into a landscape where, in the vast majority of cases, the government money is not coming back.

 

*delete the word ‘glory’ or not according to preference

 

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Mainstream believers

With another year coming to an end, it’s time to consider our new year’s resolutions and for much of the social enterprise/social entrepreneurship movement, the new year will herald a commitment to join the mainstream (whatever that means).

At this autumn’s Emerge Conference, Pamela Hartigan, director of the Skoll Centre for (er… ) Social Entrepreneurship led the charge to ditch ‘social entrepreneurship’ entirely. Pioneers Post reports Hartigan expounding the view that to use the terms such as ‘social enterprise’ and ‘social entrepreneurship’ is to: “continue to dichotomise the commercial and the social spheres” when really: “all commercial ventures have to be accountable for the social and environmental impacts they are having and all social ventures have to be financially sustainable in some way.

Readers who are not immediately clear as to why the latter statement tells us anything much one way or another about whether we shouldn’t or shouldn’t run social enterprises, or call ourselves social entrepreneurs, may find a (slightly) clearer take in Hartigan’s blog length explanation of her position – written for Oxfam last year.

Hartigan explains that: “I do believe that transformational systems change will never be achieved on a massive scale by non-profit organizations or even by well-meaning ‘hybrids’.  I very much believe that the way forward is through business.

It’s hardly an unarguable fact that a business, whether self-defining as non-profit/’social’ or not, is necessarily the most effective vehicle for social transformation in any given situation – particularly where the alternatives include some or all of campaigning, legislation and individual or collective behaviour change – but assuming we accept that the biggest social problems do need a business-led solution we’re still left with the question of what ‘the way forward’ might be.

Less profit on purpose 

The answer, apparently, is the concept of ‘reasonable profits’. As Hartigan outlines: “The key to sustainable capitalism is reasonable profits as opposed to maximizing profits.  In the current system, a segment of society is trying to maximize profits without concern for the impact on the well being of the society as a whole, while another segment of social organizations have to deal with the fall out.

It’s pretty abstract stuff and it’s anyone’s guess what the wider social impact of ‘reasonable profits’ (however defined) might be in any given industry. Should (not)social entrepreneurs doing their (not)social entrepreneurship within mainstream businesses turn their sword of reasonableness primarily on gross profit or net profit? Does transformation come through selling people stuff reasonably cheap or paying reasonable wages?

Whatever Hartigan’s vision for good business actually means, none of it gives an inkling of what Hartigan would actually like social entrepreneurs and/or people running social enterprises to do (even if they broadly agree with her analysis).

For example, one of my social enterprise roles is as publisher of a local community newspaper. I’m under no illusions about the fact that I have less power to deliver transformational social change in this role than if I were the boss of News Corporation. As soon as I get the News Corporation job, I’ll be happy to try to put a reasonable profits policy in place. But does Hartigan mean that, right now, I should stop running our social enterprise newspaper – making some positive impact in one area of east London – and concentrate full time on persuading Rupert Murdoch to give me the top job?

Unltd abstraction 

Fortunately, not everyone in the social entrepreneurship support industry has given up on the idea of social entrepreneurship entirely. Over at Unltd (The Foundation for Social Entrepreneurs), they’ve launched a new strategy: ‘Going Mainstream: how can social entrepreneurship break through?

Unfortunately, the publication is a ‘strategy’ only in a broad sense. The conceptualisation and analysis of the problem – the question of why social entrepreneurship is not mainstream already – is apparently restricted to the results of a recent survey of (433) social entrepreneurs that revealed strong support for some abstract statements:

  • 96% Social entrepreneurs have huge potential to do good
  • 94% Social entrepreneurs need to be taken seriously as businesses
  • 87% Social entrepreneurship needs to be better understood

The challenges preventing these abstract desires becoming reality are (according to the 389 social entrepreneurs who answered that part of the survey):

  • 71% Finding sustainable revenue streams
  • 71% Making a living from a social venture
  • 60% Getting access to the right kind of finance
  • 59% Finding routes in to sell to the public sector
  • 52% Getting access to the right talent and skills

It is interesting that most social entrepreneurs can’t sell stuff and (as a result) can’t make a living from what they’re doing. It’s also interesting that Unltd haven’t done any research to try and find out why (or, if they have, don’t mention it) – particularly as in recent years they apparently have had plenty of time and resources to promote the decidedly niche ‘profit-with-purpose‘ model.

The apparent absence of any analysis or understanding of how social entrepreneurs opinions and experiences relate to what’s actually happening in the markets they’re seeking to enter is a significant barrier to any attempts Unltd might make to come up with practical ideas for change.

The right platitudes 

On that basis, it’s no surprise that what follows is a cheap buffet of universal support organisation platitudes – Realising Potential; Connecting To Great Support; Maximising Impact –  offering no meaningful indication as to how Unltd post-2016 will be different to Unltd pre-2016.

The sad thing is that while the leaders of world and UK social entrepreneurship wallow in waffle, the questions about the role of social entrepreneurs – from those working as part of unregistered, volunteer-led groups in rural church halls to those with big jobs at big companies – remain largely unanswered.

In the UK, despite huge resources going into support organisations, we don’t know enough about what kind of support social entrepreneurs need:

  • to enter public service markets
  • to provide service fillings gaps left by public sector cuts
  • to create social enterprises to succeed in mainstream markets
  • to work within mainstream businesses to create transformational change

And, with a few honourable exceptions, we’re not very good at using what do know to inform what support organisations actually do. Time to stop waffling and get on with it.

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Private view

Following years spent endlessly reprising the Godot role on the UK’s social business stage, B Corps have finally arrived. You could be a B Corp in the UK before but B Lab UK has now been launched to ‘support a community of UK-based B Corps’ and, as of last week’s launch, that community consisted of 62 ‘founder members’.

If you’re one of those ‘general public’ types who’s never engaged in a passionate debate about what a social enterprise is, or whether ‘social enterprise’ is really the right combination of words to describe what some people choose to call a social enterprise, you might not appreciate just how big a deal this is. It’s a big deal.

That’s not to say it’s immediately clear exactly why it’s a big deal.

A reminder, in case you’ve somehow how missed it, that a B Corps is a: “for-profit business that has social and/or environmental outcomes as part of its mission. They are certified by the nonprofit B Lab to meet rigorous standards of social and environmental performance, accountability, and transparency.

It’s not about the 1% – not even close

Founded by three longtime friends, two of whom previously ran a successful basketball footwear company, the US B Lab opened for business in 2006. Nine years on there are 1400 of them, 65% of which are based in the US. So, just over 900 US businesses have gone through the process of being certified as a B Corp. As there are around 28 million small businesses in the US,  approximately 0.003% of US small businesses have joined the B Corp movement*.

This is not to say the remaining 99.997% are necessarily entirely uninterested. It’s not easy to become a B Corp. Whether or not B Lab’s ‘B Impact Assessment’ is a set of ‘rigorous standards of social and environmental performance, accountability, and transparency’ that I (or you) personally support, the process is definitely serious.

The fact that you don’t just pay your money and get your certificate means B Corp status means something. Unfortunately, it currently means something primarily to a tiny minority of people who are very interested.

The B Corp movement’s lack of traction, so far, with American businesspeople has been inversely proportional to its popularity with politicians, philanthropic foundations and extraordinarily rich people who believe that business should be nicer.

The most recent flurry of high profile support came last year, when Jeff Skoll gave them loads of cash as part of his popular award-scheme. Then, a few months later, New York Times columnist David Brooks compared the B Corp model to a combination of John Lennon and Paul McCartney because (it makes perfect/some sense if you read the full article) they are “seeking to reinvent both capitalism and do-gooder-ism, and living in the contradiction between these traditions.”

Since then, registrations have been growing comparatively fast but from an extraordinarily low base. There is ongoing talk that Unilever, who own hippy ice-cream brand (and B Corp), Ben & Jerry’s might be the first big corporate to sign up. That would be a big deal.

There’s no business like business

At this point, rather than speculate on whether the B Corp movement will succeed in the UK, it’s worth considering whether or not we (in the social enterprise movement) want it to.

For me, that depends on what they’re trying to do and the messages so far are mixed. ‘Business’ in general is a far bigger bit of the economy than ‘social enterprise/social business/the social economy’ (delete according to taste). While it doesn’t rival B Corps for comparative obscurity, as discussed previously the UK’s social enterprise movement – which has been around a bit longer – currently encompasses somewhere (quite vaguely) between 1% and 2% of the economy.

So, if the aim of B Corps is to get more new and existing private businesses to focus on social and environmental goals then that’s an equivocal win. B Lab UK will have the challenge of making the case UK businesspeople that B Corp certification (and membership of the movement) gives them something they need. That might not be easy but it’s a laudable aim.

And there is  a potential gap. ‘For-profit’ business people are our friends, families and, in some cases, ourselves for part of the working week – they’re as likely as anyone else to care about doing good – but in the vast majority of cases they’re not choosing to turn their newsagents, hair salons or haulage companies into Community Interest Companies (despite the option being available since 2005).

If the major (or a significant) way to ensure UK business does more good is for more businesses to change their entire conception of themselves (I’m not personally convinced it is) then it’s currently not really happening.  Last week I was asked to name examples of existing private companies who’ve converted to a CIC structure. I came up with one but there wasn’t a list on the tip of my tongue. Employee ownership is, my anecdotal knowledge suggests, doing slightly better but not by much.

This is not a criticism of existing social organisational structures and/or registration models but there’s a gap in the market there for B Corps to change mainstream business and their challenge is to find out if there’s a market in the gap.

Mark my words: the social economy will eat itself

The late Mandy Rice-Davies successfully anticipated a significant percentage of everything that’s been said by anyone since 1963 and there would’ve been nothing to surprise her in the reaction to the B Lab UK launch on the traditional wing of the UK social enterprise establishment.

In a storming blog on the Social Enterprise Mark website, Mark boss Lucy Findlay – who knows a thing or two about trying to sell people kitemarks – was quick to assert the primacy of her niche offering over the one proffered by B Lab UK. She reminded readers that: “The Social Enterprise Mark CIC is the ONLY** UK and international certification authority that independently guarantees that a business operates as a social enterprise, with the central aim of using income and profits to maximise their positive social and/or environmental impact, which takes precedent over more standard business models, which are typically driven by a requirements to maximise personal profits for owners and shareholders.”

As a CIC director, I get those guarantees for £15 per year from the government to enough of an extent to satisfy myself and any of my customers who are interested, so I see no clear need to pay ‘from just £350+VAT’ to have it guaranteed again by the Mark’s independent committee.

Producer interests aside, though, Lucy is making a broader point that many (probably most) in the social enterprise movement would support in asserting the importance of clear limits on profit distribution and the use of some sort of ‘social’ ownership model (however broadly defined).

While B Lab UK have certainly given the matter a lot of thought before coming up with their ‘Legal Test’ for UK B Corps, the whole point of the certification from the point of view of many supporters of ‘Profit with Purpose‘ (PwP), is that it is actively open to businesses that can distribute profits and utilise assets for private gain.

Despite some cordial interactions with Unltd‘s policy team, my general outlook on PwP (have they considered a sponsorship deal with PwC?) are largely unchanged from this post in January.

I’m less worried than others in the movement about the general public being confused by competing labels.  I’m not convinced there’s a big market of consumers who want to buy from a social enterprise but don’t want to buy from a private but ethical and socially-focused business. And, at the point of buying a product or service, I’d generally put myself in that category of ‘socially conscious’ customers who are equally happy to consider buying from either.

In terms of the challenge of actually getting to point of selling stuff, though, most ‘social organisations’ do face distinct, additional challenges and have opportunities to access various forms of funding, investment and other support as a result. For example, charities and social enterprises seeking provide back-to-work services face major barriers to competing with private sector competitors like founding B Corp, Ingeus UK (now owned by the Arizona-based Providence Service Corporation).

If B Corp certification was ultimately used to enable private businesses to take advantage of the relatively small range of benefits – whether grants, tax breaks or ‘social’ procurement# – currently on offer to ‘social organisations’ that would have a significant, negative impact on the existing social economy.

Support for clearly social models ownership and/or either no distribution private profit, or strictly limited private profit distribution, is a baggy set of strong principles with a messy coherence that quite a lot of people strongly believe in. Most of us don’t think it’s the only way to do business (or the best way in all circumstances) but we believe in the social economy as part of a wider civil society as distinct from private business.

Ultimately, that means that if the launch of B Lab UK leads to a battle with the private sector for our limited resources – rather than an attempt to create a broader social pot – then that would be (a) sad and (b) a battle that many of us would be up for.

My investor’s got some money and no clear strong beliefs

And then, after all that, there’s the Pandora’s Cath Kidston bag that is the UK social investment market. Social investment leaders are all over B Lab UK and it’s not just because meetings with US B Corps people are the only chances they get to go to meetings and act smug about their market penetration.

As if transforming the capitalist system wasn’t enough to be getting on with, B Corps have also been lined up for the considerably more implausible task of making UK social investment work based on its current model.

As it is, while some of social investment wholesaler, Big Society Capital‘s (BSC) £600million (ultimately maybe more) pot is being shovelled into chunky property deals (some with a clear social purpose, some appearing to be more in the ‘investment spring water with a twist of social’ category) and some is (rightly, for now) being subsidised by the Big Lottery Fund,  if their furious lobbying on behalf of Social Impact Bond industry doesn’t pay off soon, BSC have a real problem getting rid of their money.

(While the specific analysis of their performance is a different post), I’m not arguing they’re doing catastrophically badly now but I am arguing that we are not seeing the level of growth in demand for the types of finance they offer (at the cost intermediaries investing non-Access-backed funds are able to offer it) for BSC to get all their money out to what most within civil society would regard as ‘social organisations’.

Writing for Pioneers Post, Pauline Hinchion of Scottish Community Re:investment Trust, an organisation with more ‘traditional’ approach to social investment, argues that: “it would appear that the focus for social investment is shifting from the ‘not for profit’ third sector to the hybrid ‘profit with purpose’ business sector.

Before adding that: “if social investment capital is flowing to hybrids, where is the third sector to get money to drive forward its agenda, particularly against a backdrop of austerity and cut backs?

In the PwP corner, Unltd boss Cliff Prior told Third Sector last year that: “if you can make that system work you can get social ventures that need capital investment to grow much more quickly because you can use the investment market.

He added: “There are some areas where that is really important, either because it’s an emergency or because there are fully commercial competitors; if they get to the market first, it’s lost to social benefit. If the social venture gets to market first, it stays social – that’s a good thing.

Exit music for a Social Investment Finance Intermediary (SIFI)

One side fears what the other side hopes for but they’re united by being wrong. The fallacy is embraced by both is that, if UK social investment unequivocally embraced ‘impact investment’ in for-profit businesses there would suddenly (or even over a period of 10 years) be a host of grasping, private profit hungry Companies Limited by Shares (AKA exciting, innovative PwP businesses) queuing up to get their hands on all that lovely money.

On Linked-In, another Scotland-based figure who I respect, Les Huckfield, speculated that the rise of B Corps could see Virgin’s Richard Branson turning up to get a slice of BSC pie. It’s a shame to spray dry powder on the fires of righteous anger but it’s difficult to imagine the circumstances in which a guy who’s got enough spare cash to be racing hot air balloons and trying to fly to space will need a tiny specialist social investment organisations to loan him £250,000 at 8% (bigger loans and mostly higher interest rates are available) or to take an equity stake in his new business along with a seat on his board.

But social investment leaders and PwP supporters are equally convinced by (a variation on) this nightmare/dream scenario.  Their assumption is that a significant increase in numbers of B Corps/PwP businesses etc. that can take on equity investment will make it far easier for them to get their cash out of the door.

Unless, I’m missing something this belief is apparently premised on the notion that having a ‘for-profit’ structure either automatically (or, at least, more likely than not) changes the market situation in which you’re operating.

It may simplistic but, in social investment world simplicity is often necessary: a companies doesn’t go from being a couple of Harvard students rating some girls to a multi-billion dollar empire primarily because it’s structurally possible for them to sell shares to investors. The opposite would definite be a barrier but, as success factors go, that one’s quite a way down the list.

If social investment backed-B Corps are genuinely socially focused, and creating new products and services to tackle social problems by operating in under-developed or non-existent markets (or if they’re competing in mainstream markets carrying additional ‘social’ costs) they’ll struggle to make the sorts of profits that will provide BSC-backed SIFIs with the returns they need.

Having argued ferociously about the connection between structures and principles, we ultimately end up with same old problem that, irrespective of how businesses are structured, successful socially-focused business will not provide the big profits that will offset the losses from the others, and those that have the potential to do so will mostly be able to get cheaper, less demanding money elsewhere.

There definitely is a clearer exit route for a SIFI (or other investor) that buys some shares in a CLS structured B Corp than one than buys a quasi-equity stake in CIC Limited by Guarantee in the hope that at some point someone will invent a Social Stock Exchange where they could sell it. A profitable exit from investment in a B Corp is technically much easier.

But social investor enthusiasm for PwP (and, as part of that, B Corp) seems to be based ‘technically much easier’ and ‘highly likely’ being essentially the same thing.  It seems unlikely that, in terms of social investment by SIFIs (it may be different for individuals) this optimism will survive many encounters with social entrepreneurs seeking investment in their risky, innovative B Corps.

The mostly likely result of the shift towards PwP in social investment is that, at least in terms of SIFI finance, we end up with a range of new, more frustrating approaches to slicing and dicing the wrong money – when what both socially structured and ‘for-profit’ social entrepreneurs need is a bigger change of overall strategy.

 

 

*As with social enterprises in the UK, it’s easier to compare numbers against figures for small businesses, while acknowledging that not all B Corps/social enterprises are small

**Lucy’s bolding and capitalisation

#’Social Investment’ is an issue its own

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