Research shatters the myth that social enterprises are more likely to fail than traditional start ups
Download full report ‘Who lives the longest?’ by Professor Simon Denny from Northampton University, associate partner in the Social Economy in Higher Education project
The following article is by Abbie Rumbold and is taken from The Guardian
There is a lazy but persistent myth that social enterprises should be viewed with suspicion as deliverers of public services or vehicles for new investment because they are inherently unstable, and risky and on the verge of bankruptcy.
Just how pervasive this myth is was brought home to me when I was negotiating, on behalf of a social enterprise client, with a large private sector provider of public services. The company wanted copious payment guarantees in the contract, because, “social enterprises go bust all the time and we have to protect ourselves”.
My initial reaction was that this was a ridiculous assertion for which there is no hard evidence. One very successful social enterprise, the London Early Years Foundation, has been around for more than 100 years, for example, and now boasts a trading income of £10.4m. But I wanted to test the “conventional wisdom” that social enterprises are innately more precarious business ventures than their private sector equivalents. So I asked Professor Simon Denny, director of enterprise, development and social impact at Northampton University, to compare the longevity of FTSE 100 companies and the top social ventures.
Denny’s research looked at the survival rates, for the period from 1984 until 2014, of the 100 top social enterprises and trading charities in comparison with the top 100 PLCs. He found that the social ventures were not more likely than the PLCs to cease operating or fail to repay investments. In fact, overall, 41% of these ‘competitive third sector organisations’ have endured, compared with 33% of the PLCs.
When you take out the 40 trading charities in the list, and just look at the remaining 60 social enterprises, there was a small but not significant difference between their percentage survivability and that of the PLCS – 31.6% and 33% respectively.
No one is claiming that being a social enterprise or trading charity is plain sailing. There will always be those that fail. But this research shows that giving social ventures tougher contracts than traditional businesses on the grounds that they are inherently riskier, is unjustified and unfair.
The research also found that PLCs are significantly more likely to be acquired by other companies than social enterprises. If a company is bought out, it can affect the focus of the organisation and its ability to fulfil a public sector contract. Social enterprises are far less likely to merge or be acquired by a competitor. It does happen sometimes, but it’s much less common. In that sense, social enterprises are significantly less risky as deliverers of public services.
I hope public sector commissioners will examine this research and lose some of their nervousness about commissioning from social enterprises. This nervousness is reflected in qualification criteria that demand huge financial reserves, thus excluding many social enterprises. As a National Audit Office report last autumn showed, government relies far too much on four big private sector suppliers to deliver public services. This research demonstrates that there are reasons why there should be much more diversity among providers.
Abbie Rumbold is a partner in Bates Wells Braithwaites’s Charity and Social Enterprise Department.
Update by Mike Calvert on the group of women from Nairobi who are expanding their businesses with micro-finance
Those of you who are interested in the fortunes of the Nairobi women entrepreneurs (see earlier posts), will be pleased to hear that things are going well. I thank the readers of the blog for their encouragement which I am sure means a lot to the women and those that support them.
The micro-finance initiative has attracted a fifth member, Rispa and she is following in Alice’s footsteps and rearing chickens and needed the KES20,000 (£150) to ensure continuity of laying by having a second batch of chicks in the wings (pun intended) for when one batch stops laying.
I mentioned last time that the women were considering offering overdrafts short term to maximise the value and usefulness of the money. Three women have taken overdrafts of KES38,000 in total (£250) to be paid back over two months. The women are also working on registering the group so that they do not have to pay taxes.
Jacinta (left) with her husband, Steve with a customer in the shop.
The big news is that Jacinta (who has got the shop and the café) has bought a cow! She did have grand plans for a top of the range model but must have settled for a more modest animal using the proceeds of her second loan. She will now have all the milk she needs and more and will be able to supply milk to others.
I have not got a picture of the cow – I could not go out to Nairobi last week due to the bombings but watch this space. Kenyans are not sentimental about their animals but I have suggested Daisy and this has been given preliminary approval.
Article written by Mike Calvert, York St John University, UK
Time Banking is not a new concept and many of the blog’s readers will know of the history and development of Time Banking which is a fast-growing global phenomenon. Founded in 1980 by Edgar Cahn it has spread to at least 24 countries and there are well over 250 Time Banks in England (including Timebank York by the way). All Time Banks are different but crudely what they have in common is the use of time as currency, there is the concept of reciprocity and the notion that we all have something to offer and we all need other people.
An interview with a Timebuilder at Sheffield led to this blog which may well be of interest to those committed to community action, social enterprise/economy and is seeking other ways of dealing with serious social issues that shrinking public services are finding increasingly hard to address.
The Big Lottery-funded project (£325K) in Sheffield is 18 months in and is based at St Mary’s Church at Bramall Lane Community Centre. The location had the advantage of already being used by community groups and to house projects. It is used as a centre for teaching English and is used by new arrivals including asylum seekers who have just come into the country and need to learn English. It has conference facilities that can be hired out. There are four paid staff and they recognise the need for some paid staff.
As was mentioned above, every Time Bank or similar is different from the next. It depends on a number of factors and the context. What works in one place might not work in another. Interestingly, Sheffield Timebuilders moved away from one-to-one skill share as a) they feel it has a short shelf life b) it is labour intensive and c) it was unlikely to achieve the deliverables that they were charged with in the lottery bid d) given the demographic sending people out to vet or visit individuals could be quite risky.
The aim is to have 1000 people as active timebuilders. The project attracts a range of people including those from minority backgrounds, those suffering from substance abuse and recovering from mental health issues. They work more extensively with groups of people rather than individuals. They set out to earn as a group and spend as a group. They have established a framework within which they can learn from each other, earn with each other and socialise with each other. They have a weekly joining slot for new members.
They recognise the value of reciprocity and have preserved the notion of time as a currency but regard what they do as volunteering with a difference – it is ‘a two-way street’. They value caring and the range of people’s talents and contributions and see the process as being a mechanism for recovery for some including those with mental health problems. They talk of ‘unlocking the resources in the community’.
They used to use time online to register the hours but felt that there was some rigidity there and have moved to paper time credits that the participants have to take responsibility for managing. They still record the hours on a database to show what is being achieved but this is more for monitoring purposes. They currently have 220 people on their books. They focus on group activities such as litter picking and gardening and can supervise a range of people in one place and fulfil their duty of care.
They are also in receipt of a different funding stream ‘Awards for all’ to the tune of £5000. This means that they have additional funds to offer social events and trips such as the one to York. This attracts those who might not volunteer, as well as those who might providing an additional ‘pull factor’ of being able to spend the hours on something nice. They have partnership arrangements with football clubs, theatres, other organisations and endeavour to try to get as many free tickets as possible but this is quite challenging.
They have a Timebuilder leadership programme where people can learn transferable skills around facilitation, and make them more effective as Timebuilding volunteers. They recognise the need for capacity building for sustainability that can be brought about by developing the volunteers. They also have a Timebuilders Catalogue specifying what you can spend and what you can earn. They also have a ‘Timebuilders University’ helping those who might be able to go on to study. ‘Speak and grow’ brings together people with different languages to speak and do gardening at the same time.
I recommend justaddspice.org (not an advert for after shave but a great site from Wales) and more locally newhorizonsdoncaster.co.uk as well as our own yorktimebank.org.uk. See also an interview with Viv Chamberlin-Kidd from York Timebank on the Social Economy site. The parent body is timebank.org.uk
By Edwar Reynaldo Arenas Rocha
Edwar Reynaldo Arenas Rocha is Peruvian anthropologist who graduated in the University San Antonio Abad del Cusco (UNSAAC) in Peru. He is a member of the team working on the project ‘Enhancing study and practice of the social economy in higher education’ at UNSAAC . He has written this article for the project blog.
When discussing the social economy it is necessary to explain one’s position. The theoretical field is clearly under construction and the concept has many names, such as the ‘third sector’.
The theoretical models used to define the social economy are economic-political models: based on Keynesian and monetarist capitalism; and on socialism with centrally planned provision. But is the social economy an economic or a political model? Theoretically it is a concept that has many meanings; in practice it consists of collective and individual experiences, traditionally called cooperatives, mutual societies and associations.
José Luis Monzón (1998) argues that the social economy is not a replacement of the liberal capitalist system of the economy and is not a by-product of the cyclical evolution of capitalism, and I give him credit for this. However, he says that it emerges as an additional institution of the economic system [one asks, ‘which economic system?’], different from the public sector and the capitalist sector, and it is structured as these are.
I think that the social economy is not one more institution of the capitalist economic system as argued by Monzón. Rather, the economy has always been social, but this feature of being social has been lost over time. This current loss of the ‘social’ aspect manifests itself in what is called individualism, or the service of the few: corporations, for example.
So the ‘social economy’ aims to recover this characteristic of sociability of the economy, with which it was born, i.e. one at the service of society. I would argue that it is the economy itself that needs to be recovered, with its fundamental nature of sociability, rather than the creation of another sector within the system (mainly capitalist), as I believe Monzón was referring to.
However, the capitalist economic model has a public sector and a private sector. Let us take an illustrative example; each nation has a Magna Carta or constitution called a social contract. The constitution in Peru changed in 1993. Since then, this Constitution clearly stipulates; “… private initiative is free. It is exercised in a social economy of the market . Under this regime, the State guides the development of the country and acts mainly in the areas of promotion of employment, health, education, security, public services and infrastructure ”
I have commented that the economic-capitalist political model has two variants: Keynesian and monetarist. The type introduced in Peru is monetarism, and this regulates all economic activities in the market.
A major deficiency in the analysis of the social economy is that it is not known exactly what the principles governing these two variants of capitalism are and what the principles governing the economic planning of socialism are. We do know that each economic model has political and economic principles. One of the principles governing the capitalist model is the private ownership of the means of production; and in socialist economic model planning it is the public ownership of the means of production.
There is a difficulty if in a nation’s constitution it is stipulated which economic model is accepted and therefore legitimised. Knowing that the monetarist variant is stipulated in the Peruvian Constitution we can state that it is the market that regulates all economic activity. It is a mistake to assert that the State should offer solutions to any failure of economic activity, when the State only guarantees actions as set forth in the Constitution. We would be falling into an interpretative error, since that would be demanding the intervention of the State, i.e. the Keynesian variant.
The monetarist variant of capitalism includes public and private activity, which is very different to affirming the principles stated previously regarding means of production.
Now the questions are: What principles was the economy born with? If the economy was always social, why is it being considered as a third sector and not as an economic model? If the economy was always social, what are we therefore talking about? Are we not trying to return to the principles of the social character of the economy? We are therefore conscious that this has been lost.
But we are adding principles: reciprocity, solidarity and primacy of persons, self-management and internal democracy. The social economy is based on different principles to the two economic models above. Empirical evidence shows that the social economy works with different socio-economic principles from the two models referred to. So are we not talking about a new economic model?
If so, wouldn’t there be a paradox within this new economic model that it interacts within the market and accepts a national currency which is heavily tied to the international currency market.
Or that some empirical evidence is demonstrating that some organisations considered part of the social economy do not guarantee that they operate under its principles. In Peru, there are or there may be many “social institutions” that have nothing associative, mutual or cooperative about them other than their name, which serves only as a facade for activities involving profit and advantage.
 Peruano. Egresado de la Carrera Profesional de Antropología por la Universidad Nacional de San Antonio Abad del Cusco. Miembro del proyecto “Economía Social y Aplicaciones en la Educación Superior” de la UNSAAC-Cusco.
 The emphasis is personal.
 Art. 58 Constitución Política del Perú de 1993.
Thank you to everyone who has completed our survey. So far we have responses from: Argentina, Colombia, East Timor, Guinea Bissau, Ireland, Mexico, Peru, Portugal, San Tome, Spain, United Kingdom!
and they include: cooperatives dedicated to food production, health, education and food retail;
mutual financial associations owned by their members;
informal groups dedicated to producing crafts;
social enterprises seeking to promote employability of young people;
associations for local development;
and many more.
If you belong to an association which exists for the good of the community, a cooperative which works to provide fair working conditions to its members or to the public, if you work in a social enterprise which is aiming to address a social/environmental issue in your community, we would love you to be part of this. Your experience will help to inform universities as they teach human-centred and sustainable ways of doing business. It will only take 10 minutes.
See more about the social economy in higher education project
Complete the survey Complete the survey (UK version)
The survey is also available in Portuguese and Spanish:
Complete the survey in Portuguese
Complete the survey in Spanish (Latin America)
Complete the survey in Spanish (Spain)
The Social Economy in Higher Education project handbook will have a chapter on the importance of social capital to the social/solidarity economy. This article describes a women’s group in Kenya which is drawing on the bonds between a group of women to manage micro-finance in order to provide sustainable incomes to support their families and provide employment. This post is written by Mike Calvert, York St John University, UK, collaborator with the Social Economy in Higher Education project.
Readers of the blog may have read an earlier post (Dec ’13) in which I described the work of four women entrepreneurs in Nairobi. Recently, I had the good fortune to meet them again in Nairobi and visit two of the enterprises. It is clear that they are going from strength to strength. Having paid back all the money they were lent in June 2013 with interest by November, they decided to take out KES30,000 each and step up their investment. A further injection of capital enabled them to increase the size of their loans. They had requested a longer period to return the money (December – August) and this had been agreed.
In the earlier post, the women described the impact the micro-finance had had on their lives:
Susan needed the money to expand her boutique. She sells clothes and cosmetics. She started by selling goods from home. As her customer base increased she needed the capital to expand. She had identified an opportunity but her limited finance was a brake on expansion. She regarded the funding and the funder as a ‘tyre jack’ (piga jecki in Swahili). She had found it easier to pay back the money than she had anticipated. She now employs one person to run the shop which frees her up for other tasks.
She had increased in business confidence as a result. Her aim was to register modest profits. She concentrated on customer care and customers speak well of her business. The principal challenge was the balance of what to take as salary and what to re-invest. This was seen as a delicate balance.
Jacinta was a housewife before meeting Mary. She earned her living by going to people’s houses cleaning clothes – an arduous and poorly remunerated task. She had acquired a kiosk but there was no produce to sell. The capital had enabled her to establish a greengrocery business. The intention was to have the kiosk divided into three sections to host a ‘hotel’ meaning a canteen and a shop. She intends to employ someone else to work with her.
Alice used the money to expand her egg business. The issue for Alice was cash flow as it takes four and a half months to rear the chickens until they produce eggs and the cost of food, upkeep and electricity means that there are considerable outgoings but no income until the eggs are laid. She described herself as ‘almost stuck’. The income will enable her to have continuity rearing another batch of chicks whilst the others are laying eggs. She is now selling 16 trays a day (thirty per tray) and making KES1000 profit per day. The market demand is high for eggs. She is also selling the manure from the chickens adding to her income.
Eunice Mama Magiri
Eunice had been in the tailoring trade since 1986. She moved to her current place and had increased responsibilities for school fees and the house. She had visited Susan to request money when she learned of the project and requested the loan of KES20,000. She was not new to the market but needed the funding when she received an order that she could not source for lack of funds. This enabled her to supply clothes to Eldoret. She now had many orders and was keen to get more funding to allow her to expand.
Update: what have they been up to?
Susan and Milka outside Susan’s clothes shop
All four women have benefitted from the investments they have made. Eunice Mama has been able to control her cash flow. She is able to source materials more confidently and gives work to her previous employees who carry out piece work. Susan has diversified from selling women’s clothes to selling men’s and children’s clothes, shoes and cosmetics. Her business is flourishing. Jacinta wanted to diversify in terms of what she could offer at her kiosk. As a result of the second injection of money she has been able to provide samosas, chapattis, chips and tea and, most importantly, she is employing her husband full-time. Previously, he was doing odd job work digging gardens, etc. She is now talking about buying a cow which is an ambitious aim but with a cow yielding 30 litres a day, she could sell a great deal of milk apart from putting it in the tea – Kenyans tend to put tea in their milk and sugar rather than the other way around as in the UK! Jacinta is much more confident and can now feed her children well. Alice, who is breeding chickens, has been able to buy a second brood of 600 chickens and when the current hens are no longer laying eggs, will have a new source of eggs. She is currently using a wholesaler to sell her eggs. She is also selling more chicken manure (14 bags up from 10).
What then are the next steps?
With a further injection of capital, the group can currently draw on at least KES50,000 from the new capital in addition to the money they are paying back as it becomes available. They have decided amongst themselves that they are going to save KES 1,000 (£7) per month in addition to making their monthly payment. This is an important shift in their thinking as they plan to save for the future. A further investor is possible.
They have decided also to open an M-pesa account. M-pesa is a way of transferring money electronically via the mobile phone. This is highly developed in Kenya and can even be used by Kenyans without a bank account. This will mean that they can make payments or receive new monies via the phone rather than face-to-face.
Jacinta and Steve’s boys (Jeff, Ian and Michael) outside her shop/café
Finally, they also talked about allowing the money to be used like an overdraft facility for those who needed cash in the short term and would pay it all off in a month (at 5% interest). It is interesting to note that they have gone from first time investors to behaving like social bankers. They are certainly sharpening their business acumen.
A crucial decision is the extent to which they open the scheme up to others. They have now decided to offer a loan to another member of their core group (of 11 women) and to mentor that individual. This pilot will help them to understand the challenges of opening this up to a wider audience. There was reference in a previous blog to the issue of how much to draw as income and how much to invest. Their issue now is whether they should open a bank account and what interest their money would attract compared with what they can gain in terms of their own value-added work. They have decided to open an account that needs several signatories for withdrawal but they would rather re-invest money rather than see it sitting in a bank.
The group collectively want to move slowly but also have tasted the transformational impact of the investments to date and may be impatient. Our discussion touched on risk management and the need to ensure that they did not overreach themselves.
All four women and their mentor are showing that with a relatively modest level of help and close support and encouragement, they can produce impressive changes in their lives and businesses. It is early days but there are grounds for optimism and it is hoped that this model, however small, can benefit others.
Our next meeting will be in June 2014 when we will be able to visit the businesses and see for ourselves what is happening on the ground. Watch this space!