Tag Archives: Social Enterprise

Great and small

Here we are again. Two year’s on from The People’s Business, the new Social Enterprise UK (SEUK) state of social enterprise survey is called ‘Leading the world in Social Enterprise‘.

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 counterpartsactually 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.

Small comfort

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.


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Crunch time

The publication in June of The Social Investment Market Through a Data Lens was a big event. It was the first significant step towards advocates for and sceptics about social investment in the UK bringing down the gavel on their seemingly endless auction of rhetoric on the potential of the market and beginning to discuss some facts.

The picture the initial Engaged X data – of 426 closed deals completed by 3 social investment finance intermediaries (SIFIs) – provides is nowhere near complete but it does, at least, finally tell us something.

On the plus side, most social sector organisations (72%) who were lent money paid it back. This is important because it proves, fairly decisively, that there is a market for finance for ‘unbankable’* social sector organisations that is not grants. This does not mean that social investment is replacing – or is likely to replace – grants but it does mean that the doubters who claimed social organisations ‘just want free money’ were not entirely correct.

At 28%, the default rate for the sample is comparable with small businesses receiving state guaranteed loans through the government’s Enterprise Finance Guarantee (EFG) scheme. While limited data means we have to be cautious, those who argue that a business having social aims does not make an investment inherently more risky than when that business is simply ‘small’ may be on to something.

The total financial return of the sample is negative 9.2%. The clear positive of that is that a substantial amount of capital deployed for social use has been repaid and can be deployed again. It’s also notable that, as Engaged X’s Karl Richter points out in his blog, the sampled market was improving over time. So while the return on investments made from 2002-2008 was negative 17.50%, the return on investments made from 2009-2013 was a more palatable negative 3.37%.

In an asset class of our own 

This suggests that ‘unbankable’ social investment could be (and may already be) an efficient way of recycling some money located in existing social pots. It doesn’t suggest there’s any realistic prospect that direct investments into ‘unbankable’ charities and social enterprises are ever going to be the vehicles for the 7% annual return with limited risk investments that Sir Ronald Cohen and others have been confidently dangling in front of business leaders in Davos for past five years.

This small dataset doesn’t, in itself, prove that ‘social investment as an asset class’ dream is dead but it’s a further the reiteration of the fact that the dream is about something quite different to direct investment into ‘unbankable’ charities and social enterprises.

For those in the social investment market that are interested in mainstream social organisations, the big challenge now is around subsidy. The Engaged X data reinforces the position – now often stated by outgoing BSC chief executive, Nick O’Donohoe – that ‘Most social investment requires subsidy, and subsidy should not be a dirty word‘.

Grants for us, loans for you

On the one hand there’s the subsidy needed to cover the money that funds are losing. In this sample, that’s an apparently quite manageable and, based on EFG figures not untypical, 9.2%.

On the other hand, there’s the costs of running the SIFIs, both in terms of setting up deals and in terms of providing the wide range of ‘additional support’ that most, for better or worse, claim to provide. For most SIFIs, it seems likely that the second hand is the one with the most money in it.

Unfortunately, Engaged X have no data on this so we don’t know how much it cost the SIFIs providing data to lose 9.2% of their capital. They note that: “All returns are gross and are not net of costs. Management costs may appear on face value to be disproportionately high when reviewed against the investment size, but the anecdotal evidence suggests this highly engaged approach is key to being a successful social investor.

As noted in an earlier blog, the 2011 Young Foundation report, Lighting the Touchpaper, reported that: “The vast majority of SIFIs are currently operating at a loss… This operating gap is usually made up by grants. Once portfolio losses are taken into account, the ‘sustainability gap’ for most SIFIs is even larger.

Unfortunately, discussions about subsidy in UK social investment have, so far, mostly been conducted with all participants blushing and covering most of their mouth with their hand. While the presence of subsidy is often acknowledged and passionately justified in the abstract, there are not (to my knowledge) any SIFIs openly saying: “It costs us x to run x fund and, as a result of this subsidy, the social benefit is x”.

It’s a position located half way between bullshit and denial, that serves everyone badly including SIFIs themselves but, it’s important to acknowledge, it’s not a situation that SIFIs are entirely responsible for. Many SIFIs do good work that many social entrepreneurs may agree should be subsidised but the way the market has evolved mean even the clearest subsidy models are currently fairly opaque.

One positive hoped for outcome from the launch of Access – The Foundation Social Investment’s growth fund – where BSC capital is subsidised with BIG Lottery grant – is that SIFIs will be applying for funding through a mechanism where they will have to be clear about how their losses and/or processes are being subsidised and (hopefully) about the social impact they are claiming to deliver as a result.

Only then can we seriously begin to address the question of whether, and in what circumstances, it’s worth it.

*The report states: “The data sample analysed a high-risk portion of the market by definition. Many of the SIFIs implemented a policy for only considering investment applications for organisations that had been refused finance from mainstream or retail providers.”

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Purpose unclear

One of the most baffling developments of 2014 was the emergence (at least in social enterprise policy-world) of the ‘Profit-with-Purpose’ business.

For those who missed it, the ‘Profit-with-Purpose’ business is an idea primarily championed by social entrepreneur support provider, Unltd, to explain their support ‘for-profit’ businesses (companies limited-by-shares) dedicated to fulfilling a social mission.

Unltd ceo, Cliff Prior, chaired the Mission Alignment Working Group (MAWG) of G8 Social Impact Investment Taskforce and their report explains the idea at length.

Prior also explains the idea (to some extent) in this interview with Pioneers Post, where he responds to criticism from Unltd’s former partners in Scotland, Can and Senscot, who ended their relationship with the storming assertion: “UnLtd has developed into one of the UK’s leading advocates against the regulation of social enterprise and for the inclusion of private profit companies in the sector.

While I understand that many readers are experts in the minutiae of social enterprise policy debates present and past, less firmly embedded readers may appreciate some explanation of the terrain on which this battle is being fought.

Very roughly, it’s this (from the MAWG report, p18): “From a legal point of view, the main difference between profit-with-purpose business and social or solidarity enterprise is the degree of flexibility regarding the distribution of profits and use of assets.

What, in a UK context, is the nature of the inflexibility that Unltd are railing against?

Umbrella body, Social Enterprise UK, state that in order to be considered a social enterprise (for the purposes of membership): “the majority (more than 50%) of an organisation’s profits should be reinvested to further its social or environmental mission.

That’s a pretty flexible definition, even without creative interpretation, it enables a company to pay 49.9% of its profits out to private investors and retain the other 50.1% in the company ever year if appropriate.

When it comes to assets, SEUK’s position is: “We believe that an asset-lock can be effective in ensuring that a social enterprise operates in the wider interests of society for perpetuity and is not at risk of sale. But we recognise that many social enterprises receive no public funds or assets. Some have benefited from considerable personal investment on the part of the entrepreneur and need the money back.

So the official social enterprise position on profits and assets – to the extent that there is one – is that a social enterprise can distribute half its profits to private investors and doesn’t need to have any sort of asset lock (as long it can bear the ignominy of failing to pursue an approach that SEUK believes can be effective).

Elvis and Kresse, the business used in the Pioneers Post article as an example of a ‘profit-with-purpose’ business is (entitled to call itself) a social enterprise (if it wants to) by the SEUK’s definition.

That said, there’s absolutely no reason why a socially-minded entrepreneur should sign-up to SEUK’s commitments if they don’t want to. In that situation, they can start an ethical business like Ecotricity or Lush, that does business in the open market using a conventional ‘for-profit’ structure – attracting ethically-minded customers on the basis of the way they do business rather than their corporate set-up.

In the UK context, a ‘profit-for-purpose’ apparently fills the gap between social enterprises and ethical businesses. Look carefully. Can you see it yet?

Profit can be good

Despite, this deeply inauspicious premise, Prior and the Unltd team are neither bad nor stupid people so there must be some reasons why they’ve ended up on this bizarre wild goose chase.

There’s at least one good one, based on what are (whether or not you agree with them), honorable principles. In a recent discussion on social media, Dan Lehner, formerly Head of Ventures at Unltd and now working at CLS social enterprise/profit-for-purpose business, Oomph!, explained his support for the thinking that mutated in ‘profit-for-purpose’: “My biggest reason to push the issue is because I think there’s need for a new level of awareness-raising (partially with consumers/government and funders/investors but mostly with really talented, imaginative, ambitious entrepreneurs) that it’s ok to make money out of social purpose – if social outcomes are genuinely achieved and evidenced.

Why shouldn’t people who want to earn a decent living, provide well for themselves and their families and make the world a better place in the process be encouraged to do so? It’s difficult to imagine many of us in social enterprise world offering any suggestions as to why not (although some of might argue that that’s often possible using a social enterprise structure, too).

Why should, Unltd, a charity set-up to support ‘social entrepreneurs’ (rather than ‘social enterprises) support those people? Senscot and Can, amongst others, clearly do have some suggestions but others of us are pretty relaxed about that, too – School for Social Entrepreneurs is another example of an organisation that supports ‘social entrepreneurs’ without specifying the type of organisation they have to work for or set-up.

Two bald men lose will to live during ethically-produced comb brawl

The less principled driver of ‘profit-for-purpose’ is as one skirmish in the distastefully absurd scrap over the £400million worth of ‘unclaimed assets’ allocated for investment in ‘Social Sector Organisations’ via the government’s semi-detached social investment wholesale finance institution, Big Society Capital.

The starting point is that: “The statute under which BSC was established defines third sector (or social sector) organisations as those that ‘exist wholly or mainly to provide benefits for society or the environment’. BSC has interpreted this to include regulated social sector organisations such as charities, Community Interest Companies or Community Benefit Societies as well as some profit-making companies or enterprises that have a clear social mission where these entities can meet the specific criteria set out in the attached Governance Agreement.

The ‘Governance Agreement’ definition combines the clarity of wool with the flexibility of nylon to deliver a set of criteria that virtually any business could meet if it could be bothered.

It states that: “the payout of cumulative profit after tax to shareholders will be capped at 50% over time” but doesn’t specify how much time so, presumably, as long as time (or your business) doesn’t stop you can pay as much profit out to private shareholders as you like on the basis that you’re firmly intending to start the process of reinvesting the majority of overall profit generated over the lifetime of the business at some as-yet-undefined point.

Big Society Capital’s view (as I understand it) is that a key reason why the social investment market didn’t really get going in 2013/14 was that social investors were spooked by this potentially confusing situation.

In August 2013, BSC ceo Nick O’Donohoe stated: “We need to more clearly segment the social impact investment market and also define more specifically what should count as a social enterprise.” and that: “That definition, in my view, will need to be driven by a specific legal form or golden share which guarantees a lock on social mission and also allows capital providers to earn a reasonable return consistent with the risks they are taking.

‘Profit-with-Purpose’ clarifies that situation so that, in the words of MAWG report, p19, there is: “a way for social investors to identify eligible profit-with-purpose businesses with confidence and familiarity.

In a UK context, this means a way for social investment intermediaries to investment UK citizens’ unclaimed assets in businesses that are not ‘regulated social sector organisations’.

Few within either civil society or social investment world disagree with the idea that if government is going to provide money for a social investment and (tax relief for it) it should provide a regulated registration system for those eligible to receive it (particularly if their social mission is not already regulated in some other way).

My strong expectation is that vast majority of organisation who could be bothered to register would meet SEUK’s definition of a social enterprise. For Unltd, the idea that might be a few that might not but would be keen to receive ‘social investment’ is apparently justification for the creation of ‘A New Sector’.

The more worthwhile stuff that’s ignored

BSC’s money is a relatively small, specific chunk of cash set aside to support ‘Social Sector Organisations’. The parochial battle over whether (or which) private companies should be eligible to receive it ignores the far bigger and more interesting discussion about the promotion of social purposeful activity in the private sector.

Dan Lehner’s point that: ‘it’s ok to make money out of social purpose – if social outcomes are genuinely achieved and evidenced‘ – is an important one but the last thing it suggests is the need for the creation of ‘A New Sector’ of businesses for a bemused public to attempt to get their head around.

Whether we’re using the term ‘social investment’ or ‘impact investment’ there’s huge potential investors to invest in companies and customers to buy products based on the social good generate by those activities. This is not necessarily about companies demonstrating their impact through SROI, it could be about being Living Wage Employers, using sustainable materials or demonstrating their support for their local community.

If what the company does with its profits and assets doesn’t matter, then why else should an investor be interested in what it is as opposed to what to what it does? If an investor is investing what an organisation does, social requirements can be just as usefully written into an investment agreement as written into a company’s mem and arts. If a social entrepreneur running a private business doesn’t what their social mission distorted by an investor, they should get that mission written into the deal.

Shoving the good stuff done in the private sector into the cul-de-sac of ‘Profit-for-Purpose’ businesses serves no one other than a support organisation struggling to explain what it does, and some social investment organisations struggling to do what they’re meant to do.


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Snapshots of the innovation landscape

There haven’t been many times in recent years when I’ve been reading a report on social innovation or social enterprise and I’ve found myself thinking:  ‘the author of this section has missed Social Impact Bonds and they’re genuinely relevant to this discussion’.

If European social innovation research collaboration, Tepsie‘s report Building the Social Innovation Ecosystem in Europe achieved nothing else, that would be quite a feat. Fortunately, given that there’s 105 pages of it, it does achieve some other things, too.

While the one they’ve gone for is snappier, a more accurate title for the report would ‘Describing the possible component parts of a Social Innovation Ecosystem in Europe should one come to exist’. The bulk of the report is made up of snapshots of the landscape of interventions emerging to support social innovation in different parts of the world, written by social innovation academics from around Europe.

Where’s the innovation?

Keen to avoid a social innovation definition debate, the authors make clear that they’re: “particularly interested in socially innovative organisations that emerge from civil society and the third sector, including social enterprises, co-operatives and mutuals.”

The problem with the choice to focus on socially innovative organisations rather than socially innovative activity (wherever located)  is that while some subsections – such as the one on ‘prizes for social innovation’ – are about support for innovative activity which may ultimately lead to the creation of organisations, most of the subsections focus on resources, organisations and networks that support new or growing social sector/civil society organisations in a general sense.

In many subsections, the specific relationship between this support and those organisations actually having and successfully executing any new ideas or models is either not explained at all or explained through gratuitous speculation such as this on crowdfunding: “A fourth advantage particularly for social innovators is that it pays for them to be really innovative: Whereas they often do not fit into more traditional funding schemes just because they are ‘too innovative’, they are likely to attract crowdfunding more easily by being innovative, if they succeed in making innovation comprehensible and convincing to ‘the crowd’

The report divides the ‘Social Innovation Ecosystem’ into three main sections:

  • Enhancing the supply of innovative goods and services
  • Enhancing the demand for innovative goods and services
  • Intermediaries: transferring knowledge about social innovation

There’s over 60 pages on ‘Enhancing the Supply’, divided between different types of: ‘Financial Support’, ‘Non Financial Resources’ and initiatives developing ‘Skills for Innovation’, 15 pages on the different ways of ‘Enhancing demand for innovative goods and services’ and 12 pages on ‘Intermediaries’, looking at networks and evidence.

The subsections are written by different researchers from Tepsie’s partner institutions and, perhaps unsurprisingly, they’re a real mixed bag. The intended model (demonstrated by the good ones) is: explain what the activity is (for example, ‘crowdfunding’), explain what it’s got to do with socially innovative organisations, give some examples of some current approaches including interviews with people involved and provide ‘reflections’ on what this means for the social innovation eco-system.

Ventures needs grants because ventures need grants

It’s a model that works particularly badly for the subsections on Financial Support. Gunnar Glänzel of University of Heidelberg  is the co-author of a very good paper I’ve read on social investment in Germany but he gets lost somewhere between writing superfluous beginners guides and complicated specialist analysis of topics that (on this evidence) he’s not really a specialist in. As a result, the first three sub-sections here on ‘Grants for early stage development’, ‘Crowdfunding’ (see above) and ‘Loans’ are stews of confusion peppered with blindingly obvious filler.

For example: “The rationale behind early-stage grants is that social innovators who are about to set up ventures are in need of relatively small amounts of money at low or no cost” and “As long as an idea remains just an idea, it continues to have two major drawbacks: First, it does not make any difference in the world; and second, it does not generate any job opportunities for anyone.

Particularly baffling is the subsection on loans which is apparently aimed at someone who needs to read a 500-word description of what a loan is beginning: “A loan is a form of funding where a lender provides money (the principal) to a borrower on pre-defined terms concerning the repayment of these funds” but can understand the idea of ‘mezzanine’ capital with no explanation at all.

As if this lurch from spoon-feeding to jargonitis wasn’t enough, the mezzanine is reached in an interview with Charity Bank.  Charity Bank are really good but they’re virtually the only organisation offering loans to UK social organisations who don’t claim to be particularly interested in social innovation. Sure enough, Glänzel also interviews Triodos before noting: “It needs to be pointed out that both examples refer to banks that make loans to organisations that should not be seen as social innovators.

Fortunately, other sections are much better. The subsection on ‘Mentors and Coaching’ by Jeremy Millard of The Danish Technological Institute includes an interview with Servane Mouazan of Ogunte and is a really good summary of what the point of those activities is – something which many social enterprise support agencies that refer social entrepreneurs to coaches and mentors could do with explaining better. It’s less good as explaining why socially innovative organisations need different mentoring or coaching to anyone else but there may not be a reason.

Does anyone actually want to buy this stuff?

While it’s worth dipping into the ‘Supply’ section to read about the different types of support available to socially innovative organisations around the world, the most interesting thinking in the report is in the demand section.

To begin with, it’s great that the section exists at all. It’s no great revelation that there’s loads of support for people looking to bringing socially innovative organisations ‘to market’ but there’s currently very limited understanding of what or where the markets for their social innovations are.

Millard’s subsection on Campaigning and Advocacy looks at the role of socially innovative organisation in simultaneously campaigning for and delivering social change. In the case of the first example, The Ghana Friendship Groups, the organisation literally does both things itself, pushing the Ghanaian authorities to provide children with the formal education they’re legally entitled to by delivering preparatory courses for children so they’re ready to enter the education system and training local ‘barefoot’ teachers, while simultaneously campaigning for politicians to fulfill they’re responsibilities and securing outside funding from Danish aid agencies.  The other example is used is Social Enterprise UK and their work on boosting the market for social enterprise (which is apparently assumed to lead to a bigger market for social innovation) both through public campaigns and with engaging with politicians on initiatives such as the Social Value Act.

This subsection loses its way in the ‘reflections’ which ends up as a discussion of the pros and cons of campaigning rather than reflections on the interaction between campaigning and social innovation. For some social organisations campaigning may be the best way of creating a market for an innovation which they themselves can deliver. Hearing loss charity, the RNID’s work both demanding that the NHS provide digital hearing aids then working with them to make it happen is a good example.

The Young Foundation’s Rachel Schon does an extraordinarily good job of providing a high level overview of the fiendishly complicated topic of the place of social innovation in ‘Commissioning and Procurement’ explaining the problems of big contracts suited to big providers, risk aversion and excessive monitoring of processes rather than outcomes.

Impossible to tackle in the three pages of the subsection but important to the paper overall is the question whether governments actually want to buy social innovation and, if so, how they go about doing so.

(Possibly the only situation ever where) Social Impact Bonds get less coverage than they deserve 

Unfortunately, the snapshots of the landscape format, while probably the most logical one for a report by multiple contributors based in various different countries, is a particularly bad one for considering how different organisations and initiatives function within an ecosystem.

The relationship between the different components of ‘An Ecosystem For Innovative Social Purpose Organisations’ is outlined in a diagram on page 11 but never explicitly mentioned again after that. As a result, the ‘supply’ section creates the impression of a ‘Social Innovation Ecosystem’ as a building constructed entirely from scaffolding that socially innovative organisations may or may not choose to visit to get what they need to succeed.

Some critics of social enterprise support and government funding for it might feel that impression is accurate but, either way, this non-engagement means failing to examine approaches that either consciously link together different forms of support or promote social innovation on both the supply and demand side.

To take two UK examples, not because I think they’re likely to be the most important ones in the world but because they’re the ones I know about: the UK’s social investment ‘pipeline’ and Social Impact Bonds.

For the last two years, the UK government has – it believes – been promoting social innovation through a social investment pipeline that begins with a socially innovative idea being supported by an accelerator funded through the Social Incubator Fund, moves on to ‘investment readiness support’ through Big Potential or the Investment and Contract Readiness Fund, and ultimately ends up with innovation social ventures received massive investments from Big Society Capital-backed social investment funds to scale up their services and sell them to public sector commissioners.

This pipeline may not work (or even meaningfully exists in a practical sense) but it’s a good example of several parts of s social innovation ecosystem that have (in theory) been designed to fit together and deliver some end products – and it would be useful to consider whether it’s a good idea and whether there’s comparable stuff going on elsewhere on Europe (or elsewhere in the world).

The hyperbolic promotion of Social Impact Bonds (SIBs) in the UK has been so successful  that, despite the fact that the first SIB only published its first (half-decent but hardly breathtaking) results last week, they’re already being promoted as a key solution to the challenges facing whole countries.

It makes sense for serious social innovation researchers to be sceptical about the marauding progress of the SIBs bandwagon but that doesn’t negate the relevance of what they’re attempting to do. SIBs are:

(a) a form of theoretically commercial finance specifically designed to fund social innovation

(b) a model of funding with a built-in relationship between financial return and social outcomes

(c) a model of funding social innovation that’s received a phenomenal level of government support

Even more critically, though, they attempt to tackle the conundrum that governments are the most likely customers for many new approaches to doing social good but governments can’t risk spending (large amounts of) money on services that haven’t yet been proven to work.

Who pays and why?

Ultimately, socially innovative organisations don’t (or shouldn’t) exist primarily in a social innovation ecosystem. The ecosystems socially innovative organisations need to find their places within are their local communities, or the national or international communities of interest that want to see a solution to particular social problem.

The effectiveness of the growing range of supply side support for socially innovative organisations is based entirely on whether there’s ultimately anyone who wants to pay for what’s supplied. Ironically, given that grant-funded activity is often seen as an outdated alternative to socially enterprising approaches, Julia Unwin’s The Grantmaking Tango is one of the few UK publications I’m aware of that looks at a market for social goods provided by social organisations (grant-funding)  and considers how that market affects the business models of the social organisations that deliver those social goods.

It would be really useful for UK or European researchers to do something similar, the Social Innovation Shuffle (?), that looks at the different markets for social innovative end products -governments in particular but also grant-funders, private sector businesses and individual consumers- and how a social innovation ecosystem could most usefully interact with them. This report makes a good start by telling us more about what’s currently out there.


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Going large

You don’t need to go beyond the executive summary of Making It BigNesta‘s new report on ‘Strategies for Social Social Innovations’ to see just how confused the UK’s leading thinkers are about the subject.

In sentence two we’re told ‘Many social innovations have become part our daily lives – think pre-school education, first aid, e-petitions‘ while in sentence three we’re told that ‘In the developing world, organisations like BRAC and Pratham are approaching transformative scale, starting to solve the social problems they set out to tackle.

From this we can deduce that social innovation could be a new branch of an existing sector, an essential basic service or a new method of communicating your views to people in power. On the other hand, it could be a large NGO that provides huge range of different services designed to help poor people.

It may be that it’s not useful to define ‘social innovation’ beyond the suggestion that it’s something with a social aim that seems to work but what about ‘scale’? According to Making it Big: ‘Social innovations can be said to have scaled when their impact grows to meet the level of need‘.

On that basis, pre-school education and first aid are a long way off reaching (worldwide) scale while many would argue that e-petitions reached scale some time before the first one was set up (apologies to radical hippies and Shoreditch libertarians who oppose both pre-school education and first aid but love e-petitions).

No more heroes

Making It Big isn’t a bad report – it’s a good report that reflects a confused situation. As Nesta boss Geoff Mulgan reflected at the recent launch event, 10 years ago the dominant view in (newly emerging) social innovation policy circles was that the UK would see an explosion of Ashoka-model, Richard Branson-style heroic social entrepreneurs.

(He didn’t add that) a few years before that Charles Leadbeater’s The Rise of the Social Entrepreneur had seemed to herald the approach of a disparate army of new social leaders who, between them, would replace outdated public services aided only by five disgruntled local people, a 30 minute crash course on how to do proper business from a kid on KPMG’s graduate scheme and their terrifyingly passionate personality.

It wasn’t a good idea but it was an intellectually coherent one. Unsurprisingly, it hasn’t worked. No heroic social entrepreneurs at all have solved a global social problem (or even replaced a relatively small existing public service) by scaling up themselves and doing their passion. The heroic social entrepreneur model has now become so discredited that at this year’s Skoll World Forum many of the world’s leading heroic social entrepreneurs were refusing to associate themselves with (the heroic image of) themselves.

In the UK, it just quietly didn’t happen. So Making it Big successfully reflects a landscape where we know being a great person and really meaning it is not enough. It does a good job of outlining different potential routes to scale: influence and advise, build a delivery network, form strategic partnerships and grow an organisation to deliver.

Do more vs. doing more good

It’s useful to look at scaling social innovation from two angles simultaneously. One is operational scale. Are you doing the thing you do either in the most efficient way you can or delivering it at the most efficient volume possible? Any of the available routes might be the best one to reach that point.

Have you reached the point where you’re doing something to the greatest possible extent that your skills, the resources available to you allow and the markets – in the broadest sense of the term – you operate within allow you to and are you able to keep on doing it?

Then the social impact question might – at that optimum operational level – does the social bit still work. Do the social returns diminish, why and by how much? Does the service that worked brilliantly for people in Norfolk, work just as well for people in Wales – and does it still work as well for people in Norfolk now you’re trying to deliver it in Wales, too?

Unfortunately, the trade-off between operational and social will probably involve taking a position on some difficult questions. Do you want to make your social good available to the biggest possible number of people or the people who need it most? Clearly, both but what if you have to make a choice?

What if the best way to make your social innovation simple enough for millions of people to use is to make it in a way that means particular groups of people can’t use it? What if ensuring your social innovation fits the market for helping for a particular group of people means you have to design it in a way that means it will never have a wider application?

It’s too much to demand that social innovations need to have entirely solved social problems to have been regarded as having scaled but how do we work out which scale model we should be aiming for if we want to achieve the best possible of operational effectiveness and social impact.

Markets don’t care about your social innovation

What remains under-addressed – both in Making it Big and in current UK social innovation debates in general – is the trade off between (scaling) social innovation as a technical process and social change as a battle for resources.

In Section 4, we’re told by Ted talk hero, Simon Sinek, that “people don’t buy what you do; they buy why you do it” and therefore you need a ‘clear vision’ to scale up. The may be a great piece of advice in some contexts but it’s problematic in many of the social sectors.

In the social sectors people often buy what you do – in terms of giving up their time to engage with it – because they’re desperate, lonely, bored, or a combination of all three. That’s also true in purely commercial sectors but, in social sectors, the fact that your service is being used is (hopefully) not enough.

In conventional economic terms, many of the people who most need many social innovations don’t buy anything because they don’t have the power to do so. On the other hand, the people who do have the power – the people who might actually pay for the scaling of your innovation – buy whatever the hell they want irrespective of what you do or why you do it.

Breaking into many major social markets isn’t really about you and your social innovation at all. Do you have a scalable model for helping people back to work in the UK? Would unemployed people like to use it? Frankly, who cares? The Department of Work and Pensions aren’t going to pay for it through their lowest common denominator Work Programme scheme.

Unfortunately, there’s not much room in the think pods at Nesta for discussions that acknowledge the fact that some people have more power than other people, and research that considers how that affects both the kind of social innovations that emerge, and the projects, products and businesses that succeed.

Without that, some good stuff will happen but the broad state of confusion the social innovation world will continue.


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How do we build markets when customers don’t pay?

Despite its popularity with politicians (or perhaps partly because of it) public service marketization is rarely discussed in a practical useful way…. ” – the first in a new monthly series of blogs I’m writing for Pioneers Post on social innovation and public service reform. Next two are on: ‘Who pays when the state can’t?’ and ‘Do all public services have to be delivered by professionals?’


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Social Enterprise: What’s love got to do with it?

Is love an essential requirement for a successful social enterprise? Or is it actually a by-product, the mechanism or even the result of one?

In recent months, my social enterprise, Social Spider CIC, has been working with Intentionality CIC on Social Enterprise: What’s love got to do with it? – a report on the role of love in social enterprise. The report is available to download here. It would be great to hear what you think.


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