While the UK government’s hyper-enthusiasm for its own work on social investment might cause some in the social sectors to raise a weary eyebrow at the mention of ‘leading the world’, the social enterprise movement is hopefully on firmer ground.
Either way, SEUK certainly does lead the world in writing engaging reports about social enterprise and this year’s is definitely worth a look. There’s loads in there but I want to pick up on two recurring questions: ‘are social enterprises *outperforming their mainstream counterparts*?’ and ‘is social investment useful for most social enterprises?’
Social Enterprise vs SMEs
I’m picking up on this issue it’s the hook that’s been used for the promotion of the report.
The opening paragraph announcing the report on SEUK’s website says: “Research from the State of Social Enterprise survey 2015 shows how social enterprises are outperforming their mainstream SME counterparts in nearly every area of business: turnover growth, workforce growth, job creation, innovation, business optimism, and start-up rates.”
As the membership body for social enterprises, it’s SEUK’s job to be positive. I’m not suggesting their positivity about the performance of UK social enterprises is unwarranted in a general sense – this is the best data we have about social enterprises in the UK and it shows social enterprises are doing well: increasing turnover, growing their work forces and creating new products and services.
Where it gets problematic is when we attempt to compare the performance of social enterprises and ‘mainstream SMEs‘. What does ‘social enterprises outperforming their mainstream SME counterparts‘ actually mean?
To take ‘innovation’ as individual example. The report claims: “The number of social enterprises introducing a new product or service in the last 12 months has increased to 59%. Among SMEs it has fallen to 38%.”
How useful is it to attempt to judge whether the social enterprise I manage in my day job, Social Spider CIC, is more innovative than our neighbouring SMEs such as ‘Delight Kebab & Cafe’ or ‘DR Patel Newsagents’?
We created a new mental health blogging platform in 2013-14, if Delight continued to offer similar things with chips and DR Patel streamlined the range of confectionary available in their shop is social enterprise winning?
Even when businesses do similar things, comparisons don’t really work. Another social enterprise I help to run, WFWellComm CIC publishes a community newspaper, Waltham Forest Echo. A similar local SME is Citizen Media Ltd, which publishes Hackney Citizen.
Over the past two years, WFWellComm CIC has grown its turnover, increased the size of its workforce, created new jobs, launched a major new product, believed (correctly) that its income would increase over the next year and been a start-up. Six ticks but that’s happened primarily because we’re a new organisation that’s launched a newspaper.
During that time, Citizen Media Ltd has continued to publish a newspaper. As their newspaper is published monthly and ours has been bi-monthly, they’ve produced twice as many editions as us but, in the event they’ve done so with a slightly reduced turnover compared to previous years and a stable staff team, while feeling pessimistic, we would’ve ‘outperformed’ them on all six counts.
Our social enterprises have done well and we’re proud of that. It doesn’t tell us anything much about the performance of other businesses operating in different markets or at different stages of development.
The leads into the wider unanswered question of whether social enterprises collectively are outperforming SMEs collectively. The report states, “Government statistics identify around 70,000 social enterprises in the UK, contributing £24 billion (24,000,000,000) to the economy and employing nearly a million people”. By this reckoining the ‘social enterprise pot’ amounts to 1.5% of the £1.6 Trillion (1,600,000,000,000) combined turnover of all SMEs.
The state of social enterprise survey is not designed to produce an overall cumulative figure for social enterprise turnover and doesn’t claim to do so. It tells us that 52% of social enterprises increased their turnover, compared to 40% of SMEs but there’s no way of knowing whether social enterprises’ cumulative turnover is growing or shrinking as proportion of SME turnover – in that ‘battle’ 1 medium enterprise increasing its turnover by a £1million would beat 99 average-sized social enterprises increasing their turnover by £10,000.
What we do know if that the median turnover of survey respondents is down to £151,000 compared to £187,000 in 2013 – which, in itself, was a drop from £240,000 in 2011. Blogging following the previous report launch, I thought that turnover drop was a big worry.
In this report, there’s a breakdown of median turnover by age of enterprise and this suggests a more complex situation. While the median turnover of organisations aged 3 years or younger has dropped from £44k to £36k, all other categories – 4-5 years, 6-10 years and 11 years+ – have seen a median increase.
The report claims that: “the growing proportion of start-ups could explain the drop in median overall turnover. This explanation is made more likely when 2015 data is compared to 2013. This shows that in all age-bands barring that of start-ups, the median turnover has, in fact, increased – and that the high proportion of start-ups arguably masks a success story of older social enterprises increasing their scale.”
This seems like broadly good news with a necessary note of caution being that, while it seems that older social enterprises that continue to exist may be ‘increasing their scale’, we don’t know whether there’s been an increase or decrease in social enterprises who’ve gone out of business altogether.
My overall impressions of the current situation are:
- Large (apparently growing) numbers of people continue to start social enterprises
- There are thousands – although it’s not clear how many thousands – of ‘established social enterprises’ that have been around a while and have found a ‘sustainable model’ that works for them
- There is no clear indication of a breakthrough – with significant numbers of social enterprises becoming medium-sized businesses (let alone big businesses)
Social investment – just what we need in 100 years time
In terms of the question ‘is social investment useful for most social enterprises?’, the new report offers a very similar answer to the previous one. The median amount of finance sought by social enterprises has increased slightly £58k in 2013 to £60k this year.
Reflecting on the ongoing, much discussed, gap between demand and supply, the report explains that: “As was noted in the 2013 survey as well, this is out of kilter with much of the social investment market pursuing larger deals. As the proportion of younger, smaller organisations continues to grow, it raises the question of how well aligned some of the financial and investment structures put in place to support social enterprise are with the realities of the sector itself.”
The last available average figure for investments offered by the UK social investment market is £264k so, if we temporarily ignore inflation and extrapolate wildly from a £2k change with many possible explanations, the average level of investment demanded by social enterprises is on course to match the every level of investment offered by social investors in approximately 100 years’ time.
Fortunately, while the situation on the demand side of the market hasn’t changed much over the past two years, the supply side of social investment is hopefully in the process of changing considerably. The arrival on the scene of social investment wholesaler, Big Society Capital, in 2012 did not have any direct impact on the availability of the kind of finance most social enterprises were seeking (then and are seeking now) but it did create a climate where the absence of that finance could not easily be ignored for (too) long.
As a result Access: The Foundation for Social Investment, for example, is now poised to have a significant impact, while Power to Change will also play a major role in providing grant finance (along with a smaller one in ‘social investment’).
So, while the answer to that question of whether most social investment is useful to social enterprises remains: ‘not yet, in most cases’ greater relevance is within reach.