Social enterprise: it’s big business

Tuesday, August 12, 2008

Politicians are throwing themselves on to the third sector bandwagon as charities and voluntary organisations become more involved in the provision of public services. Dean Carroll reports on the social enterprise phenomenon

Momentum is building for the third sector and its provision of public services. Ministers have launched training programmes for 3,000 public sector com-missioners to educate service buyers in the added value of charities, voluntary organisations and social enterprises. More government money is also backing a new Third Sector Research Centre at Birmingham University.

Discussions are even taking place in Whitehall to look at a social enterprise stock exchange to allow investors and philanthropists access to a reliable performance barometer of organisations vying for funding. Meanwhile, ministers are looking at the potential to create a social investment bank using dormant accounts.

Despite criticism from the Commons Public Administration Committee, arguing that the government’s newfound allegiance to the third sector is not based on firm evidence, the future looks bright. Third sector minister Phil Hope insists not-for-profit organisations are "setting the ethical standards for others to follow, including the rest of public services". Although he admits there needs to be a drive on "showing commissioners that there is proof that it works".

"We cannot make social enterprise happen but we have to create the environment in which it can grow – and reach those who might not otherwise trust the public sector," says Hope. "We are at the start of the journey."

At another level, regional development agencies are investing £6m to support social enterprises through their Business Link programmes, which will include mentoring schemes.

Another £6m has been set aside in the Capacitybuilders programme, a further £7.5m in the empowerment fund and Futurebuilders has a budget of £215m to aid start-ups through grants and interest-free loans. Even the Audit Commission’s new inspection regime, the comprehensive area assessment, will include targets for councils to support third sector growth.

The sector’s spend has grown from £5bn to £10bn in a decade. Politicians want more, realising they can reach the most alienated in society only by encouraging local people to develop local solutions to community problems. Further growth could be achieved by organisations pooling resources to bid for larger contracts.

A five-year research programme by Dr Rebecca Harding, founder of Delta Economics, has revealed that 3.3 per cent of the adult population is setting up social enterprises. Youth, female and black and minority ethnic initiatives make up the majority of new groups, blowing apart the traditional image of white middle-class do-gooders. Delta has established that there are 240,000 social enterprises operating in the UK, equivalent to 35 per cent of small businesses across the country. Bullish attitudes and a willingness to work long hours are said to be key characteristics for this new breed.

"It’s become a phenomenon in the labour market. We are providing the evidence base that can then feed through to policy," claims Harding.

"These are proper businesses that make a profit and 43 per cent have revenue streams rather than just grants. There is a need to understand an awful lot more but we can do something with a social objective and meet mainstream agendas as well.

"It’s not just babysitting circles; it’s too much activity for government to ignore. It’s much bigger than public service reform; it’s a new way of doing things."

Finally, organisations look to have become more comfortable with making profits to reinvest in services. Work is underway at the Social Enterprise Coalition (SEC) to build bridges. And many within the sector believe it can provide greater efficiencies than a monolithic state.

"I can make a pound go a very long way," insists Parag Shah, a former doctor who started Art-Switch Exchange. His business provides vital income for struggling artists while spreading art appreciation to those who might not want to visit a lofty auction house.

"It’s no good starting a social enterprise just because you are bored with your job – you have to monetise the fluffy stuff," adds Shah.

Rubbing shoulders with "the big boys" is the way to go says McMillan Serrant of the Bradford-based community education project UrbanBiz.

"We should be thinking about more commercial models; we have a duty to infect as many people as possible with our energy," says Serrant.

Most bodies now feel it is time to look at the bigger picture, especially as the London 2012 Olympics will amount to 7,000 contracts.

Transport charity the HCT Group won the deal to ferry 9,000 workers to and from the Olympic site in Stratford, east London – a four-year contract worth at least £8m.

"Any bidder had to have a turnover of more than £20m and, as ours was £17m, we had to form a partnership with Ealing Community Transport Group," explains HCT chief executive Dai Powell. They spent £35,000 on the bid.

"If you have an idea, get together with other players to form a consortium. We were competing against the five biggest private sector bus operators but we were able to keep our margins lower."

Although there are concerns that politicians are throwing themselves onto the third sector bandwagon, the reality is that government wants association with an altruistic brand at a time when the public is suspicious of the state.

Chief executive of the SEC Jonathan Bland is adamant that business solutions will become the norm rather than the exception in an aspirational third sector. Once this happens, capitalism may have a friendlier face.

"The idea that building shareholder value is the only way to do business is being challenged," he adds. Social enterprise is the new model to achieve self-help and create jobs, empowerment and opportunity. We have to work together and become the connectors for people."