Guest blog - Social Enterprise: on a stairway to heaven?

Article by Simon Lee, Associate at Hempsons, the SEYH Legal Partner

 

With apologies to Led Zeppelin here but, fundamentally, is everything now set for social enterprises to grow and take centre stage and, mixing up my music metaphors to draw on S Club 7, to reach for the stars?

A Weighty Task

We live in challenging times: the economy (so we hear) is improving with more people in employment, but those improvements are not seen by all. The significant rise in demand at food banks, for instance, shows that under the surface remains great need.

We have already lived through a number of years of ‘austerity’ and the expectation is that we will have to live through at least a further four years or so:  the current budget deficit – the difference between what Government gets in and is spending - sits at around £60bn, whilst the national debt (what we owe in total) is around the £1.36 trillion mark. However, even if public sector savings return us to budget surplus from budget deficit, it seems unlikely that we will return to a wealth of grant-funding options for third sector organisations. In such circumstances there are, I think, four possible responses (beyond getting on the phone to Bill Gates to see if he’s got a few quid he could send us):

  • Getting overwhelmed by the enormity of it all and doing nothing;
  • Ignoring the issues and financial realities of this situation and doing nothing;
  • Seeking to deal with the situation with an economic head dominating; or
  • Seeking to deal with the situation in some way taking account of the human picture.

And this last one is where social enterprises come in. Perhaps I’m idealistic here but in times of doom and gloom and misery, the social entrepreneurs are the ones saying “Yes, but what if we could just do this or that – that would at least start to help.” “What if we could do some social good whilst all still getting paid at the end of the day?” Of course, this is not to say that only social entrepreneurs are able to make a contribution in this way but simply that they are obvious candidates for doing so.

Some of this is borne out by the growth of social enterprises despite the economic ‘downturn’. The last published RBS SE 100 (the 2014 edition) also included a useful 5 year overview of the picture since 2009. This showed that over the past five years the social enterprises on the RBS SE100 Index have achieved phenomenal growth.” Backing this up further, a recent Pioneer’s Post article quoted initial data from the SEUK ‘State of Social Enterprise 2015’ report as showing that (in the last year) 52% of UK social enterprises have increased their turnover, 39% have expanded geographically, and 59% have developed new products and services. All of this tells us where we have been and where we are, but what about what’s coming up in the years ahead? Everyone knows that past behaviour is no guarantee of future performance and only a fool would try to predict the future, but here goes anyway…

Public Service Transformation

It is almost certain that the future holds further cuts to and changes in what are currently seen as public services. It seems unlikely that Government will be willing to pump billions of extra pounds into public services, at least for those outside the NHS.

It follows from this that the policy of creating new social enterprises from those currently working in the public sector will continue to be a serious option to consider for challenged public sector services. This is not least the case because we know that both past Labour and Conservative-led governments have actively supported the idea. Of course, simply turning something in to a ‘mutual’ is no more a guarantee of a successful organisation than choosing to paint the walls a different colour but there is increasing evidence available – both academic and anecdotal - that this kind of model can bring genuine benefits to both staff and beneficiaries alike.

We know that many social enterprises rely to at least some extent on public service contracts and it follows that these particular services may have their funding reduced or even be cut all together. If councils are forced to scale back on non-statutory services, and those services are the bread and butter of social enterprises, then there is a clear challenge there: those social enterprises will need to find other buyers of their services or adapt to deliver new services instead.

The Challenge to Scale Up

Where there have been public sector opportunities to bid for in recent years, often it has been necessary for organisations to group together and submit some form of collaborative bid. It is difficult to see this trend changing (not least because a smaller, lot-based, approach places a greater burden on the public body managing the contract) and so it will continue to be important for organisations to understand the different models of collaboration and their relative merits.

The Public Services (Social Value) Act has had a slow but steady start with a number of local authorities choosing to go further than the legal minimum thresholds because they see the advantages of doing so. The recent review of the Act called for a greater push in other areas of public services, such as the NHS, but this is really a slow burn change based, for the time being at least, on anecdotal evidence of others’ success stories.

The reporting and demonstration of the added, social, value beyond the core requirements of the contract will continue to be important and, whilst social enterprises should score well here, the challenge is still there for social enterprises to show their distinctiveness in some way. Some fear, though, that private-sector business might simply learn to report better on their own social value and so nullify the potential advantages of social enterprises in procurement processes which take that in to account. The truth is, I think, that private sector businesses may well do this and so social enterprises need to be aware of this and react accordingly.

Whilst, in some ways, it would be great if social enterprises could have ‘carve outs’ where certain work is guaranteed to come to the sector, this is perhaps a sign that the market needs to mature further. Surely, an indication that the social enterprise sector has truly ‘made it’ is where there is no fear of competing on an equal basis with the private sector because the offer is both confident and assured.

You might be thinking that this is all very well, but we all know that there are relatively few social enterprises operating at significant scale (the RBS SE 100 2014 index noted that only 14% have turnovers greater than £5m). How can the sector possibly compete with the ‘big boys’? The challenge is for the sector itself to scale up.

There has been talk for years of various models of ‘social franchising’ but relatively little talk of ‘mergers and acquisitions’ in the social enterprise world (charities do engage in this to a certain extent). I appreciate that this language commonly lives at the heart of the private sector but the concept is nevertheless one that needs to be considered and learning adopted from both the private sector and from charities. As with other aspects of the world of social enterprise there is nothing wrong in taking a concept from the private sector and turning it in to something slightly different (and more positive) in the social sector. Mergers and acquisitions in the social enterprise world needn’t have the connotations of profit over person (Kraft taking over Cadbury’s, for instance) and could instead be a genuine nurturing relationship,  where skills and abilities available in one part of the business complement existing ones, extend the offering, and help both to grow.

Mergers and Acquisitions in the Social Enterprise World

There are already examples of charities and social enterprises creating group structures in this kind of way: Stoke’s PM Training (part of the Aspire housing association group) and Stockport-based Pure Innovations are just two. This kind of approach has a number of potential advantages – a stronger group balance sheet, the potential to draw on skills across the group to aid greater diversification, and a sharing of back-office functions. For younger organisations or start-ups, there can be the comfort of access to experience of those who have simply been around for longer.

This links too to access social finance – the message from social funders is not that there is no money to invest but rather that there is still a shortage of what they see as investable propositions. Adding the financial weight and experience of others helps to reduce the risk and so make an initial investment that bit easier to achieve. An organisation which is an investable proposition would, of course, not be limited to accessing only social finance: more traditional bank loans and investment could be on the table too.

Another potential advantage of this model of scaling up is succession – many social enterprises, and particularly those who have come out of the public sector, are relatively young organisations and have the same (or very similar) core leadership team that they have always had. But what happens when the chief executive retires, is ill, or just would like a new challenge elsewhere?

These moments of transition are potentially momentous in the life of an organisation and so need to be carefully planned and managed wherever possible – having the wider comfort and ‘safety net’ of a wider group structure could be a crucial factor in continued success.

The recent changes to procurement law also mean that it is generally harder to be able to justify a direct award of contract without some form of procurement exercise. A nascent start-up organisation would certainly stand a better chance of success in such competitions if backed in some way by social enterprises already carrying ‘real world’ experience and a balance sheet to go with it.

Conclusions

Over the next few years many social enterprises will need to continue to adapt to survive in what will almost certainly be a world of continued austerity and increased cuts to public sector budgets. Growth by seeking out ‘mergers’ with existing third sector players, and so moving beyond simple joint working or collaboration, will certainly be a challenge.

It is, though, a challenge well worth taking.

 

Simon Lee is an associate at Hempsons. He is a solicitor specialising in support to social enterprises and charities and has over 10 years’ experience of working with the sector.

simon lee

Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Tel. 0207 484 7629  

 
Working Capital 2015

Working Capital Conference 2015

Wednesday 18th March, Unity Works Wakefield

Working Capital is a Social Investment Conference designed to bring together the leading exponents in Social Investment with Social Enterprises and Social Enterpreneurs to learn about emerging products, do deals and undertake business. This is the fourth conference and this year's theme is 'The Journey'.

Our Keynote speakers are Sam Tarff, Chief Executive of Key Fund and Nick O'Donohoe, Chief Executive of Big Society Capital

We will be hearing mainly from investees about their journey from an idea to fruition and the challenges, pitfalls, unexpected bonuses and how you can navigate through the complex world of finance to have a sucesful challenge. The social enterprises and charities who have recieved investment will be joined by their investors who will chip and can answer questions with the investees.

We will also have an expanded marketplace and a cafe style session where you can chat to investors and others looking for investment on themed tables about what is on offer and how you can access it or just learn more about social finance in general.

We have already got confirmed involvement from our event partners Big Society Capital and Key Fund as well as FSE, Charity Bank, Big Issue Invest, NESTA, LGT Venture Philanthropy and UnLtd with more to be confirmed.

The venue is Unity Works a new social enterprise grade II listed venue in Wakefield whose main hall has a 250 delegate capacity theatre style – our biggest venue yet.

Book at Eventbrite.

 

Supported by

 

 

 
SEYH Conference and AGM

 

SEYH working with Social Enterprise North West and Locality are running a major conference on Public Sector Spin-Offs on 3rd October at Hebden Bridge Town Hall.
 
The conference aims to give delegates from the public, private and social enterprise sector an in-depth day dealing with  decisions, contracting, TUPE, team skills and cultural issues in relation to spin-offs 
SEYH can now confirm our full line-up of Keynote Speakers at this year's conference on the theme of the global social economy which will take place on November 20th at York St John University.
 
 
Margaret Sentamu - Director of Traidcraft
 

Margaret is a Non-Executive Director of Traidcraft, which fights poverty through trade, helping people in developing countries to transform their lives.
Her background is in recruitment and selection in the private, public and voluntary sectorand she is also a Non-executive directorship with the Leeds & York Partnership NHS Mental health Trust and on the Advisory Board of the Bradford School of Business Management.

Her interests are mainly in the areas of health, education and poverty, and particularly in empowering women in the Global South.  She and her husband have lived in Yorkshire for the past nine years.

Sophie Jewett - MD of York Cocoa House

Sophie Jewett is Managing Director of York Cocoa House, a chocolate experience cafe and retail outlet in York which is currently in the process of converting to being a Social Enterprise. Sophie has recently been listed in Insider 42 Under 42 and is a member of Leeds City Region's Business and Innovation Growth Panel.
  
Saioa Arando of Mondragon Corporation who works in the research department of Mondragon which is the world's largest Co-operative. Saioa will be co-presenting with Margaret Meredith and Catalina Quiroz of Erasmus Mundus at York St John University.
 
The day will also include workshops, networking and the SEYH AGM.
 
 
 
Tickets are just £20 (20% discount for Membrs of the SEYH Paid Membership Scheme)
 
For full details and how to book visit our booking site
 
Retail units across Wakefield available

A range of retail units leased by Wakefield & District Housing:

5-7 Barden Road, Eastmoor - double unit in busy residential area

24 Duke of York Avenue, Portobello - newly renovated ground floor shop with living accomodation

255 Queen Elizabeth Drive, Normanton

31-33 Hoyland Road, Kettlethorpe - one of eight units on a parade, recently refurbished

67 Kirkby Road, Hemsworth - recently refurbished

64 Thirlmere Road, Flanshaw - wide shop front in busy residential estate

1 Highfield Centre, Hemsworth - ground floor end terrace unit

13 Beancroft Street, Castleford - sizeable property in busy residential area

5 Pinewood Place, Knottingley - middle of a parade, ready to be moved into quickly

13 The Circle, Chequerfield - part of a busy 14 shop parade

2 Highfield Centre, Hemsworth - multi-room property in middle of a 5 unit parade

32 Aire Street, Knottingley - ground floor end terrace with seperate residential accomodation above

78 Thirlmere Road, Flanshaw - ground floor double fronted unit with kitchen and parking

2 The Circle, Chequerfield - part of a busy 14 shop parade

76 Thirlmere Road, Flanshaw

Full details and contact information here:

retail wdh

 

Administration cost for these properties vary depending on suite required:

 

Retail

Up to 500 Square Feet £100

500 to 1000 Square Feet £250

Over 1000 Square Feet £500

 

For more information about SEYH's property brokerage service click here.

To apply download Property_Application.doc or email This e-mail address is being protected from spambots. You need JavaScript enabled to view it

 

 
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