Tag Archives: Social Edge

Our Destructive Obsession with New/Cool Social Enterprises

Recently ClearlySo was asked to raise capital for a business we know well.  It has been going for over a decade, is well-established in its marketplace, and sells products people like at affordable prices which generate a satisfactory gross margin.  The firm has over £1 million in sales, operates at breakeven and achieves considerable social impact; but the road to get there has been long and difficult.  The lessons have come painfully, yet the CEO has matured greatly, he has built a strong Board with an effective Chairman, and with a bit more capital they could thrive.  Sadly, investor’s initial reactions are somewhat unenthusiastic—I won’t say too due to client confidentiality.

At the same time other newer companies we help easily grab investors’ attention—though they lack many of the key ingredients to success.  A charismatic founder might be in place, but there is no battle-tested team or Board.  A breath-taking PowerPoint presentation has been assembled, but the route to market is unclear, and the business plan, though replete with colourful graphics is bereft of anything which resembles hard evidence.  There is sometimes no product or even a prototype—just the best of intentions and glorious aspirations.

The social enterprise sector must allow for innovation—for where else can the experimentation take place in solving social problems, but things are way out of balance.  In my judgement investors and governments are obsessively fascinated with cool early stage ideas.  We can dream together with the entrepreneur about what might be but forget that things almost never work out as well as planned.

This is all charming in a way, like the romantic notions of a new love, but it has damaging consequences.  Entrepreneurs and their teams have slaved away, experience is gained, customers won, networks established—but as targets are inevitably missed, and reality bumps romantic illusions aside, investor fatigue sets in, funding is challenging to secure and the enterprise collapses.  From a social impact standpoint it is a disaster.  A ten year old business has done the hardest thing—survived—but it never achieves scale, as the dollars move on to the next new thing.  From the financial perspective the unsuccessful investment sours investors on this and potentially other deals.

I think we need to focus more on teams and enterprises that have withstood the test of time and remember that most new businesses fail.  The best indicator of future longevity is years of survival—especially crisis filled years like these.  Maybe we also need:

  • A fund which only invests in firms after year 3 or 5?
  • Mentoring programmes which have a similar focus?
  • A ban on start-up investment in the social enterprise sector (that is not a serious proposal, just checking if you are still reading)
  • Government to shift investment to social enterprises which surpass a certain size or longevity threshold?

I also think we have to stop being so impressed with what sounds cool.  It’s great for cocktail parties but will not help us get the sector to scale.

First published in The Social Edge in May 2012

False Economy: A Depressing Triple Entendre

Defenders of unfettered free market capitalism, as it has been practiced for the past three decades, are diminishing in number.  The model has been proven to be utterly unsustainable–a false economy.

A growing number of observers believe something new is emerging–a more social economy, where social, ethical, environmental and financial objectives are balanced.  This is no longer just the belief of ardent zealots, but the mainstream sees this as a viable concept for economic organisation.

Governments across the political spectrum are embracing social enterprise, and, encouragingly, the corporate sector is as well. We at ClearlySo work with over 100 corporations and dozens of governmental counter-parties with an expressed interest in helping the social enterprise and investment sector to flourish. Their intentions are noble and the folks involved tend to be sincere–but in our judgement the good work is frequently offset by two categories of flawed approaches.

One is to bury the sector in grants.  Free stuff is great but it creates a false economy, giving the impression of a sector heading towards or already achieving sustainability (because of all the buzz and activity).  In this way we begin to kid ourselves–were the grants to cease the sector would simply evaporate, with few exceptions.

The other approach is to seek to ‘work with’ the sector on a commercial basis.  This approach would appear to have intellectual merit as corporations and government agents buy services from the sector and arguably are bringing it into the normal market economy.  However, the sector’s immaturity and the absence of normal market disciplines caused by grant-dependency, often causes social enterprises desperate for work to offer products and services at low prices, often below cost.

This situation is helpful for cash-strapped governments and profit-oriented mainstream firms.  They take advantage of competition in the sector to force prices to an unsustainable level.  “Socent XYZ will do it for free”, those social enterprises trying to become sustainable are told, or “this is the most we can pay…..due to budgets, etc.”

All this is also a false economy, especially for governments who subsidise a sector through one set of actions and then under-pay for services with another.  Far better to pay a fair price, which they certainly do with large private sector firms selling to the public sector.  Corporations looking for (and are getting!!) bargains from the social enterprise sector would appear to be indirect beneficiaries of governmental grants to the sector, as well as the below market wages of their dedicated staff and the free work of their volunteers.

  • Can this possibly be right?
  • Do many of you out there in the social enterprise world experience such behaviour?
  • Is there a justification for corporations and governments to pay a premium to social entrepreneurs for the products and services they offer, or does this continue to falsify the social economy?

First published in The Social Edge in March 2012

Banking and the Social Economy

Last week it was reported that a rogue trader cost UBS $2 billion as a result of “unauthorised trading”.  One wonders why unauthorised trades which yield a profit are never reported.  Putting this aside, it emerged at a bad time for the sector. Earlier last week Sir John Vickers released a report into UK banking, which called for a strict separation between retail banking and capital markets operations. Vickers is attempting to “ring-fence” the government insured retail banking activities which are of systemic importance, and support them with higher mandatory capital requirements, in an attempt to minimise the risk of another banking crisis, caused by capital markets problems. If Vickers proposals are implemented the cost to UK banks is estimated at £6-£7 billion.

Some bankers squeal at the extent of this pain. Warnings about the disastrous impact on the cost of credit for borrowers, the undermining of UK competitiveness or threats to leave the UK in pursuit of a more welcoming regulatory climate have come in a torrent.  On the other hand, politicians and other pundits have piled into the sector, heaping abuse on its leaders, their greedy and overpaid staff and their irresponsible practices.

What relevance does this have to the world of social enterprise and the social economy? Plenty. There is not sufficient money available in government grants or foundation endowments to support social enterprises to the extent necessary. Thus the banking system and the clients they represent are of vital importance to the creation of a social economy.  Yet there is distrust and anger. Some sector colleagues view the financial sector as inherently evil, which ought not to be touched with a barge pole.  But such thinking is short-sighted. Mainstream financial firms have a great deal to offer social enterprises in terms of capital, access and expertise.  On the other hand one cannot deny the damage done by the banks during the recent crisis.  Our sector must have some answers.  Disengagement is a bad answer—what are the good ones?

  • The emergence of social banks. Firms like VanCity (Canada), the Coop (UK) and Triodos (Netherlands) are emerging as competitors.  What are their competitive advantages?  Should social enterprises feel obliged to bank with them?
  • “Crowdfunding” offers an alternative to financial institutions in general. Is this disintermediation healthy?  Should consumer protection rules be waived to facilitate this?

But we also need to have a more articulate critique of the banking sector.  What would we really suggest be done to minimise risks going forward?

  • Is tougher regulation the best answer? I am not sure—Regulators seem forever five years behind the banks.
  • Should we push the banks to lend more? Too much borrowing is what put us in this mess—can more lending really be the answer?
  • Is boosting capital requirements the best answer? Does this not raise the cost of borrowing and reduce the supply of loans?

Our narrative of complaint is not consistent.  We need to develop one.

First published in The Social Edge in September 2009

Rupert Murdoch, the Arab Spring and the Social Economy

Headlines in the UK have been dominated by one item these past few weeks—the “phone hacking” and related scandals which led to the closure the longstanding “News of the World” tabloid newspaper and its impact on the wider media empire run by Rupert Murdoch.  UK Politicians, hitherto too frightened to challenge the power of this media mogul are rising up to call Murdoch and his lieutenants to account and the concentration of voices in the media is being seriously questioned for the first time in years.  It is not too dramatic to suggest that democratic forces in Britain are re-awakening from their slumber.

How similar this feels to the Arab Spring, where the forces of democracy rose up against those who ruled to demand that the national rather than the personal interest is paramount.  One by one, dictators are being toppled and new political and economic models are being developed.

Interestingly, abusive practices in the UK and across the Arab world were tolerated for years, as many were victimised by the powerful.  But the dominoes fell when two individuals, who embodied the very spirit of the innocent victim, brought us to our senses.  In Tunisia, it was the self-immolation of Mohamed Bouazizi, the desperate fruit-seller, whose act brought down the Tunisian regime and others which followed.   In the UK it was only when we learned that the News of the World hacked into the mobile phone of Milly Dowler, a kidnapped young girl, that our outrage gave us all the strength to challenge the seemingly unassailable Murdoch empire.

Our economy has tolerated such abuse for too long—where the societal interest is subverted in the interest of personal privilege.  Consider the scene in Italy amid widespread allegations of abuse by of another media mogul, tycoon and Prime Minister Silvio Berlusconi, of having legislated in his financial interest rather than the national interest.

These stories are only the most flagrant violations of social interest in the name of the personal—there are hundreds of others.  They may reflect the most grotesque examples of how the greed of the few has been satisfied at the expense of the many, but they are very much the “spirit of the age”—the age where profit maximisation and personal private interest came to be deified.

The Social Economy (which is how I describe the world where social businesses, enterprises and investment become the norm) is a very different model.  Although far from perfect, and many in it actors are themselves flawed (as are we all), as a model it demands that BOTH social as well as financial interests are considered.  Profits may be optimised, but not maximised.  The risks of abuse hopefully thereby lessened.

  • Is such a Social Economy a mere pipe dream or an emergent reality?
  • What can be done within government to accelerate such a change?
  • Blah
  • Blah

We live in hope!

First published in The Social Edge in July 2011

Skoll World Forum Impressions—The Pluses and Minuses of Celebrity

I attended my six consecutive Skoll World Forum (SWF) last week. As ever, the featured speakers and the audience were extremely impressive and captivating. Every year I feel utterly exhausted by the end, but every year I return again knowing that this remains the key Forum for social entrepreneurship and investment in the world, despite the continued overrepresentation of practitioners from the USA.

Past SWFs have generally been a bit light on social entrepreneur, and heavier on investors—but this has been rectified over the last few years.  Also on the plus side the sessions seemed to flow better the fringe “Oxford Jam” meeting across the street is now a well-established and valued counterpoint to the forum itself.

The most significant impression I have is of inspiring people who grace this conference in considerable number. This year the highlight was Archbishop Desmond Tutu, who gave a series of impassioned discussions. Who also could fail to be inspired by the performance artist Peter Gabriel, who sang his hit song about Stephen Biko?. The SWF also introduced the Elders, a gathering of the global “great and good” including Tutu (who chairs the Elders) and Nelson Mandela as well as Jimmy Carter and a host of others.  Such super celebrities undoubtedly have the power to do a great deal of good in the world and their activities were explained.

On the other hand, the misfortunes of another global celebrity hung over the conference. Mohammed Yunus, the social entrepreneur behind the Grameen Bank and the person widely considered to be the father of micro-finance, has been very much in the press these days. He is being investigated in his native country of Bangladesh. I will not go into the details, which are not familiar to me and there are widespread allegations that the case is politically motivated. In fact, there was an appeal at the SWF to speak out and campaign on his behalf. Surely, anything that is motivated by political purposes to denigrate such an important and successful individual is anathema to the spirit of social entrepreneurship and the Forum.

On the other hand, his misfortunes appear to be having a negative impact on the micro-finance sector at large, which is also suffering from a range of different issues, and underscore the risks in celebrity. There is no doubt that Yunus has made an enormous contribution to social enterprise and micro-finance, however the unfortunate consequences of this publicity and his strong identification with the sector are now having adverse consequences.  For the social enterprise and investment sector to thrive on a long-term basis it needs a healthy and robust diversity of voices.

What do you think?

First published in The Social Edge in April 2011

Size—the ally or enemy of Social Enterprise?

In our last Social Edge post we looked at the merger activity in social enterprise and suggested that it was sub-optimal, perhaps because of egos, or because the absence of a profit motive which, in theory, compels Boards and CEOs of “for-profit” companies, and is absent with SEs.  Implicit in this, is the presumption that bigger is better.

Many of the conferences I attend host a myriad of sessions on “getting to scale”, a particularly American phrase, but such thinking permeates Europe as well.  With size, organisations can achieve economies of scale.  Also, for SEs with models that operate effectively in alleviating hunger, teaching poor children, reducing CO2 emissions reductions, etc. there must surely be a strong moral case to expand rapidly.

From a funder’s perspective scale seems all-important.  Nearly all I know seek to engage in activities which are “high-potential”.  I have never been approached by an investor looking for something small which seeks just to continue serving a narrowly defined community well.  Foundations and social investors seek result they can measure—and results seem to mean growth.  The need for capital and the orientation of most investors creates a bias towards big, or at least bigger.  How should the non-scale oriented gain funding?

But some contend that as SEs grow their missions are diluted.  The purity of what drove the original team is sacrificed in the pursuit of growth.  How easy is it to stay social or ethical as the line between the CEO and the line staff becomes more attenuated?

Vertically “tall” organisations can suffer a “corruption” of sorts in their missions.  The CEO is focused on one set of objectives, whereas line staff is concentrated on another.  This can be especially true when the business becomes very large and the CEO becomes an important figure—I have seen several then lose sight of their original mission.  And how many really large social enterprises are there anyway?  Mondragon in Spain, John Lewis, The Coop and Welsh Water in the UK (and many of these would not fit many commentator’s definitions of social enterprise)—but the list gets very short, very fast.  Perhaps as SEs get big they become more valuable and greed or delusions of grandeur kick in.

  • Maybe it would be better if they just sold out, cashed in their chips and reinvested some of the proceeds in new social enterprises? Gordon and the late Anita Roddick did this to wonderful effect with the Body Shop.
  • Perhaps there is just a “life cycle” to SEs and we need to just accept that?
  • Will this fascination with size ever cease?

First published in The Social Edge in October 2010

Should Tax Incentives for Social Enterprise Stop?

I recently attended the launch of a report by the Centre for the Study of Financial Innovation entitled “Investing in Social Enterprise; The Role of Tax Incentives”.  What followed was one of the most vigorous and lively debates in which I have ever participated in this sector.

The report catalogued the considerable number of tax incentives available for investors in social enterprise in the UK—many of which have been available for some time.  Government officials in many countries are studying case studies like the UK and toying with alternatives.  At the CSFI debate, numerous practitioners argued for a series of sensible refinements.  Others noted that the field of play should at least be level with the private sector.  There is, however, a compelling case for an end to all incentives.

First, there is little evidence they succeed.  In the UK it seems the progress of the sector has happened despite and not because of the incentives.  Areas of particular benefit seem to have enjoyed less rather than more growth.

Second, the vast array of incentives is a highly complex and difficult and expensive to negotiate.  Small wonder the cover of the report was an image of a maze.

Third, they are highly distortive.  There is considerable evidence they also displace important private sector efforts in the social enterprise area.  When these incentives are augmented by the creation of Government funded or backed vehicles, as in the UK or Ontario, Canada, for example, (thus far the US has been relatively light on such distortions) this can seriously impede private sector involvement.

Fourth, Government incentives can be highly volatile and vulnerable to a shift in the political winds.  Thus, well-intended initiatives can be undone at the stroke of a pen, which is disruptive and damaging to the operations impacted.

Fifth and most importantly, at such times, it is difficult to argue that our sector is as deserving as so many whose lives have been destroyed by such man-made calamities as the credit crisis and the resultant fiscal retrenchment, or the recent oil spill in the Gulf of Mexico.  Our genuine concern for the social impact of our sector needs to take into account the human suffering around us.  Moreover, with private capital making its way into the social or impact investment space, are we really in a position to justify our pleas?

Nevertheless, questions remain:

  • Are there specific areas where there is simply no choice but to require governmental capital or fiscal incentives to correct a genuine market failure (rather than frustration over speed)?
  • Which sorts of governmental activity can have the biggest impact? In which circumstances?
  • Are any particular countries especially effective in social enterprise development as a result of governmental action? Many of my examples reflect my own Anglo-Saxon orientation.  Are there other models which are working?  Do recent fiscal programmes in France offer a new path to follow?

First published in The Social Edge in July 2010.

Can Social Enterprises be Commercial?

“Oh that’d be a bit corporate, don’t you think?”  This I was recently told by a social entrepreneur, following a suggestion I thought would improve their performance.  It was not just the reply I found troubling, it was the face the respondent made.  He sort of scrunched up his face the way you might at the smell of rotten eggs.  I also felt that feeling I feel many times working in the social enterprise sector—“whose side are you on, mate?” they seem to ask.  “I thought you were one of us but when you talk like that it makes me think you never left the City/Wall Street”.

In so many ways I find a real distaste for what I would consider good corporate practice.  Another social entrepreneur is always late.  Meeting always begin 20 minutes after they were meant to.  I feel emotionally unable to just start arriving 20 minutes after the official start time, although others do—so my time is wasted and I quietly (generally) fume.  It is not that mainstream entrepreneurs are by nature any more punctual—of course not.  But when they arrive late, they apologise, and there is some recognition of the fact that this is unacceptable behaviour which needs correcting.

Another example is the mess in which I find some of the offices.  Don’t these companies have customers, I think.  What are they to make of the state of this room/office?

This is not to suggest that social entrepreneurs go to the expense of creating lavish offices which seek to impress—surely a waste of scarce resources.  But tidiness and order are not evidence of moral turpitude or corporate sell-out, just of an organisation in good operating condition.  Again, it is the attitude rather than the reality which grates; the sort of nonchalant acceptance that a mess is one quaint aspect of running a social enterprise, especially an early stage one.

Nowhere is this more harmful than when it comes to fundraising.  Where traditional entrepreneurs strive hard to hone their pitch, the social entrepreneur acts as if he/she is somewhat “put upon” but the unnecessary and tedious demands of the potential investor to get an earth-shatteringly important story into a mere few minutes.  We find this sometimes at our Social Investor Speed Dating events from social entrepreneurs.

Not all are this way, and I exaggerate (as ever) to make the point, but I contend that there is nothing harmful in operating to the best standards of commercial behaviour.  It does not undermine but rather enhances the social mission.  It does raise questions:

  • How far can a social business or enterprise go in becoming commercial before it ceases to be social?
  • Which corporate traits are best avoided?
  • When we at ClearlySo host our annual Social Business Conference, and focus on just the financial and performance issues, are we undermining the social ethos? Should we not be including sessions on furthering the social mission?
  • Is the nonchalance I mentioned above just an essential characteristic of the visionary social entrepreneur which we need to accept and celebrate?

First published in The Social Edge in June 2010

Is a Social Economy Possible?

If you look to the left (I mean that literally—to the left hand column of the Social Edge homepage) you will see a rather silly photograph of me and the words “A Clearly Social Economy”.  This is meant as a clever play on the name of our business (ClearlySo) and the social economy we all wish to help bring about.  But just because we want desperately for something to happen does not mean it will, and I have a profound weakness for hopeless causes.  My football team (soccer, to you Yanks) has little chance of surviving in the top division and my political party seems to be a perennial third place finisher in a two-horse race.  Is a truly social economy just a pipe dream?

On the investment side, despite all the talk, the flow of funds is just a trickle.  Foundations, with few exceptions, keep talking about social investment but doing little—here the USA is uniquely advantaged because of the requirement to spend at least 5% of fund assets each year (a requirement absent in most other countries), against which “Mission Related Investment” counts.  So that is relatively good, but where else would we applaud entities who dedicate 5% of their assets to their core activity as a success but in social/impact investment?  What about the other 95%!!

SRI funds, although they are growing at a clip, make investments in the same large listed companies as mainstream investors—no hope there, right?

We speak often of the massive tidal wave of wealth that could come from the HNWIs, but the private bankers which guard those assets are conservative to say the least.  Less well-off retail investors, even those inclined to make social investments, are blocked from doing so by securities regulations.

And what of the social entrepreneurs?  Despite all the hype and charisma, where are the big success stories—the social sector equivalents of Google or Facebook?  We cannot blame it on time, as these two businesses are recent hits.  Those which make a big difference and become household names (The Body Shop, Ben & Jerry’s and others in the UK whose names will not be widely recognised) cash in their chips as soon as they achieve scale.  Will there ever be a big social enterprise (apart from Mondragon of Spain, the exception that proves the rule)?

Absent financial success, do we really imagine the funding will continue to flow to unsustainable (though eminently worthy) social enterprises in a fiscally constrained world?

And earlier today, at the Said Business School at Oxford, where I spoke at the Skoll Emerge Conference to high-powered students looking for guidance, a young woman asked me if she should not “clear her debts” and work for an investment bank.  It was not just the money, but she valued the competitive, highly-charged atmosphere.  Could I really pretend that this was available in abundance at firms in the social finance field?  To whom do I owe my loyalty?  To the keen MBA?  To the sector?  To “Truth”?

First published in The Social Edge in November 2009.

Will The Social Economy be Far More Feminine?

Last week I participated in a podcast by the Guardian in the UK.  One issue we debated was the idea of a women-run investment bank.  I was highly supportive and put my name forward to sit on its (mixed!) Board.  My thinking—an excess of testosterone and an absence of diversity has nearly destroyed the western economic system—our investment banks need more balance.

These are tricky issues to address in print; one feels on a cliff edge in doing so, but this issue seems important.  There is much research which suggests that women are better equipped at exhibiting balance—at being aware of and acting in accordance with a wide-range of conflicting objectives.  In a financial meltdown caused by a lack of balance, are these not sound arguments for a more feminine approach to the economy—or simply more women in more senior places.

Rwanda, in the aftermath of its 1994 genocide, has since seen women attain many senior positions and the majority in Parliament.  More recently, Iceland was bankrupted by a set of reckless “cowboys”—now women have been given the political and economic reins.  In both cases this was not a planned or decreed handover; the people merely turned to women to sort out their mess (see a ClearlySo blog post on this subject).  Do we need to do the same elsewhere?

In the social economy this has already begun.  Think of some of the prominent figures in social business, enterprise and investment.  Anita Roddick was co-founder, driving spirit and the face of The Body Shop, one of the sector’s first mega-success stories and a business which changed how we think about consumer products.  The co-heads of Justgiving, the leading charitable giving website, are both women (Zarine Kharas and Anne-Marie Huby), and the two leading UK fairtrade brands, Cafe Direct and Divine (chocolate) are run by Anne MacCaig and Sophi Tranchell.  There are some great men as well, but compared to the traditional business sector the extent of this female presence is unique.

Do we need to encourage this further?  If so, how?

Could we be going too far in this direction?  If so, what are the risks?

Although it is a bit weird feeling that history is making my gender somewhat useless—our position is much of our own making.  I look forward with enthusiasm to seeing a more feminine economy, in the social enterprise sector and elsewhere.  We have had our chance!

First published in The Social Edge in October 2009