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Social Enterprise
Profit and Valuadd
Report suggests social enterprises bigger and growing more slowly, profits dwarfed by subsidies
Burgess COMMENTARY
The following is a comment made directly on the website of Beanbags and Bullshit ... also on the Google+ dicussion Social Enterprises
I consider the premise of this article to be totally wrong. If an economic activity of a social enterprise is going to be profitable it can be funded by private sector profit seeking investors ... but social enterprise, is, at its core, about doing something that has value. It has little with making profit ... it is all about social valuadd.So the question needs to be how much has been the social valuadd relative to the subsidy. Quite often something that cannot be profitable can have a huge valuadd ... but not always.
The follow up question is then how to measure social valuadd ... and at the moment this is deemed to be difficult if not impossible, and I would argue, this is because nobody with the appropriate skills has really tried to do what is needed. This is what the TrueValueMetrics initiative has set out to do, and I believe it is going to be done.
Peter Burgess
Social enterprises bigger and growing more slowly, profits dwarfed by subsidies
Social enterprises are getting bigger, they’re growing more slowly than last year and they still receive eight times as much income in grants and donations as they generate in profits. Those are the three key messages from this RBS SE100 index.
The SE100 is a list of the top 100 fasted growing established social enterprises – those that have been trading for three years or more – with separate awards for those organisations that are best at demonstrating social impact and newcomers trading for less than three years. It’s generated from a self-selecting but pretty big, in depth, sample of UK social enterprises, carried out behalf of Matter & Co, formerly publishers of Social Enterprise magazine, now running new social innovation website, Pioneers Post.
365 organisations participated in the survey this year, an 11% drop compared last year’s 409. It’s difficult to say conclusively whether or not this means there are fewer social enterprises operating in the UK than there were this time last year but it does suggest that there’s been a drop in the number of social enterprises who identify positively with the social enterprise movement to the extent that they want to participate in this kind of survey.
More important is the drop in the average % growth amongst the SE100, down 31% from last year’s 91% to 60%. This isn’t actually bad news at all because the total turnover of this year’s SE100 is £319.4million, an 85% increase on last year’s £172.5million. It only seems like bad news because, in previous years, a lot has been made of the massive increases in turnover generated by some extremely small companies. If the SE100 are delivering positive social change, and the organisations on the list that I know definitely are, then £319.4 million worth of positive social change seems better than £172.5million worth.
Interestingly, though, with this year’s total income amongst participants in down at £778 million compared to last year’s £844million, the average turnover of participants who didn’t make the top 100 has dropped from £2.17 million in 2011 to £1.73 in 2012, a drop of over 20%. That suggests that while larger social enterprises are weathering the current economic storm – and possibly benefitting from opportunities to secure newly avaiable public sector contracts – things aren’t going quite so well for social enterprises lower down the food chain.
The most shocking figures, though, relate to a situation that hasn’t got worse but has become far more relevant based on the changes to the ways social enterprises are funded. This year, enterprises participating in the survey generated total profits of £19million between them on a turnover £778 million: “with average income from trading (as opposed to grants or fundraising) at 80%.“
This seemingly means that SE100 participants collectively received grants and donations worth £155.6million. That’s more than 8 times their total profits of £19million. So, for every ONE POUND PROFIT that social enterprises currently generate to reinvest in the community, they’re current receiving EIGHT POUNDS IN SUBSIDIES. That may even be a conservative estimate of the total subsidy because it’s not clear whether the £19million profit figure was arrived at by subtracting participants’ overall losses from total profits to get the total, or by adding together the profits of all participants who made a profit and ignoring the losses.
It’s important to recognise that this doesn’t mean that they aren’t some social enterprises that are making real profits and receiving no subsidy at all. There are. Unfortunately, though, if the SE100 is anything to go by there aren’t very many. It’s also important to recognise that many of the grants that social enterprises aren’t subsidies in the way that privatised rail companies receive subsidies. Many of the grants that social enterprises receive are funding for them to do work, with delivery-related strings attached that make them remarkably similar to contracts for all purposes other than taxation.
Even so, if I were a leading figure in the world of social investment, the stats wouldn’t fill me with confidence about my chances supporting the development of a £1billion+ industry of investment in social ventures generating enough profit to repay investments with interest while generating a social outcome. Based on our current position, the most likely scenarios would seem to be:
- (a) we don’t see the development of £1billion+ social investment industry.
- (b) we see a new set of social enterprises/social businesses/social ventures (delete as appropriate) emerging over the next five years that operate in a very different way to the ones we have now.
- (c) we see lots of social investment being repaid based on either direct or indirect subsidy from grants and donations.
COMMENTS
jeffmowatt December 7, 2012 at 9:35 pm David, There’s an American maxim I learned in recent years – “You can recognise a pioneer by the arrow in his back” Back in September 2008, I had an email exchange with Christiana Giotis id SE Magazine and described our self-sustaining social enterprise model and how it derived from a paper on a new kind of capitalism At the time an economic crisis was unravelling. A blog on their mag was offered but never came to anything, Just today I learned that Obama’s assistant Jonathan Greenblatt was at Good Deals 2012 , congratulating UK social enterprise.for leading the way He signalled the intention for a bottom up strategy, which was familiar territory:. http://economics4humanity.wordpress.com/2012/12/05/smart-aid/ Reply
jeffmowatt December 9, 2012 at 10:54 am This morning I remembered something which came from the presentation given to the Economics for Ecology conference in Sumy two years ago. “Among three main areas of economics, the financial sphere remains dominant over social economics and environmental economics. The reason for this is very simple: in order for any system of economics to be sustainable over time, it must first be financially sustainable. If a system costs more than it produces, it requires infinite inputs over time. Infinite inputs are not available in a finite world, and we live in a finite world. If we pursue a system that costs more than it produces financially, it must and will necessarily collapse. But now, the financial system itself is broken: it costs far more than it produces.” http://www.p-ced.com/1/projects/ukraine/sumy/iscs2010/ By that measure, could we also conclude that social investment is also broken in that it costs far more than it produces and will collapse? Reply
Stephen Miller (@milski360) December 10, 2012 at 12:49 pm Hi David, really interesting blog. We’ve just released a research paper looking at equity from private Angel investors as an alternative source of growth capital for social enterprises: http://unltd.org.uk/wp-content/uploads/2012/11/Findings-Paper-6-Attracting-Early-Stage-Social-Investment-2012.pdf. The SE100 Do you know anything about the methodology for this Reply
Stephen Miller (@milski360) December 10, 2012 at 12:56 pm *[computer crashed before I could finish] The SE100 findings are interesting but the level of subsidy required is concerning, and in relation to the paper I just referenced makes the whole conversation difficult – if social enterprises can’t return financially (although we’ve seen evidence they can) then there’s little point looking at this particular source. Also, do you know anything about the methodology SE100 used? It seems like anyone can enter it, meaning comparing year-to-year (when the samples comprise of completely different orgs) is not always the most reliable indiciator of change. Reply
Beanbags admin December 10, 2012 at 2:23 pm Hi Stephen, SE100 is a self-selecting sample. Assuming the process is still the same as when we entered, organisations fill in a survey and supply relevant supporting documents, and the organisers follow up if any information is unclear. It clearly doesn’t enable a reliable comparison of what’s happening to particular organisations – or defined groups of organisations – from year to year. It enables us to compare the organisations that chose to enter a competition measuring the growth & social impact of social enterprises in one year, with the organisations that chose to enter that competition in another year. In terms of the subsidy stuff, I’m not suggesting these figures show that it’s not possible for social enterprises to take on investment and provide a financial return. There’s plenty of reason why social enterprises might not record an end of year profit that don’t add up to long-term unviability – including choosing to spend what would otherwise be surplus/profit on delivering additional social value before the end of the year, and being early stage businesses that aren’t yet generating profits but could do in future. There’s also the point that this is an average figure and within that there will be many social enterprises who receive far more than 20% of their income in grants and donations, and therefore many who receive far less. But the overall profit figure doesn’t suggest there are large numbers who are profitable. What’s not clear is whether this is because most social enterprises are trying to be profitable and failing, or because most social enterprises operate on business models that aren’t designed to generate profits beyond breaking even (with the help of grants and donations). I’m not sure which answer I’d find more worrying if I worked in social investment. Reply
jeffmowatt December 10, 2012 at 6:54 pm David, I’m reminded that two years ago when the Social Capital Markets conference took place in California, there was a report circulating which indicated $120 billion of potential social invesment sitting in the bank accounts of ordinary Americans. There were several conversations about ‘unlocking the $120 billion.’ It just didn’t seem to happen. As Stephen’s report indicates, top of the list for would be angel investors is a financial return on their investment In his most recent pitch on alternative finance to the Schumacher Society, Chris Cook’ presentation on the Guarantee Society and Capital Partnership approach has a title which says it local and clearly – Banking on Ourselves. I understand theres’ a narrative to follow,