Can social enterprises succeed where others fail or are they being set up to fail in a Start Up Britain?
Dr Helen Haugh, an expert in social enterprise at Cambridge Judge Business School, writes in a Guardian blog of the need for social enterprises to professionally assess their markets and full costs before starting up a ‘Start Up’!
Dr Haugh’s blog on The Guardian website argues that while George Osborne’s recent budget has offered tax reliefs and tax breaks to help new firms grow in addition to promised less red tape and improved access to high speed broadband, social enterprises may not necessarily benefit from these changes.
Social enterprises, says Dr Haugh, face an uncertain future with public sector cutbacks and reduced income from donations in the future:
“It is really important that social enterprises have access to markets to generate an income stream; they need to exploit market opportunities. If there are no markets, they won’t be able to develop a strategy.
“The social enterprise is really a vehicle for achieving a social good through an enterprise based strategy. Some do rely on volunteer labour to supplement their business model, but a social enterprise without an income stream would really be an organisation that was exposing itself to a lot of risk in terms of long term sustainability.”
Dr Haugh says mixed income models are common within the sector but that these models need to be robust if social enterprises are to succeed long term:
“There are a range of different business models, and many social enterprises juggle different income streams, such as grants and donations, as well as searching for viable markets that they can deliver products and services to. Mixed models are very common within the sector but long term sustainability will come from having income streams that are viable in the long term so they have to identify market opportunities and deliver services to these markets. If you rely on grants and donations you are relying on the generosity of other sources of funds and the recession is going to have an impact on that. The amount of money donated to charities on an individual level may well fall.”
Dr Haugh says the last Labour government encouraged charities and social enterprises to bid for public sector contracts that may now disappear because of the cutbacks leading to a ‘double whammy’ for them:
“Social enterprises have been encouraged to bid for contracts to deliver public services and many have adopted such strategies, but now local authorities are being forced to make cuts and so the contracts they have on offer for social enterprises to compete for will be impacted. It is a double whammy for them.”
Often social enterprises don’t take into account all the time they spend in preparing applications for grants and work, says Dr Haugh:
“Form filling is part of the business model of social enterprises and many have to step up to the mark in terms of their ability to compete for contracts. Part of that process is learning the language of local authorities and learning how to make those bids and how to report on those bids.”
She says social enterprises do ‘add value’ to contracts by being able to ‘tailor’ their services to the communities they serve:
“One of the added values of a social enterprise delivering a service is that its mission is oriented towards maximising social returns for the benefit of communities. Through their connections they can be more responsive and tailor the services to these communities, even getting them involved in designing the services. The economic climate is difficult but the added value is there if you can encourage social enterprises to be part of a range of delivery vehicles.”
Sometimes, says Dr Haugh, it’s tricky to count the costs of all the benefits a social enterprise can offer to a contract or community:
“When an organisation delivers services it can count the economic costs, the number of people required and the resources needed to deliver those services. But what’s harder is to capture those benefits that a social enterprise can deliver in a contract, and those are the costs of working in a community. It is hard to cost these. This added value is rarely costed when opportunities are being prepared.”
Getting the right balance between ‘full cost recovery’ and maintaining the distinctiveness of social enterprises is key, argues Dr Haugh:
“There is a note of caution when we say they need to be aware of all the charges they incur much like private companies. However we want to find a way of ensuring the added benefits they deliver are recognised and rewarded. We want to protect their distinctiveness but we don’t want to short change them in what we pay them for the services they deliver.”