2013: A crossroads for social enterprise?

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I rather liked this tagcloud on social innovation from the European Summer School on Social Economy (which sounds like a jolly nice place). So I thought I’d copy it…

It’s about this time of year (or maybe I’m a little bit late this time round) when various members of the commentariat start to look ahead with unbridled optimism to what the year ahead might hold in store. Some make predictions – and if that’s your thing, check this really interesting list out – but as I’m only at best an occasional blogger, I’ll stick to a fervent hope and aspiration: that 2013 is a year of further, and significant, transformation for socially-orientated enterprise.

Why does this stuff matter? Well, 2012 wasn’t a great year for ethical conduct and public confidence in our most avaricious private companies, and a year of exceptional volatility throughout the financial markets has frayed investor nerves and encouraged flight to safe havens. Conversely, with the mutual sector’s poster child reporting a bumper Christmas, there is an ever-increasing store of alternative financial models thinking about values-driven pitches for consumer and investor support (and as I said in my first blog, I think we are living in a world where businesses have become increasingly social in order to succeed). And partly as a result of all this, the demand and need for businesses predicated on social as well as financial return (from traditional charities stepping in to offer services where markets fail, to tech startups launching community-enhancing apps drawing on new public data) has in no way diminished.

This year’s opportunities

This is not a zero-sum game – for private enterprise to deliver optimal economic and social outcomes would surely be impossible without a thriving for-profit economy and top-notch socially-orientated businesses working alongside each other to deliver optimal economic and social outcomes. But I think what is really interesting about this year is the way that these two traditionally distinct sectors might merge – driven by a gradual (but intensifying) shift from a dependence on philanthropy and grants to more innovative forms of investment into social businesses, and new approaches to business models across the ‘not just for profit’ sector. For example:-

  1. New financial products that generate social impact in a sustainable and repeatable way are actually being created, instead of just being talked about. Goldman Sachs’ participation in a $9.6m social impact bond to underwrite investment in Rikers’ Island prison’s anti-recidivism programme – with the potential for Goldmans to take financial upside and downside across the life of the bond – locks private investment to social outcomes in a promising way. Scarcely a month passes without reports of new SIBs being mooted across the world: let’s see how many ultimately deliver both the social and financial benefit they promise, and what happens to the service users and investors when they do.
  2. Public services across ‘Western’ economies face new and unprecedented challenges as spending continues to tighten, forcing public bodies to think creatively about how they’re commissioning (and de-commissioning) services, and with whom. Have a read of Laura Bunt and Charlie Ledbetter’s the Art of Exit pamphlet for a really intriguing analysis of this transformational process. One thing that struck me in this pamphlet was the importance the authors assigned to commissioners getting in place a well-planned political and communications effort to mobilise popular support prior to changing the delivery model of a public service. Contracting with businesses with a clearly articulated social purpose – where their success creates direct knock-on benefits to the service users – could be a really powerful force supporting public service commissioners to do this adapt their services in a way that supports sustained public engagement and support. Which would of course have the happy impact of creating countless new opportunities for social businesses.
  3. Business and investment practices are starting to permeate from ‘traditional’ marketplaces to the social enterprise space, and vice versa:
  • Social investment funds are taking an increasingly adaptive and flexible approach to their funding portfolios – look at the Omidyar Network’s ‘priming the pump’ series for an example of how funds are starting to look at a look at adapting individual investments to market impact, using marketplace and sectoral analysis to determine the model of investment preferred in individual deals. JP Morgan and the Global Impact Investing Network last week forecast a 12% growth in this ‘impact investment’ sector in 2013, ultimately leading to $9bn in investment through the year.
    • Ideas starting off life in socially-orientated business are increasingly ceasing to stay there. For example, NESTA’s 2013 list discusses the prospect of big business stealing and adapting  collaborative consumption  approaches modelled by social enterprises in their practices. My money’s on a bit more of this happening in 2013.

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Growing socially

So, things are definitely happening here. But where does this leave social business? The answer lies in your take on what’s needed to support growth in this industry – of individual social businesses and the sector as a whole – and what the positive and negative consequences of greater growth and scale could be.

On the one hand, there are strong views that the new models and investment that I’ve mentioned above bring risks as well as rewards. As Colin Crookes warns in this (generally excellent) blog published last week by the Guardian:-

“So in 2013 we will see the battle between scale (dressed up as impact) and social enterprise; large corporations with “social impact” departments backed by large investment funds against genuine social entrepreneurs using new legislation to promote social cohesion.” 

However, are those ‘genuine social entrepreneuers’ always the right people to carry businesses forward to maturity? Is it wrong for others (including ‘large corporations’) to get involved with social enterprise? As Crookes says, growing financial scale does pose challenges about how best to hold on to and embed social value. But the new conditions I’ve mentioned above also force difficult questions to be asked about how best to support social businesses to grow and expand successfully. And as mentioned in articles over Christmas, this is something London doesn’t always do very well, as we can get a bit too breathless about chasing the Next Big Thing and forget about the need to persevere at supporting sustained business growth over the longer-term. This conundrum- about how to support sustained growth without compromising social value- makes a lot of sense to me, as I’ve experienced it. For instance, this Harvard Business School article last week really chimed with my relatively brief experience as founder of one of the scrappy, 90%+ of low-profit social enterprises:-

“We can’t ask social enterprises to have a big impact if they can’t get the resources they need to grow bigger. In Britain, for example, fewer than 10% of the tens of thousands of social enterprises generate more than £1 million in revenue. Why is that?

One reason is that the scrappy, entrepreneurial approach that characterizes many of these organizations starts to break down as they pass that threshold. Normal business complexity sets in. Founding CEOs realize—or fail to realize—that their maniacal energy and personal devotion can only take their enterprises so far.”

Too true.

 

What now?

So, let’s be absolutely clear: I really, really want 2013 to be a transformational year for social enterprise. But, I think that for this to happen:-

1. We need to think really carefully about where the market failures lie where social businesses can add the greatest possible value, and be really demanding about the people and business models that will do this best, with investment responding accordingly (i.e. grants have their place, but so does investment and business generating significant return and revenue). In short, we’re going have to get really comfortable with the social and for-profit worlds coexisting in a much more integrated way…

2. … but we also need to recognise that in order for social businesses and the social enterprise to grow in a way that commands public and investor support (and holds on to the sector’s unique strengths), we will need to develop as much rigor and discipline about measuring and rewarding social impact as is applied to financial growth.

What do you think – am I overplaying the risks here, or do you agree? What are your hopes and fears for social businesses in 2013?

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1 Comment

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One response to “2013: A crossroads for social enterprise?

  1. Very interesting post.

    I’m a trustee of a small charity that works in HIV and other sexual and reproductive health issues in sub-Saharan Africa, Theatre for a Change (http://www.tfacafrica.com).

    One of our core tenets has been that we should focus on developing methodologies for measuring and quantifying impact, not only to make sure that our work is achieving the things that it is meant to achieve, but that we can demonstrate this in a way that makes our “offering” really stand out in the unbelievably competitive market for funding.

    We’ve been quite successful at this – for example, by partnering with universities such as UCL, who can benefit from the research opportunities that our work provides. But have also been struggling with the issues of moving to scale that you write about above.

    At TFAC – much like your start-up – we have been reliant to a large extent on the vision and energy of our founder, Patrick Young. But the HBR piece (or maybe just the bit you quoted) strikes me as just a bit too sniffy; as though the author is thinking: “these enthusiastic amateurs jump in full of good intentions, but they soon come unstuck.” Of course, that is a risk. But this is a classic baby / bathwater scenario. All entrepreneurs have energy and vision and commitment, of course, but it is the commitment to a social objective beyond the financial bottom-line that makes this sector unique. It seems to me that the trick is to harness that, and keep it alive, while managing to navigate the difficult process of professionalising and moving to scale.

    This is an issue that the board of TFAC – under the watchful eye of its chair, Simon Merchant – has been trying to get to grips with. In this, we have been lucky to have an excellent group of trustees (present company excepted) including, in Simon, someone uniquely qualified to guide the organisation through these tortuous issues. His day job is at a private equity firm that tries to bridge the “gap” between financial and social returns (http://www.jacanapartners.com). The fact that such a firm not only exists, but is well established and successful, suggests to me that things are generally hopeful.

    Our experience suggests to me that alongside the vision, energy and drive of a founder and other committed employees, a key piece of the puzzle for any enterprise trying to navigate these difficult waters is good governance. That relies on experienced people making themselves available, of course. But it also relies on the people who have devoted themselves to creating an enterprise realising that they need the external perspective and challenge provided by an independent board. In both respects, at TFAC, we are lucky enough to be in very good shape.

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