Will social enterprises adapt or will their director’s change jobs?

Matt Black of Pioneers Post gave his answers to ‘Five tough questions for social enterprise in 2013‘ in January followed by David Floyd on his Beanbags and Bullshit blog. David asked whether someone else could chip in with their thoughts in March so I thought I’d oblige:

Q1: Can social enterprises survive the economic gloom?

Social enterprises can, but whether they can afford to continue to pay previous salaries is unlikely. In a #socent world where most are ltd by guarantee (and where the director’s have no equity / skin in the game) the default response, in my experience, that director’s and CEOs adopt when running out of cash is the same as if they were running charities: to either jump ship (even if that’s to the public sector) or close in the case of RISE, rather than work more hours for less money (the default response in any mainstream small business). I believe there will be a lot more #socent folk having to change jobs in 2013.

Q2: Can Big Society Capital deliver?

It will continue to deliver additional funding to social investment intermediaries, whether those can deliver social and financial returns is the real question.

Q3: Can social enterprises, mutuals and the voluntary sector deliver where the state has receded?

Philanthropy increases when the state does less so I would expect more voluntary activity. Whether social enterprises (including mutuals) step in all depends on the business case – whether they can create paying customers.

Q4: Can brand ‘Social Enterprise’ keep clean?

It hasn’t so far.

Q5: Will the definition debate be settled once and for all?

There are too many opposing interests to make that a reality, plus it would be too much for #socent advisers / leaders to have to fill the void left behind in their lives 🙂

Sweden social enterprise visit

Last month we organised a visit for 25 people from the north of Sweden (some who live within the Arctic circle) involved in social enterprise to learn about how we do things in the UK in particular how we involve people who are disadvantaged in market-based activities.

So we took them to the best example that Norfolk has – Graphic Design and Print CIC – to meet with the founder, owner, Australian and super nice bloke Steve Mollison who explained to Mogens Amstrup Jacobsen (who led the trip from the Swedish side) and his delegation how you have to focus on the business in order to be able to help anyone. It was interesting to see just how far the UK is in leading the transition from day care to personal budgets in comparison to Sweden and the rest if Europe.

By building a successful business Steve with GDPCIC is able to offer training and work placements to disadvantaged people who contribute out of their personal budgets, alongside offering mainstream employment.

This enables true social inclusion and dignity by offering real world experiences that contribute to the business’ bottom line.

We’re looking forward to closer collaboration with social enterprise leaders in Sweden and are positioning ourselves for innovative transational projects in the near future.

 

Social Venture incubators, equity and exits

Now really is an exciting time for social ventures. The decade long (2002-2012) social enterprise reality-distortion bubble has finally burst. Social ventures and social investment is the new game in town with an integrity and focus on actual business solutions for scaling social impact. It’s damn refreshing.

First came the Investment and Contract Readiness Fund managed by The Social Investment Business that offers financial support to ensure that social ventures are better equipped to take on new forms of investment, with a focus on high growth potential. It’s innovative as applicants need to work up their applications with approved providers such as Reasonance, which has experience in angel investment and collective investment schemes, which are then assessed by an investors panel of the biggest players in the social investment market such as Big Issue Invest.

And then recently announced is the groundbreaking Social Incubator Fund by the Big Lottery Fund which funds social venture incubators to support the start-up of new social ventures to feed into the social investment market. The Fund will also offer finance to social ventures (through the incubators) where the financial return is too low or risk too high for Government funded investment bodies such as Big Society Capital – yes the Big Lottery (through Cabinet Office funding and the new policy direction) are now in the risk capital game and their eligibility criteria has loosened to include social businesses (not just recognised social enterprise structures such as Community Interest Companies). This really is game-changing and will massively stimulate the UK social investment market and two recent excellent publications on this are Growing the Social Investment Market: Progress update by the Cabinet Office and Ten Reforms to Grow the Social Investment Market – by Stephen Lloyd and Luke Fletcher by Bates Wells & Braithwaite.

The double dividend cap (20% on paid up value per share and 35% aggregate  cap on distributable profits) is the biggest barrier to creating a thriving market in CIC shares and in attracting risk equity from investors as it takes a minimum of five years for them to simply recoup their investment (assuming the enterprise is profitable enough for the 35% profits to pay back the investment year on year). The CIC Association have created a discussion group on the Regulators review of Dividend caps 2012 – due this summer – where three competing recommendations are put forward. The first is to enable dividend payouts to be based on the current market value of the share rather than the initial paid up value but this still limits the maximum payout to 20% per share and as John Mulkerrin states ‘It fails the basic notion of what a share is on a technical level’ – that’s not a good situation for attracting entrepreneurs into the social space. The second recommendation is to remove the individual caps and just use the aggregate cap at 35% and the third is to do the same but place the aggregate cap at 20% (or 25%).

For us the solution is to simplify the whole process by removing the cap on the paid up value of share and increasing the aggregate cap to 49% to allow the social entrepreneurs to run their enterprise in the most tax efficient way. This is still in keeping with the standard definition of social enterprise of ‘principally reinvests its surpluses into the organisation’ and would be a simple and attractive value proposition to would be social entrepreneurs who would otherwise be hampered by their ability to be rewarded for sweat equity and scaling their enterprise’s social impact. At the moment social entrepreneurs that set up a CIC ltd by shares and have not put any money in (as they have worked 120 hour weeks for 6 months in setting the venture up) cannot receive any dividends whatsoever – this situation must change.

Nottingham Social Enterprise Hub adopts Social Enterprise Brand

It’s great to see the Nottingham Social Enterprise Hub created by Graham Gardiner of Aspiren (the social business that created the innovative Local Impact Measurement Tool that enables organisations to easily show their social impact without the need for a 200 page SROI report!) adopt the collaborative and open source Social Enterprise Brand we created last summer which they are calling ‘free and flexible’:

We are getting asked often about whether social enterprises should go for the Social Enterprise Mark. For some this is the right way forward. For others it is costly. And limiting. Certain social enterprises have found that they do not qualify, yet others who are not that entrepreneurial seem to sail through the criteria.

We have discovered another way!!

The Social Enterprise Brand

Find out how your Social Enterprise can use this branding FREE, identifiying yourselves as a social enterprise. It is an open source branding, developed by Richard Patey (of Profit is Good Ltd), that is there to be used. No strict definitions. No percentages of trading. Just simple.

They are holding an event where they will be fittingly showcasing this revolutionary brand to their members on May 1st! For more information see there newsletter here.

 

TEDxCCN – Social enterprise & philanthropy

It was great to be at the inaugural TEDxCCN talk for Norwich and for the theme to be about social enterprise. We got to hear the Barefoot Entrepreneur Robert Ashton talk about the need for people to care enough about their community to take action, alongside the urgency of doing so by using a prop from a local funeral service! This was reminiscent of a talk by the visionary behind another prop used on stage – the new iPad – Steve Jobs at his Stamford commencement speech:

Remembering that I’ll be dead soon is the most important tool I’ve ever encountered to help me make the big choices in life. Because almost everything – all external expectations, all pride, all fear of embarrassment or failure – these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.

It was great to hear from JP Morgan Jr talk about the overriding importance of human connection and how we should not see every situation as a trade where we do something and receive something back, be that being liked or validation; rather we should be giving wholeheartedly and when we do so we become fear less (not fearless).

And to wrap up we were privileged to have Charley Johnson President of the Pay It Forward Foundation talk about the need for simplicity in understanding that if we truly want a better world it starts by being nicer to people – as Charley says doing a good deed for someone isn’t charity of philanthropy, it’s empowering others to do good back.

Thanks to Harry Greiner and Lou Chiu from the entrepreneurial Norwich City College for organising.

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