The Business of the Future?
I’ve recently started as an Associate at On Purpose, a year-long programme helping professionals to develop into leaders in the social enterprise sector. To try to define the social enterprise sector very broadly — it’s made up of commercial organisations aiming to use profits for a social or environmental good.
I’m attracted to the idea that social enterprise can fill a gap in the market. There will always be the need for charities, but I find three distinctive aspects of social enterprise particularly exciting:
1. Social enterprise has the potential to harness market forces for good.
This potential clearly exceeds that of charities. Before working in the charity sector, my strongest associations with ‘charity’ would have included repressed memories of my brother enjoying a custard bath and flashbacks to unpleasantly long periods of exercise. Charity, for me at least, was synonymous with giving or raising donations for a good cause and nothing to do with receiving a product or a service.
The social enterprise model differs in this regard. Social enterprises seek to become part of our lives as consumers and to increase the potential value of our consumer choices. Today, an ethically-minded consumer might buy a product or service from a social enterprise primarily because of its social value. But a utopian vision of the sector’s future includes social enterprise going ‘mainstream’. The grounds for this vision are thus: if there is no trade-off between quality, desirability and ethical status and if more consumers are interested in the social impact of their purchases, then many more people will buy from social enterprises inadvertently or intentionally. Ultimately, social enterprise can even aspire to become the norm. Then those of us who care about social impacts can hang up the hessian poncho and start shopping on the high street (if we can handle it).
Even if this grand vision sounds like a pipe dream, developing desirable products and services that have an inherent social value is surely a win-win strategy, provided that what is developed is both genuinely desirable and effective. There is greater controversy surrounding how to go about building the investment infrastructure to get social enterprises off the ground. New mechanisms are emerging that enable investors to make a monetary return on investments in social enterprise. I’ve heard it said that this could spark a culture shift whereby social need becomes thought of as a commodity. Perhaps the fear is that social investors, motivated primarily by getting a return, will steer clear of the most intractable social issues, like population groups with complex, multiple and interacting needs. Wider criticisms of this kind of social investment often express the sentiment that it’s just wrong to seek to make a monetary return from an organisation doing good.
I don’t share these reservations. The social investment market has enormous potential to drive investment that tackles social need. This is not the same as valuing or commoditising the need itself. The possibility of getting a monetary return is a key aspect of making social investment attractive and encouraging investment in enterprises that are more likely to have a real impact. Foundations like Esmée Fairbairn are leading developments in innovative investment models that have the potential for wider rollout. Quasi-equity — structuring debt to look like equity with interest repayments contingent upon growth — is being used to get social enterprises up and running. Repayable grants enable investors to take a scaled and appropriate share of profits depending on an enterprise’s success, but are not punitive if enterprises fail to meet ambitious targets.
The evidence-base for the potential of social investment is growing. Hackney Community Transport (HCT) Group, a growing social enterprise provided a full return to a group led by Bridges Ventures that invested £4m in 2010. This investment allowed HCT to increase turnover by £20m and to channel more funds into creating community transport solutions for those who need it most. Last year, HCT raised a further £10m in social investment.
The success of HCT Group demonstrates the potential for social enterprises to grow when underpinned by social investment. HCT’s success also makes clear that rigorous impact measurement and effective financial planning will need to be the hallmarks of the mainstream social enterprises of the future.
2. Social enterprises can provide a feedback loop that connects payment to outcomes.
Public confidence about what charities do with donated money seems to be at a low ebb. The number of charities that give financial reports without presenting evidence of their outcomes or impacts has encouraged some clumsy analysis of charities’ spending. In particular, a 2015 review by the True and Fair Foundation focused entirely on individual charities’ cost ratios and made the claim that 1 in 5 charities spends less than 50% of its income on good works. This helped to give credence to the media presentation of charities as bloated monsters ingesting the public’s money at an alarming rate.
Irrespective of the flaws of such analysis, the need for charities to be trusted by their donors highlights the lack of a feedback loop in the system. We give to a charity, the charity spends the money and we don’t know specifically where our money has gone, even if we bother working through the charity’s annual report.
Social enterprises create a clearer feedback loop by offering a service or a product. If you buy a product claiming to be sustainable and it comes swathed in plastic packaging, you have grounds to kick up a fuss. If you pay for a service that claims to be inclusive but fails to account for your disability… you see the point. The Social Enterprise Mark is a burgeoning attempt at social enterprise accreditation, metered out by an independent Certification panel. If the system generates sufficient buy-in, accreditation could help to encourage companies to prove their social impact, but also to strengthen the feedback loop between enterprises and consumers.
Consumer power has surged given increased opportunity for consumer feedback to be shared publicly. If you get enough Twitter followers and start tweeting complaints about your phone, shoes or sandwich, you can expect some conciliatory communications and, depending on your level of influence, a load of free stuff landing on your doorstop. Where social enterprises are concerned, an online posse of influential consumers that have bought into the model may help to drive up product or service standards, as well as the standards of impact reporting. This, together with proper accreditation, can only be a good thing in helping to distinguish genuine social enterprises from corporates that treat corporate social responsibility (CSR) as useful marketing gloss. The best social enterprises today are already driven to maximise quality and social impact and this approach bodes well for a bright future for the sector.
3. The social enterprise model can help charities respond to current pressures.
In the context of austerity, the Government continues to push charities to deliver more public services. Charities reliant on Government grants have become dangerously exposed to cuts. In response, many charities are tendering for commissioned services and starting to look increasingly like social enterprises.
Transitioning to an operational model involving sales is not without its challenges. Smaller charities will inevitably have fewer resources available to build the capacity and expertise to sell services. There is the additional danger that charities capable of tendering services might pay too much attention to the requirements of their commissioners and end up losing engagement with the populations they serve.
One of my primary motivations for applying to On Purpose was to develop my own understanding of what it takes to design and sell a social product or service, so that I can make myself useful to an enterprise or charity that I care about. Embarking on a year’s course in social enterprise, it is unsurprising that I am optimistic about the future of the sector. As I get to know the sector better, I will be reflecting in more depth about what could help social enterprise become an authentic, consumer-driven and more prominent force for good in the modern marketplace.
