Rapid growth over the past decade in the UK’s “not for private profit” sector has generated great excitement at its potential. But do firms have the depth to show results that match the hype?
The prize is within tantalising reach: the Labour Party has pledged that if it wins the 2015 general election, it will enable Whitehall departments to offer contracts “exclusively for organisations in the pursuit of a public service mission”. But the onus is on social enterprise to show it can produce results to order and, critically, to scale.
According to Helen Haugh, University Senior Lecturer in Community Enterprise Research at Cambridge Judge Business School (Cambridge Judge) and Research Director of the Centre for Social Innovation, the novelty factor – at least as far as the academic community is concerned – has definitely worn off. Research has moved on from the definitional debate and a search for positives (typically observed in prototype) to a study of the tensions inherent in the business model, and in particular, those that may inhibit achievement of volume results.
So what are the emerging factors that could make or break a sector that has grown from negligible numbers of social enterprises in the UK in 2004 to in excess of 70,000 today? And what can individual social entrepreneurs do to address them?
Haugh has co-authored a paper, with colleagues from the universities of York and Middlesex, on what existing research tells us about the special challenges thrown up for social enterprises by their “hybrid” nature – hybrid in the sense of spanning institutional boundaries and having a dual mission of financial sustainability, through commercial activity, and social purpose in the form of pursuit of identified non-commercial goals.
This duality is not new: think co-ops, for example. What is new, says Haugh, is the potential of social enterprise to play a significant role in the economy. But “potential” is very much what it remains, at least in the UK.
The challenges identified by the paper fall into three categories: mission, financial resources and human resources. Because the mission of a social enterprise is not to maximise profits, but rather to make sufficient profit to further its social goals, it is likely to be more difficult to obtain finance from conventional business sources and it may be more difficult to offer the rewards necessary to recruit and retain talented staff.
Social enterprises tend also to be coalitions of multiple stakeholder groups. Reconciling the various, sometimes conflicting, interests of constituent groups, and ensuring they pull in a common direction, can be a particular problem. The involvement often of volunteers can add especially to the HR task.
“We’re at the point where anybody running a social enterprise knows that these challenges exist,” says Haugh. “They can’t help but know because they are facing them every day. What we’ve tried to do is bring together what is understood about these tensions in published research and consider what needs to be addressed in future research to help resolve them.”
Learning from global leaders
Toby Norman, who is completing a doctorate at Cambridge Judge, has spent three years studying the work in Bangladesh of BRAC, often described as the world’s largest NGO but in fact an organisation funded principally by its 17 social enterprises, ranging from printing to artificial insemination. “Some people think that social enterprise is all about combining a bit of charity and a bit of business,” he says. “But in reality you need to be as good as the best of both, which is very challenging.
“The flipside is that if you can do it, you are going to be much more effective: you will have built a business model that really serves the social needs of your clients, and that you can scale, and at the same time you are not going to be reliant on donations or aid.”
Norman, who is a founding director of the mobile biometrics social enterprise Simprints, acknowledges the HR challenge but believes it can be met. While many entry-grade employees of social enterprises see it as just a job and lack the passion of founders, he says, there is scope to recruit middle managers and supervisory staff who are looking beyond the pay cheque. “The mission can be a massive motivator for young people who are searching for something different, and perhaps just a little bit cool.”
Meeting the funding challenge
Coolness is unlikely to win many brownie points with funders, however. Neil Stott, Senior Teaching Faculty in Social Innovation at Cambridge Judge and chief executive of Keystone Development Trust, a Norfolk-based community partnership, admits that when it comes to seeking funding for social enterprises like his, “the ask is complicated” because of their hybrid nature and the so-far limited understanding of it.
Although there has been a recent proliferation of supposedly bespoke investment vehicles in the UK, such as venture philanthropy and social impact bonds, Stott doubts that any has yet found the right fit. As he says: “I wouldn’t touch any of them with a barge pole at the moment. If I wanted a bit of money I would still go to the bank.”