Social entrepreneurship

By Rowena Young
Director
Skoll Centre for Social Entrepreneurship, Saïd Business School

A bigger bang for your buck? Social entrepreneurs and social venturing in the UK

Giving or investing money is easy to do. Doing it wisely is harder. But a new breed of social and environmental activists might just be able to help you. So-called social entrepreneurs have swept a whole new movement into existence in the last few years.

As with any new phenomenon, it is true that social entrepreneurship is not as novel as some of its proponents like to think. Performance is patchy, and some of the thinking confused. But two central features mean that working with social entrepreneurs can give you one of the most rewarding and meaningful ways of effecting a positive impact.

Social value

The first is an overriding desire to make a social or environmental impact. This may strike the newcomer as much as the seasoned philanthropist as odd, since the point of any social sector activity is surely to do some good? But social problems are complex, and resolving them is more ambiguous and contentious than most business challenges.

In practice, many parts of the social sector become comfortable working within particular schools of thought, familiar models or the disciplines of certain kinds of funding streams. By contrast, social entrepreneurs tend to marry their values and vision to a bigger dose of pragmatism. They may start out defending the rights of a severely disadvantaged group, evolve to deliver basic services such as health, education or housing, and then begin trading activities to create wealth, independence and sustainability. Or they might use grants to bankroll the poor and create a market that retail banks can serve, shifting their efforts to enterprise development to enable these groups to benefit most from the new opportunities access to finance provides. These examples describe the work of Accord in Southern India and the Fundación Paraguaya de Co-operación y Deserollo respectively.

New models

The second characteristic of good social entrepreneurship is therefore a willingness to innovate and combine different actors, approaches and resources in new ways, some of which are counter-intuitive. Where typically, the voluntary or community sectors may have favoured non-profit models and worked in splendid isolation from the state or markets, social entrepreneurs are often frustrated by the limitations of these methods and are prepared to be more promiscuous with their approach (see Figure 1).

The drug treatment world is one which illustrates this point beautifully. Conventional programmes see illicit drug use as the problem and typically offer a combination of medication, counselling and self-help to reduce consumption. For some of these interventions, there is no evidence to support their effectiveness; for others, there is a clear reduction in usage and related symptoms. However, all the indicators of the most problematic use continue to worsen. The number of harmful users has grown exponentially in many places over the last 30 or so years; deaths are also growing and habits are becoming life-long. Social entrepreneurs across the world, but notably in Asia, the US and the UK, have paid closer attention to the root causes, and have combined the benefits of treatment with skills and network building and employment to overcome social exclusion. Today, they run businesses employing large numbers of drug users which range from jeep restoration and building environmentally friendly houses, to web design and home removal services.

Social entrepreneurs don't by any means have all the answers, and investors in search of a quick fix should stop here. But clearly, if you are prepared to invest your mind as well as your money, have a tolerance for uncertainty and experimentation, and accept that change of any note will take longer than the typical three year project cycle of grant funding, social entrepreneurship is compelling. It offers an obvious match for a younger generation of philanthropists who are motivated to 'make a difference' rather than 'give something back'.

The state of the market

There have always been social entrepreneurs and the UK has been home to some of the leading lights. These include Florence Nightingale and the late Lord Michael Young, the world's most prolific social entrepreneur, with around 60 organisations to his name including the Open University.

What changed in 1997 was that for the first time, social entrepreneurs became organised. New networks such as the Community Action Network (CAN), offered mutual self-help and today, with a membership of over 700, has helped popularise and replicate promising models. The School for Social Entrepreneurs, now with around 200 Fellows and schools in Scotland and Northern Ireland as well as the English regions, began offering training which combined personal development with the incubation of new initiatives. Other trade bodies such as the Development Trusts Association (development trusts are local, community-owned and tend to develop physical assets and a range of revenue in order to meet a broad set of needs), Social Firms UK (social firms are businesses employing adults with disabilities), and Co-Operatives UK joined the throng. Social entrepreneurs found their voice in the work of Charlie Leadbeater (author of The Rise of the Social Entrepreneur) while drawing government support, such as turning the Millennium Commission's £100 million endowment into a novel fund called UnLtd.

It is also striking how quickly social entrepreneurship has become a global phenomenon, in part thanks to international meetings such as the Skoll Centre's own World Forum on Social Entrepreneurship, which is hosted annually in Oxford. This appears to stem in part from a sense of urgency around the global dimensions of inequality and the search for more systemic solutions, in part from the availability of cheaper communications and travel. Whatever the reasons, it has ushered in a valuable willingness to accelerate new ideas more quickly, whatever their origins.

Business, but not as you know it

Whilst social entrepreneurs can and do turn almost any organisational form to good effect, it is also true that one of the most important developments of the new movement has been a renewed focus on the role that businesses can play in social change. A new term, social enterprise, was coined to capture the interest in businesses trading principally for a social or environmental purpose and re-investing their profits to grow or diversify. In 2002 the Government launched a national strategy to promote social enterprise, creating a more enabling environment. The Social Enterprise Coalition (SEC) was established, along the lines of the CBI, but with a different role and ethos. A Community Interest Company came on-stream in July 2005, complete with its own regulator. Community Investment Tax Relief (CITR) was introduced to encourage individual and institutional investors to direct funds toward social ventures, and millions of pounds have flowed as a result. Public procurement guidance was overhauled to reflect the new reality, and various education and business support programmes began.

Today, social enterprises work in social care and education, waste and energy, transport, housing and ethical retailing. While there are still problems with the knowledge base, estimates suggest that there are already well over 15,000 social enterprises as a result of all this activity, and that, intriguingly, more British adults are involved in social venture start-ups than are part of their commercial equivalents.

It's the economy, stupid

Correspondingly, a raft of new financing mechanisms and institutions have also sprung to life, among them: tentative 'venture philanthropy' offerings, newly accredited community development finance initiatives (CDFIs) - which offer debt or in one case, equity, to social purpose businesses to the tune of £400m - or innovative providers such as Venturesome, which is showing charities how they can access mezzanine finance, to greater efforts on the part of retail banks.

These are important both for their principles as well as their practice. At last, we can see the emergence of an adequate spectrum of support for organisational models intent on levering change (see Figure 2). One of the biggest conundrums of the philanthropic sector has been its hope that beneficiaries will have the power and means to become key actors, yet its willingness to use only the one predominant tool - grant-making - when the usual spread of investment strategies are available. It is still too early to tell what prospects the future holds, and whether these more recent experiments represent the foundations of a permanent new social capital market, but they deserve to succeed if social entrepreneurs are to enjoy any prospect of overcoming the failures of the past, as well as learning from its successes.

Opportunities in social entrepreneurship

Social entrepreneurship is pioneer country, and as such it is as daunting as it is exciting for the new investor. Not only is information about good prospects disparate, but the architecture is also incomplete. This is, of course, what makes it exciting, since everyone can play a part in fashioning the overarching system, either by working out what works in its parts, and spreading effective tools and techniques, or by contributing to the whole and making life easier for social entrepreneurs across the board.

To my mind, there are some standout opportunities to do this, and two key principles.

• First, the opportunities. Of course, the practitioner networks listed above offer excellent entry points for finding good initiatives which meet your interests. Staff recommendations represent the quickest way to find the high performers, but be prepared to pay for advice - these organisations are also part of the social economy.

• Growth capital, and the lack of a culture of taking capital now to return a social or mixed dividend later, represent big barriers. Adding more resources to these sources, or starting your own are much needed both by non-profits and social enterprises. Be prepared to cultivate demand. Places to start would include the CDFI professional body the Community Development Finance Association, the European Venture Philanthropy Association (see too, the article in this Guide on Venture Philanthropy) or the Skoll Centre, which aims to contribute to the development of new equity-like products. Social entrepreneurs also lack business angels, and smaller investors might like to try a 'giving circle' such as The Funding Network to meet social entrepreneurs and fellow investors alike.

• Third, there is also a desperate need for more resources for social entrepreneurs fighting for a systemic shift in the ways marginalised people meet their needs and realise opportunities. This work is often slow and uncertain, and relies on governmental action. Look for the 'social justice' philanthropists for clues on how to do it. Centris can provide details of 15 who recently collaborated on a more strategic approach.

• And finally, think about contributing to the knowledge base. Early movers have been persuaded to act based on good stories and a reasoned case, but they lack the tools to crack new opportunities. They need to know more about the contribution their models make in comparison with others, and lack solid resources to inform managerial decisions.

Hallmarks of the conscientious investor

As for the two guiding principles, the first is keeping a quest for social added value at the core of your investments; the second is to do so with humility.

Observant readers will have concluded that value can only be gauged on a case-by-case basis. Recent developments in social metrics can help, but they are of most worth downstream when you are clear an organisation has value-maximising objectives. More thought is needed on social value creation, but these questions provide a good enough guide to developing your approach:

• Which social or environmental arena am I interested in?

• How can I understand the causes and distinguish them from symptoms?

• What balance of causes and symptoms do I need to address to bring about a step difference?

• Where are the points of inflexion for change? Who needs to change?

• Which institutional model is most likely to help me?

• Do the examples at hand have the quality of management to deliver on their promise?

• What mix of capital and revenue do they need to operate, and where can my contribution prove complementary and genuinely lever other resources?

• Should additional capability-building be offered as part of the mix?

• How will I judge success and determine next steps - such as further resources or exit?

As for humility, it has been a welcome characteristic of many new social investors that they have been as ready to listen and learn from the social sector as they have to put their own experience and networks on the table. This way social entrepreneurship will add to our societies' ability to anticipate and resolve the difficulties they face, rather than recycle resources by reinventing the wheel.

Resources and contacts

Practitioner networks

• For Michael Young's legacy on social innovation: www.youngfoundation.org.uk

• Community Action Network: www.can-online.org.uk

• School for Social Entrepreneurs: www.sse.org.uk

• Development Trust Association: www.dta.org.uk

• Social Firms UK: www.socialfirms.co.uk

• UnLtd*: www.unltd.org.uk

• Co-Operatives UK: www.co-opunion.coop

Background

• Charlie Leadbeater, The Rise of the Social Entrepreneur at www.demos.co.uk

• Greg Dees, The Meaning of Social Entrepreneurship at www.fuqua.duke.edu/centers/case/documents/dees_SE.pdf

• David Bornstein, How to Change the World (OUP)

• There's More to Business Than You Think: a guide to social enterprise at www.socialenterprise.org.uk/cms/documents/guide.pdf

Data

For sector data referred to in the text:
• A Survey of Social Enterprises Across the UK (DTI 2005) at www.sbs.gov.uk/SBS_Gov_files/press/PRE_SurveyofSEsacrossuk.pdf

• United Kingdom Social Entrepreneurs GEM Report 2003 (Global Entrepreneurship Monitor 2003) at www.gemconsortium.org/download/1127073610359/GEM%20UK%20social%20entrepreneurs%202003.pdf

Social finance

• Unlocking the Potential: a guide to finance for social enterprises, also available from the Social Enterprise Coalition: www.socialenterprise.org.uk

• Community Development Finance Association (CDFA): www.cdfa.org.uk

• European Venture Philanthropy Association: www.evpa.eu.com

• The Funding Network: www.thefundingnetwork.org.uk

• Centris - for social justice philanthropists: www.newnet.org.uk/centris

Metrics

• Research Initiative on Social Entrepreneurship, Columbia University: www.riseproject.org

• Blended Value: www.blendedvalue.org

• new economics foundation: www.neweconomics.org/gen/newways_about.aspx

The Skoll Centre for Social Entrepreneurship at the Saïd Business School, Oxford University aims to advance the field of social entrepreneurship through world-class education, knowledge creation, and brokering new and empowering connections. The Skoll Centre is planning a significant research project with the aim of stimulating an effective social capital market in the UK, and helps convene a growing group of social investors. The Skoll World Forum on Social Entrepreneurship, a global gathering of around 500 entrepreneurs, investors and intermediaries, takes place in Oxford at the end of March each year. For details, contact rowena.young@sbs.ox.ac.uk or visit www.sbs.ox.ac.uk/html/faculty_skoll_main.asp.