Tag Archives: sustainability

On sustainability – part three

Last week, in the discussion element of a lecture I was giving for students on the MA in Social Entrepreneurship at Goldsmiths College, we ended up considering the apparently unavoidable question of which models of income generation for social ventures* are the most sustainable.

As discussed previously, the current received wisdom is that charities and other voluntary sector groups should be aiming to move away from ‘grant dependency’, while social enterprises should, in theory, never have been grant dependent in the first place. The answer, we’re told, is to increase income generation through trading activities.

For me, this received wisdom amounts to a misleading distillation of several points which make a lot of sense when considered seperately.

These points include (but are not restricted to):

  • charities and voluntary sector groups shouldn’t expect to get a chunk of funding every year just because there’s no one else in their local area trying to do the sort of work that they do
  • organisations shouldn’t expect to receive large amounts of ongoing funding, from the public sector or elsewhere, to sustain their activities unless they deliver clear benefits at a price that represents good value
  • the sensible idea of ‘full cost recovery’ needs to include the possibility of reducing costs, as well as demanding more money in order to cover them
  • in some sectors, giving people who use services personal budgets to buy the services they want has the potential to empower people who use services, while improving the range and quality of services on offer
  • if you can sustain your social venture – and deliver positive social change – by selling goods or services to people or organisations who want to buy those goods or services, you should do
  • if you can turn your services – wholly or partly – into a product that can be sold, it is sensible to do so

I think it’s important for the broader voluntary sector to be considering all these points. I don’t, however, think that these points amount to an successful argument that the (theoretically) charitable approaches to income generation, grant-funding and donations, are inherently less sustainable than the (theoretically) socially enterprising approach of trading activity (including contracts to deliver public services).

This argument – or some of the silliest but most politically convenient variations on it – depends partly on the implied contrast between a limited number of grant funders and a limitless number of (potential) paying customers for the goods or services that social ventures are providing. And partly on the idea that sales to multiple customers are easier to sustain than from multiple donors.

In both cases, the practical reality depends on what you’re trying to do.

In the latter case, my guess is that, if you’re looking to generate core income to look after retired donkeys who don’t have previous owners to pay for their retirement, then donations based on public sympathy for the donkeys’ situation are more likely to be a sustainable income stream than trading activities.

The donkeys aren’t going to pay for the service themselves and there’s limited scope for directly-related commercial activity to sell goods and services to anyone else. The sustainability of donations as an income stream depends on people’s sympathy for donkeys, and your ability to find the people with sympathy for donkeys and convince them that their donation will help donkeys. Some additional income could potentially be generated by selling merchandise but if you tried to set-up a donkey-related merchandise business – selling mugs, calendars, tea-towels, cuddly toys – to generate profit to run your service, it wouldn’t be any more or less sustainable than any other business selling donkey-related merchandise.

In the former case, there clearly there is a limited supply of grants available from funders but, if you’re looking to provide training with specific local relevance for small community groups in a deprived area, there’s also a limited supply of potential paying customers. The chances of successfully delivering the training unsubsidised on a commercial basis are a lot smaller than the chances of getting a grant to cover the entire cost. The grant-funded route is sustainable if you keep getting grants – which you may do if you can demonstrate that there’s enough groups who need your training and value it, but can’t afford to pay for it. This is an instance of grant dependency, the service wouldn’t exist with a grant to pay for it, but trading is not a more sustainable way of delivering this service – it’s more likely to be a way to lose money trying to deliver the service and failing to do so.

The received wisdom around social ventures increasing sustainability through trading activities is not wholly wrong. It’s right for social ventures to explore (and continue to be open to) as wide a range of ways of generating income as possible and find the mix of sources that’s most likely to enable them to do what they want to do, for as long it’s needed. What is wrong is the assumption that selling stuff is inherently more sustainable way of generating income than the rest.

Social entrepreneurs, however, may rightly raise the point that there could be situations where generating income primarily through trading could be more difficult than generating income through other sources – but also be better in terms of overall social outcomes. That’s a question for part four.

*I’m using ‘social ventures’ to describe ‘ongoing activities to deliver positive social change which are not provided directly by the state’.

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On sustainability – part two

When pursuing the holy grail of sustainability, as all charities and social enterprises must now at least claim to be doing, the major emphasis is usually on developing new sources of income.

As the National Council for Voluntary Organisations (NCVO) Sustainable Funding Project explains: “Increasingly charities are being told to move away from grant dependency, become more business like, earn income, develop an asset base and consider loan finance. And opportunities for delivering public services are increasing. Enabling organisations to see the bigger picture and develop the skills and resources to take control of their future is critical.

One problem this creates, as already discussed, is that organisations attempt to diversify their income by carrying out activities that they don’t know how to carry out and which end up losing money rather than generating a surplus.

Another problem is that the emphasis on new income streams doesn’t encourage organisations to look at the other side of their balance sheet. If you can get funding for doing new stuff that aims to increase sustainability, you’re less likely to focus on not doing old stuff that decreases sustainability.

At a very basic level, it’s often possible to make small but meaningful cuts in your costs without making any significant changes to what you do. The vast majority of social sector organisations that produce printed materials spend far too much on printing and, if they contract it out, on graphic design. These industries are viciously competitive and, in the case of printing, half an hour’s work on the internet will enable you to find out whether you’re currently getting a good deal.

Obviously, the value of doing this depends on the situation. If you’re printing a few hundred business cards, it’s completely justifiable to pay over the odds (£50 rather than £30) to support a local printing business. If you’re printing thousands copies of a magazine (£5000 rather than £3000), it probably isn’t.

Beyond just not paying too much for stuff, it’s also worth looking at spending on things that are useful but not absolutely essential. For example, does everyone in your organisation need to have their own phone line? If you’re the Samaritans – or any service that people need to be able to contact in an emergency – the answer is probably ‘yes’. If you’re an organisation doesn’t specifically deliver services via the phone, it’s probably “no”.

The specific examples will be different but it is possible to save enough to pay a part-time salary by doing the equivalent of cutting your print bill and having fewer phone lines. I know because my organisation has done it this year.

Unfortunately, though, for most of us the biggest costs aren’t either direct costs (what businesses call cost of sales) or overheads. Our biggest costs are salaries and – while finding ways to spend less money on printing can be good fun (if you don’t work for the printing company that’s losing the business) – making people redundant is usually a horrible experience for everyone involved.

The combination of the horror of redundancy and the entirely commendable desire to continue to provide work for valued colleagues does not always produce good decisions. While there are sensible things than can be done – reduced hours etc. – to keep a staff team together over short period of time, it’s vitally important that this doesn’t slip maintaining roles than aren’t being paid for by either grants or trading income on the basis that ‘something will turn up eventually’.

As someone running a charity or social enterprise, your job is to deliver positive social change for the people who depend on your activities, goods and services – not to find ways to keep people in work. And even if the specific aim of your organisation is to create jobs, that doesn’t include jobs that nobody is paying for. Failing to understand that might be comforting in the short term but it just makes things worse in the long term.

Assuming you’ve been employing sensible, hard-working people, it’s not going to be possible to make people redundant without reducing the ability of your organisation to carry out tasks but – faced with limited resources – it’s important to choose which tasks you continue to carry out based on the extent to which they’re actually useful.

For example, one consequence of New Labour’s capacity-building binge era was that many relatively small organisations have been encouraged to develop a wide range of complex systems to produce detailed financial information to enable them to compete for public sector tenders. In many cases, even if these organisations succeed in winning small tenders, the surpluses generated from doing so will be less than the cost in person time of generating the information.

It’s important that organisations do fulfil legal requirements and have a good understanding of their financial position but beyond that you running the risk of spending £10,000 worth of person time discovering the details of your £10,000 budget deficit. If the public sector is not giving you money to waste money doing this, it’s probably a good time to stop doing it.

Once again, specific examples will vary but most organisations will have some tasks that they’ve been carrying out – initially for good reasons – that, in a situation where there’s less person time available over all could just not be carried out.

None of these points are arguments against diversifying income but, getting people to give you more money to do stuff if not easy and is a process that is only partially controlled by you. Relatively speaking, spending less money is quite easy.

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On sustainability – part one

“What do we want? Sustainability. When do we want it? Soon.”

If public agencies and major grant-funders were a group of protesters walking along the road chanting their philosophies for delivering social change in the UK, that’s the sort of thing they’d be chanting. In most cases, the slightly less snappy follow-up chant would be:

“Whose money do we want it to be paid for with? Someone else’s.”

Sustainability is the current holy grail for the voluntary sector in the UK. The government’s Big Lottery distributed, Transition Fund, awarded cash to organisations to enable them to find ways to survive without lost government funding. For many organisations, social enterprise is one of the suggested routes to that holy grail but clearly both social enterprises, and socially enterprising activities carried out by others, are also themselves mostly still in pursuit of sustainability.

According to the team working on the Sustainable Funding Project at the National Council for Voluntary Organisations (NCVO):

‘Sustainable funding’ is not simply a question of simply getting better at fundraising or locating one ever-lasting source of income.

We promote an approach that encourages organisations to explore income opportunities across a spectrum of opportunities; from charitable donations at one end of this spectrum, through grants, service level agreements and contracts, to social enterprise activity, trading goods and services. This not only spreads risk, but ensures organisations are best placed to take advantage of emerging trends and opportunities and are able to safeguard their financial future without sacrificing independence or mission.”

The emphasis on diversifying income sources is clearly a sensible one but it’s also one that has the potential to create at least as many problems as it solves.

A couple of these problems are:

  • alternative income opportunities are also alternative opportunities to losing more money than you were losing before
  • the focus on generating income can often often be at expense, both theoretically and literally, of failing to consider ways to deliver similar outcomes while spending less money (discussed in part two).

I’d really like to have a pound for every local voluntary sector employee or volunteer who has excitedly told me about their plans to fund the activities of their organisation through some form of community café or related catering business. Collecting pounds on that basis would definitely make a more useful contribution to my ‘spectrum of income generation’ than actually opening a community café.

I don’t know whether voluntary sector organisations are unusually bad at running cafés but I do know that cafés are, in a general sense, difficult businesses to make a profit from if you’re not operating either at great scale or with a high degree of specialism. In that context, not knowing what you’re doing and being emotionally committed to running a day centre definitely don’t make things any easier.

I think the, apparently insatiable, drive to open cafes is mostly due to the fact that – when faced with the need to find new sources of income  through trading – people in the social sectors (myself included) tend to alight on activities that are (or seem to be) easy to understand and involve people paying for things that are seemingly easy to provide.

We can all make a cup of tea and tea bags are really cheap so we can all run a successful business selling lots of cups of tea. Ours will be even better because we’ll have willing volunteers to make delicious homemade cakes for us in their spare time.

It’s thinking that’s comforting, internally logical and – if you can be bothered to do it – liable to be entirely demolished by conducting a straw poll of your closest friends and immediate family asking the question of whether they’d choose to buy their tea and cake in your community centre rather than Starbucks (other chains are available).

If your friends and family like you enough to tell the truth, your reassurance that your beverages will be 25% of the price of Starbucks’ and that your organisation really needs the money will not change their answer.

Based on the costs of making the services available and likely income generated, it makes far more commercial sense for the owners of struggling independent cafes to attempt to subsidise their activities by getting some training and offering counselling services in a room at the back, than for charities providing counselling services to subsidise their activities with a cafe.

There are clear exceptions here that I’m not talking about. One is those voluntary sector organisations who do a very good job running cafes and catering businesses as part of their social mission that deliver opportunities for people to take initial steps (back) into the job market – and are cross-subsidised with grants, donations and government funding. What these aren’t are ways for the organisation to generate a surplus which can be spent on doing other work.

The other exception – which crosses over with the first – is situation where people do actually know how to run cafes (restaurants such as Fifteen or catering businesses) and set out to run them as proper commercial businesses that deliver a quality service while delivering a profit for social causes and/or social change for employees in the process.

Cafes are the most obvious example but the mistake being made is the attempt to diversify income by delivering a trading activity – it could, equally but probably less expensively, be web-design or knitting jumpers – as add-on to what you really do.

A more sensible but – in terms of initial thinking, at least – more difficult route to sustainability is working out whether it’s possible to diversify your sources of income from things that you either already do, or that you could do based on your track record and the skills, resources and existing partnerships within your organisation. Ideally, things that are more specialised than making a cup of tea or baking a cake.

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