Tag Archives: third sector research centre

You’ll never take a loan

Do you like the idea of new and existing social enterprise being given £100 milllion to enable them to deliver health and social care services? If your answer to this question is ‘yes’ you’ll probably feel that the Department of Health’s Social Enterprise Investment Fund (SEIF) has been pretty successful.

This is the one sentence description of what SEIF was set up to do is: “The Social Enterprise Investment Fund (SEIF) was set up in 2007 to stimulate the role of social enterprise in health and social care, through providing investment to help new social enterprises start up and existing social enterprises grow and improve their services.

SEIF investments between 2007 and 2011 clearly did stimulate the role of social enterprises in health and social care but, based on the overall outcomes achieved, it’s not hugely surprising that promoting the recent publication of ‘Start-up and Growth’, the evaluation of the programme led by the Third Sector Research Centre, may not have been a key priority for Department of Health’s press team.

There’s plenty of (relatively) good news in there from the point of view of the 531 organisations receiving investment during the period covered by the evaluation. The obvious but important one being that SEIF enabled social enterprise activity to happen: “without SEIF investment a significant number of projects would not have gone ahead. The survey found that 72% of respondents believed the project would not be able to go ahead in its current form without SEIF investment and 35% believed it would have been completely abandoned.

The funding enabled social enterprises to employ more people, and develop more and better services. By the time the research was completed, only 48% of investees said they hadn’t yet won any new contracts, and 23% had secured at least 3 new contracts since receiving SEIF investment.

Where SEIF has been doing less well is in the typically challenging areas of measuring social impact and developing the social investment market. In theory, SEIF investees were encouraged to measure the social impact of their SEIF funding using Social Return On Investment (SROI) but: “Despite encouraging social enterprises to use SROI, our own survey suggests that under a third (30%) of respondents were actually using it at the time of the survey (although some indicated that they may use it in the future).”

Apparently those organisations that didn’t feel SROI was appropriate for their organisation just didn’t use it: “Whilst some organisations were aware that SROI was part of SEIF funding requirements, their interest in it ‘fizzled out’. This was often due to the practical constraints of undertaking SROI, including time, resources and money constraints.

And the positive results for those that did use SROI were seemingly limited: “Survey respondents who did complete an SROI were also surprised to find that upon completing it, PCT commissioners did not understand it and so did not take it into account when allocating funds and contracts.

This data reiterates the widely acknowledged situation in the social enterprise world that while social impact measurement is much discussed, there’s still a major lack of both supply (of evidence of impact from organisations) and demand for that evidence from public sector commissioners. Aside from projects where measurement of outcomes is a key element of the activity – such as projects funded through social impact bonds – wider social impact doesn’t yet matter much. The Public Services (Social Value) Act 2012, which becomes active in January 2013, may begin to change that.

The most baffling figures in the evaluation, though, are those that outline how the money has actually been dispersed. At the time the research was carried out, the SEIF had distributed a total of £80,712,510 to 531 organisations. 86% of the funding being distributed as grants. Of the 531 organisations that received funding, only 8 (less than 2% of the total) received a loan only investment – so over 98% of investees received either a grant or a loan heavily cushioned by a grant. Several organisations were offered loans but turned them down.

The researchers note that: “The implication of these findings raises considerable questions for the fund itself, a long term aspiration of which was to be self-sustaining through returns on loan investments. Furthermore, it also raises doubts over the willingness of social enterprises to take on loans, as the vast majority of social enterprises in our evaluation wanted grants only.”

Aside from the challenge of persuading social enterprises to take on loans, the organisations managing SEIF have also had to deal with a situation that those not familiar within the machinations of government will probably regard as, at best, faintly absurd: “The Fund Manager has commented that annuality is a condition of SEIF funding and in part, the low level of loan investment is due to applicants not being able to draw down and spend a loan investment by the end of the financial year in which the investment was approved.

So, in situations where an organisation might want to accept a loan but only draw down, spend and start incurring interest on part of it before the end of the financial year, the only available option was to give them a grant instead so that the money had definitively been spent by the end of the financial year.

This practical difficulty raises questions about the role of government in providing loan finance but the bigger issue is the lack of demand for loan finance. Sooner or later, those who envisage a significant growth in social enterprise delivery of public services (or for that matter, anything else) backed by unsubsidised investments, repaid with a financial return will need to explain how we get from the social enterprise world we do live in, to the one they’d like us to live in.

As it is, the main lesson from SEIF is that you can get new social enterprises to operate in a sector and help social enterprises within a sector to deliver more but you do that (at least partly) by giving them money.

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Some confusion over needs of social enterprise(s)

I went to parliament yesterday for GlobalNet21’s event on Social Enterprise and Equality. Although, one of the speakers, Third Sector Research Centre‘s Simon Teasdale, did talk about current research into equalities issues in social enterprise, perhaps inevitably the bulk of the discussion from the other speakers and the questions from the (large) audience focused on the ability of social enterprises to grow and thrive in the current economic climate.

Of the other two speakers, Chris White, the Conservative MP who introduced the private members bill that became the Public Services (Social Value) Act – which obliges public sector commissioners to consider wider social value when commissioning public services – lived up to his billing as a hero of the social enterprise movement. There’s no shortage of politicians offering trite homilies about social enterprise but White really knows his stuff. He made clear that the passing of the Act was closer to the start of the battle to for wider social value in commissioning then the end of it. And that he was now doing his best to get the message out to commissioners and local councillors around the country.

On the temptation to commission services from large outsourcing specialists who offer short-term cost savings he said: “We need to make sure our elected officials understand that in the long term getting the quick buck is not the best for their communities.

Equally impressively, despite his clear enthusiasm White also showed himself to be successfully inoculated against social enterprise bullsh!t. When one speaker from the floor asserted his organisation’s right to receive government contracts on the basis that “the difference is people like us because we offer a personal service”, he politely responded with “yes, but what does that mean?”

The other invited speaker, Miia Chambers, formerly of P3 and now working for Holy Cross Centre Trust, talked about her experiences of commissioning both from the social enterprise side and in a previous role working on the previous government’s on the Invest to Save programme. She emphasised that it was possible for commissioners to focus on social outcomes – rather than a narrow set of outputs – but that it was currently pretty rare.

The many contributions from the floor – mostly from people running social enterprises – had variety of starting points but most of them ended up with a view on what social enterprises and/or the government needed to do to enable social enterprises to get more business. The views ranged from claims that social enterprises deserved the government’s business on a moral basis, to the views that the most important thing is to be able to demonstrate social impact and that we need to educate the public about social enterprise, to the assertion that “only about 10% of my customers care that I’m a social enterprise“.

Chris White responded to the final point by saying: “The whole point of this mission is that you’re wrong. I fundamentally believe that people do care.” As members of the social enterprise movement we have to hope that he’s right in a broad sense but there’s no reason to doubt that the lady making the ‘only 10% care’ point was correct about the  situation for her organisation.

The reality is that there’s not necessarily any direct connection between the needs of and challenges faced by an individual social enterprise and those faced by the social enterprise movement as a whole. Any more than there’s a direct connection between the needs of your local chip shop and ‘the business community’.

Unlike, ‘the business community’ most of us in the social enterprise movement have both an individual and a collective position. We want to see the growth of successful social enterprises doing more business because we believe this will make the world a better place but our primary concern is keeping our business growing (or, in many cases, going).

In some cases that means there’s a direct conflict in terms of what the government can do to help us. It suits (relatively) large social enterprises for public sector agencies to offer relatively large contracts with an emphasis on measuring social impact using mechanisms such as SROI. In the case of small, local social enterprises, they’re far better off competing for grants and small contracts based on a relatively simple set of outputs. Social enterprises that sell goods and services in open markets may have no interest at all in who gets contracts to deliver public services but may be very keen on the idea of social enterprises receiving tax breaks.

It’s not always a question of right or wrong – people and organisations quite legitimately have different interests – but as we strive to make both the publically-funded service sector, and the wider economy, more social enterprising, we need to recognise that there will continue to be a wide range of understandings of what that actually means.

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Happy Xmas (Is Social Enterprise Over?)

The important question then is whether the different organisational types will feel the need to describe themselves as social enterprises in the future, and whether there remains any value for governments and different organisational types in portraying a strategic unity around the social enterprise construct.

It’s been a big year for social enterprise. A year in which a government which needed social enterprise to fill the ideological void at the heart of its thinking, has been replaced by a government which needs social enterprise to at least help to fill the financial black hole at the heart of the nation’s budget (by delivering public services for cheaper than the public sector).

Some social entrepreneurs and most of the social enterprise lobby got really excited during June and July. With honourable exceptions, most of these people are feeling far less optimistic now. As someone who was sceptical about the ‘our time has come’ line that was so popular a few months ago, I’m almost as sceptical about the current climate of doom and gloom. As a citizen, I’m as worried as everyone else about what government agencies may or may not be able to deliver with reduced resources in the coming months and years but, as social entrepreneurs, I think it’s our duty to look at opportunities on offer to deliver positive social change and find ways to make the best of things.

The ‘important question’ quoted above is the one posed at the end Simon Teasdale’s paper What’s in a name? The Construction of social enterprise, published by the Third Sector Research Centre in September. Lurking behind this question is the stark reality that, as Ben Metz eloquently outlined in October, the strict definition wing of the social enterprise movement has, for better or worse, lost control of its own terminology. That process is not reversible in any positive way. It is possible (though not likely in the short term) that the idea of social enterprise will gradually go out of fashion. It’s virtually inconceivable that – as some within the movement still seem to hope – that social enterprise will both grow in popularity and narrow in definition. Without rehashing my general criticisms of the Social Enterprise Mark, readers can insert their own cliches related to putting genies back in bottles and horses bolting.

Teasdale’s question – whether ‘social enterprise’ will survive as even a broadly defined term for a type of organisation – isn’t a practically important one either for most people running social enterprises or for the people who are hopefully benefiting from their services – it’s likely that for most people the experience of: (a) receiving a service from, or working for, a charity or employee-owned not-for-profit company that operates in a social enterprising way, or (b) receiving a service from, or working for, an organisation that defines itself as a social enterprise, will be remarkably similar.

On the other hand, it’s a very important question for the social enterprise movement. As Teasdale outlines in his paper, while there’s always been (for hundreds of years, if not since business began) people carrying out trading activities for reasons beyond generating private profits, giving the label ‘a social enterprise’ to some of the organisations carrying out those activities has – in the UK, at least – been primarily a political decision, based on a particular set of recent political circumstances.

Those circumstance have now changed and, while the future for social enterprise (the activity) looks brighter than ever, it may be that for ‘the social enterprise’ (the noun) 2010 marks the beginning of the end.

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Fear of the bogus

“If social enterprise is to stay under the third sector’s umbrella or more precisely under the umbrella of the Office of the Third Sector, mechanisms should be set up in order to monitor and control ‘bogus’ SEs that may be using the SE logo (and legislation) in order to maximise individual gains (in other words, cheating), that is, even in those cases when organisations have clear social or environmental aims and benefit the community.”

Outsider, missing link or  panacea? Some reflections about the place of social enterprise (with)in  and in relation to the Third Sector – Dr Leandro Sepulveda, Third Sector Research Centre, December 2009

The Office of the Third Sector is no more but the threat of ‘bogus’ social enterprises shamelessly generating untold riches by duping the public into believing that they’re really a bunch of underpaid community activists working themselves to the bone to earn less than they’d get for doing the same thing for the council looms large.

As the bogus purveyors of fake social change hoover up the contracts, plunder the profits and head off to Mustique to splurge the booty, it’s real, non-bogus social enterprises who’ll be left to pick up the pieces. I think. In the case of Dr Sepulveda’s paper, this is a frustrating detour from an otherwise thoughtful contribution on the relationship between social enterprise and what New Labour called ‘the Third Sector’ but it is something that many in the social enterprise movement worry about.

So far, the real life evidence that there are – or are soon likely to be – significant numbers of conventional business ‘using the SE logo (and legislation) in order to maximise individual gains’ is as thin on the ground as social enterprises that would survive as real businesses if they received no grant income. Aside from public sector contracting (of which more later), I can’t think of many commercial situations where a clearly dishonest or false claim to be a social enterprise could possible serve any commercial advantage – when compared to the alternative option of selling people or businesses high quality goods or services at a competitive price. Kids selling dishcloths door-to-door ‘for charity’ maybe?

Of course “in order to maximise individual gains (in other words, cheating), that is, even in those cases when organisations have clear social or environmental aims and benefit the community” may be suggesting that limited-by-shares companies with clear social aims and delivering positive social outcomes are in fact ‘bogus’ and ‘cheating’. If so, I struggle to get my head round who these businesses are cheating and on what basis.

Both non-distributive and distributive structures have a role in the social enterprise world. I don’t see the (ongoing) rewarding through share dividends of those who’ve either put in time (and maybe cash) as founders of a social enterprise, or those who’ve just made a financial investment to help make it happen, as something that makes that enterprise ‘bogus’ in any way as long as the company is open and honest about the way it operates.

There is another (more complicated) thread of bogusness debate, though. The bogus (or nominal) social enterprises that may be produced from public sector spin-outs. Peter Holbrook of the Social Enterprise Coalition, partly echoing the often expressed fears of Laurence DeMarco of Senscot, recently said that:

“There is a risk that, resulting from cuts, we will see the creation of spin-off organisations from public services that are not social enterprises, which could be vulnerable to buy-outs from the private sector. We need the government to give guidance and support, and make sure that commissioning enables real social enterprises to thrive.”

I’m less interested than Holbrook and others in the lobby in the issue of whether spun-out companies or others ‘are social enterprises’ – the official definition of a social enterprise is a conversation between the lobby and the government from which most social entrepreneurs are (voluntarily or otherwise) excluded – but I share Holbrook’s concern about the tag ‘social enterprise’ being used as a mechanism to deliver full scale privatisation of public agencies, particularly parts of the NHS.

The belief that health services should be delivered primarily by the private sector – specifically, large multinational outsourcing businesses – is a perfectly legitimate political position but it’s one that it’s supporters ought to argue for openly if they want to put it into practice. While Craig Dearden-Phillips has a more optimistic take on the possible outcomes of largescale spin-outs, the idea of social enterprise as the route to fullscale marketisation of health services is potentially disastrous for the social enterprise movement – with social enterprise at risk of becoming a focus for a public backlash against subsequent cuts in jobs and services.

The question is ‘what mechanisms or policies would enable the social enterprise movement to deliver the changes it promises without the possibility of being a scapegoat for an agenda that it doesn’t endorse or support?’


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Lost in definition

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

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

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

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

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

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

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

They should:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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