It used to be that ambitious youngsters either wanted to set up their own business or to save the world by working for a charity. Now, many are ambitious enough to think they can do both.
Nearly 10 years ago, Becky John, a former business manager at the University of Southampton, decided she wanted to improve both her life and the world. To this end, she set up Who Made Your Pants?, a women’s co-operative producing handmade underwear.
The business has two social objectives — an environmental aim, because the company uses off-cuts of fabric too small to be useful to larger underwear producers; and as an employer, it provides vulnerable women with employment and training.
“The triple bottom line, where you report the added value of your business alongside the profit and loss, is important and so valuable,” says Ms John.
WMYP was set up with grant funding, receiving some £250,000 in the first five or six years — the Co-operative Enterprise Hub was its first funder — but seven years on is no longer in receipt of grant money.
After participating in the Lloyds Bank and Bank of Scotland Social Entrepreneurs Scale Up programme, Ms John won additional funding as part of an award for Social Entrepreneur of the Year with that initiative.
Ms John stops short of describing the business as self-reliant, however, because it is still running on the £110,000 raised last year through a five-year bond issue.
“I’m quite militant that I want us to wash our own face,” says Ms John, who expects the business to turn a profit from 2018.
Social enterprise in the UK has flourished in recent years, with some 70,000 operating, contributing £24bn to the economy and employing nearly 1m people, according to a Cabinet Office report.
The rate of growth is accelerating, with almost half of social enterprises under five years old. A cynic might say this could be due to a high rate of failure, but Social Enterprise UK, the source for much of this data, found significant evidence it is more due to increasing start-up rates.
“The sector is not just growing, it’s actually booming,” says Rodney Schwarz, chief executive of Clearly So, an organisation that helps social start-ups raise funds via social investors. “Investors are getting more interested in generating impact.”
Although profitability is still some way off for most new social businesses, it is in many ways a more dynamic sector than traditional small and medium-size enterprises. In the past 12 months, the number of social enterprises introducing a new product or service has increased to 59 per cent, compared with a drop to 38 per cent among SMEs, according to figures from Social Enterprise UK.
Likewise, 41 per cent of social enterprises created jobs in the past 12 months, compared with 22 per cent of mainstream SMEs. Social enterprises are more likely to be run by and employ women, people from Black or Asian minority ethic backgrounds or people with disabilities than mainstream SMEs.
While the government has recently announced extra tax incentives for impact investors, these have “barely kicked in”, says Mr Schwarz, so those incentives have not been the driver for the recent growth.
“Of all the things the government has done, Big Society Capital is the most important,” he says.
The establishment of Big Society Capital, which has £600m in seed capital to offer funding bodies investing in social enterprise, has increased the profile of social enterprise investing, pulling in more investment capital as well as offering support to the intermediaries it is funding directly.
Investors looking for opportunities to do well by doing good are not the only driver for huge growth in the sector. “The public sector is so much under pressure that people are looking for different ways to deliver services. Charities are also under pressure so they’re looking for a new business model.”
This has led to a raft of companies spinning out of government controlled bodies. According to Mr Schwarz, 74 organisations have emerged from the National Health Services, accounting for more than one per cent of its turnover.
These social enterprises follow a different model from those such as Who Made Your Pants?, which operates in the same way as a for-profit business-to-consumer company, albeit with a broader aim than just profitability.
Instead, they provide services to the state, usually on fixed contracts, sometimes incorporating incentive plans like payment by results.
Charities are also looking for ways to turn their services into businesses that will create new income streams.
“Traded income is more reliable than grant income, you can plan around it differently,” says Ms John.
For companies spun out of government bodies or charities, which are usually already providing services, the challenge is to go from focusing on delivery only to managing a business that delivers the relevant services and is viable. It remains to be seen how easy those social entrepreneurs will find this transition.
But will a broad social enterprise trend continue? “I don’t think this is a flash in the pan,” says Mr Schwarz, “but we’ve only just scratched the surface.”
Ms John is optimistic: “In my fantasy head, every business could deliver social value alongside profitability, so we wouldn’t have to call it social enterprise at all. It would be the norm.”
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