Saturday, February 9, 2008

Hard Questions about Social Enterprise

Unlike Gordon Brown, our honeymoon goes on and on.

While old Misery-Guts is wondering where it all went wrong, we in social enterprise are still basking like seals on the sands of good fortune.

However, the continuing glow means that no-one, publicly anyway, is asking any really tough questions of us. So we’re not thinking of any answers!

But think we must. Because the backlash will come.

In the USA, it has already started. The Wall Street Journal reported last month that few US social enterprises run without massive subsidy. The message was uncompromising:.

Better to leave commerce to people who understand it and for social firms to revert to just helping people. None of these messy `double bottom-lines’. Let corporate America create the wealth, you lot spend it.

Similar points already being made sotto voce in the UK business community:

`Aren’t the business of making money and that of helping people are very different in terms of the skills and focus required’.

`Might it not be simply more efficient for society to organise these tasks separately rather than in blended organizations like yours?’

When asked, I find myself defending social enterprise from anecdote and experience. But surely we need more convincing answers to these questions.

If we are to be the new face of capitalism in the 21st century, then don’t we now need the irrefutable evidence to show that out model is superior?

The WSJ article begs three further questions. The first is about our approach to business.

Is social concern a strong enough driver to make businesses really work?

Social firms, let’s remember, are normally inspired not by profit or a passion for a particular industry but by social goals. But can such businesses be just as effective at meeting customers needs as those businesses in which managers’ sole concern is to do just that?

While Anita Roddick showed that a business can be exactly that, my experience suggests this mixing social and commercial goals can be a hit and miss affair, especially if you don’t love the business enough.

One company I created several years ago went bump because of an unhappy mismatch between commercial and social passion. Our hearts weren’t really in the business, only the cause it served.

We were a business only in name.

The reality is that we were a charity - a good one but a bad business. But we ended up as neither because we went bust, failing to achieve both our commercial and social goals.

Had they been watching, the people from the Wall Street Journal would have been laughing into their lattes and saying `Told you so!’.

This isn’t to say social business cannot work. Of course it can. But only if social business means real business. And only if we focus on our businesses as serious ends in their own right, not just incidental to our social purposes.

The second question is about entrepreneurs. How can we create a madly dynamic sector when our entrepreneurs cannot shape the deployment of capital?

In the commercial world, top entrepreneurs build a business, sell it (or borrow against it), start a new one - and so on. This ongoing process makes private entrepreneurs into economic trend-setters .

Think of Branson, Philip Green and so on.

However, social entrepreneurs – people who create social wealth – cannot yet operate the same way. They can’t raise money for their own use because they can’t sell the businesses they create.

Like me, they often end up as employees who are never quite flush enough to go off and start a major new venture from scratch.

We therefore end up as one-hit wonders in a sector that desperately needs people who can produce a string of number ones.

The third question is also about investment. How can we actually scale social businesses without being able to offer attractive returns to investors?

The CIC structure is, I think, a problem if serious levels of risky investment are required.

By messing the relationship between risk and return, the CIC restricts the market for capital to the few good souls who don’t mind a current-account return on capital employed, however high the risk.

This simply won’t produce the quantity of funds needed, say, to buy a major company and turn it into a social business. Or to create a national chain of out of an idea that’s just won the Enterprising Solutions Award.

Overall, I believe that the answer to the inevitable backlash will be to prove that blended models and double bottom lines are a sensible thing.

On top of this, we need investment vehicles that offer returns that reflect risk.

And we need new ways to ensure social entrepreneurs can shape the use of capital.

If none of this happens then we are a big step along the road to proving the Wall Street Journal right - that we’re simply playing at business and should stick to helping people.


Ian Brown - Principle Partners Ltd said...

Hi Craig

Just discovered your blog and read with interest.
Let's be frank from the start. I'm after a leg up here or a steer in the right directions. I run a Consultancy business currently employed by a business called Enterprise Works. Fifty percent of the people at EW have some form of disability, and it is partially funded by central Government and Swindon Borough Council which they are part of. My brief is to turn them into a commercially viable business before 2010 as by this time the funding will have all but gone.
Within EW there are the following Departments a timber yard, a Digital and Sign Making Department, a Hand Assembly line, a Lithographic Priting Department.
Part of our challenge is to bolt on a front end income generator for the business. One of our ideas is the creation of a CSR/Ethical Purchasing Magazine Free to business or consumer which features articles on relevant subjects and printed within EW.
Have you any ideas/suggestions/help for both EW and or the magazine idea.
Yes I do earn from our arrangement but it's linked to income generation and so hopefully self funding.
Maybe hear from you.
Ian Brown

Craig Dearden-Phillips said...

Hi Ian

Sorry not to have been in touch but I only just noticed your comment.

My first question is whether your focus should be on asking whether at least one of the existing businesses could be successful rather than going straight into possible bolt-ons. The experience of Remploy is that these legacy operations are often not competitive on cost next to imports from China. Therefore they need to change e.g specialise or close down. Remploy is closing a lot of its factories and putting its money into finding real jobs for the remaining staff. As for a new front-end business, I don't know. I guess the mag would be produced by the litho people. Mags are a hard business and depend on being able to sell advertising - and there's an advertising recession right now. I don't have answers, my advice though would be to be utterly realistic about what those businesses can achieve and, if you're going to save one, save the best and make an early decision to sell or close the others. Sounds a bit harsh I know but the alternative could be to lose the lot.