In a new series of blog posts, CAN Invest team members assess different social business model innovations in terms of their financial viability.
In this first introductory post, Rohan Martyres (Manager, CAN Invest) gives his view on the economic context.
It’s commonly accepted that the financial crisis of 2008 and the unfolding economic recession in the UK has resulted in an increase in the number of unemployed and underemployed people, and socially disadvantaged and marginalised groups in need of support. Unfortunately, the crisis means that the government departments, charities and social enterprises that have historically met their needs are themselves facing funding freezes and even budget cuts.
Adding to this picture, in his recent book When the money runs out, HSBC chief economist Stephen King claims that even if the ongoing financial crisis comes to an end, a long-term decline in UK prosperity means that the level of need in the UK will not abate. This suggests that the current recession may be less a temporary ‘cyclical’ phenomenon and more a long-term ‘secular’ trend. In other words, when it comes to levels of social need, the ongoing quasi-recession may continue for the foreseeable future.
King’s argument raises both a challenge and an opportunity for those of us working in the social enterprise sector. The challenge is that we may not merely need to find new funding sources in the future. More fundamentally, we may need to seriously question our own business models and consider altering the very DNA of our social enterprises to ensure they survive in a low-growth UK. And the opportunity? If we can do this well, social enterprises have the potential to refashion how economic activity is undertaken in the UK, and inaugurate a new era where modest economic growth is coupled with immodest growth in social prosperity.
So where should social entrepreneurs begin? One launching point is to fully understand the financial implications of their ‘social business model innovations.’ By this phrase I mean the non-standard ways in which each social entrepreneur organises and operates their enterprise to create social value for their end users and other stakeholders.
Some social innovations can enhance financial profit. For example, many social enterprises are doing better than their mainstream counterparts on important growth measures according to updated research from Social Enterprise UK. However, other innovations can reduce profit. Either way, there are some basic questions social entrepreneurs should ask themselves:
- What are the business model innovations you absolutely need in order to deliver a unique social impact that no one else can?
- Which of these innovations will allow your enterprise to retain or even enhance a prudent level of profit for long-term survival?
- And of these, which can drive financial profit under the likely future scenarios of funding and service demand in your sector?
For example, will employee ownership or profitsharing models (e.g. John Lewis) and customer ownership models (e.g. the Co-operative) be more or less likely to survive? What about the future role of social firms that discriminate in favour of marginalised people, such as those of Clarity, a charitable consumer product company, supported by CAN Invest, that employs blind and disabled people? More fundamentally, how far will social firms be prepared to go in adopting or discarding business model innovations in order to sustainably deliver social impact?
Every social entrepreneur will answer these questions differently. In subsequent posts, the CAN Invest team will look at a different social business model innovation in turn. And we look forward to contributions from others with their own perspectives. But however the answers may differ, I hope everyone in the social enterprise sector agrees that there is an increasing need to ask the questions.
Rohan Martyres is a Manager of CAN Invest, the social investment and impact consultancy arm of the charity CAN. The views expressed here are his own.