The rise of the social entrepreneur

Social enterprises are on the increase, but what are they and how do they survive?

The Prince of Thieves isn’t everyone’s idea of your typical entrepreneur, but he worked for himself, was an inveterate risk-taker and rejected normal ways of doing things in order to make money – money to give away, that is.

Today’s social entrepreneurs operate within the law, but they are changing how things are done – and they’re on the increase.

Duncan Goose, for example, was business development director at a marketing agency three years ago. His motivation for realising an ambition to start a business was the result of an unforgettable experience while on a career break. Riding a motorbike round the world, he witnessed the devastating effects of Hurricane Mitch first hand in Honduras – 30,000 people died. “When I returned it hit me that I was in the business of making money for other people, and actually I could use the skills I’ve learnt over 20 years to do something positive.”

This came in the form of a business selling bottled water. In a market dominated by Nestlé and Danone (who produce Perrier and Volvic, respectively) the chances of making his ‘One water’ a success were slim. The difference, though, was that all profits went to a charity that builds water pumps in poor African communities. One water is now a thriving brand, stocked by the UK’s major supermarkets.

Is there room for profit?

But you don’t have to give away all your profit to be a social entrepreneur. In between the spheres of charity and profit-making, exists a distinct way of doing business. Social enterprises are defined by the Department of Trade and Industry (DTI) as businesses with primarily social objectives, whose surpluses are principally reinvested for that purpose rather than being driven by a need to maximise profit for shareholders and owners.

Some businesses give away their profits, but others provide a product or service that makes a social difference, and reinvest their profits in the business. Such businesses have been around for at least a century and there are now more than ever. Jonathan Bland, chairman of the Social Enterprise Coalition, the UK’s national body for social entrepreneurship, says: “What we have seen in the last three or four years is a real acceleration.”

There are around 55,000 social enterprises in the UK right now, according to government figures. They’re turning over £27bn and employing half a million – eye-popping figures. The founders come from two ‘pots’. Many are from the charity or not-for-profit sector, and decide that a sustainable business will generate more cash and potential for social change. Increasingly, however, social entrepreneurs come from the private sector. People like you.

Established entrepreneurs are demanding more from their businesses, and are aiming for a double or triple bottom line – social and/or environmental benefits to add to the financial return.

Who’s involved?

Jeff Skoll, former founding president of eBay, is a social entrepreneur. He now runs the Skoll Foundation, which itself invests in social entrepreneurs. He has also founded other social enterprises, such as Participant Productions, a global media company that produces entertainment, such as the film An Inconvenient Truth, to inspire social change.

Other high-profile figures include 2006 Nobel Peace Prize winner, Muhammed Yunus, who transformed the lives of millions of Bangladesh’s poorest through pioneering microcredit, the Eden Project’s Tim Smit, The Big Issue’s John Bird, and chef Jamie Oliver (pictured above, left). Liam Black (pictured above, right) is the director of The Fifteen Foundation, the social enterprise founded by Oliver. He came to it via charity, after realising relying on hand-outs meant his charity was spending more time raising money than it was getting things done.

He turned the Furniture Resource Centre Group from a small charity supplying second-hand furniture to poor communities, into a multi-million pound business, giving work to unemployed people and providing low-income families with the chance to buy recycled furniture. It was only when New Labour came to office in 1997, says Black, that “a new vocabulary was developed, and people started using terms like social entrepreneur and social enterprise”.

In response to the publicity his business received as an example of a successful social enterprise, Black set up social enterprise networking tool The Cat’s Pyjamas. Through this, he was asked to speak at an event attended by Oliver – the result of which led to creating Fifteen, now a ‘global enterprise brand’.

Where the money goes

Black now believes “something is trying to be born in the world – a different form of wealth-creation that doesn’t try to make lots of profit, and gives away a little bit to poor people, but that attempts to carry out a business that is empowering people”.

Many agree. Sam Conniff, for example, is an entrepreneur who previously ran his own marketing agency until he “just got fed up with selling fizzy drinks”. In the face of problems in his own South London community, he decided his new business, youth marketing agency Livity, could be more than just a money-making machine. It would take on projects that would actively make a positive change to the community.

“Marketing is one of the biggest social influences to a youth audience,” he says. “What if you had an agency that had a social agenda as much as it had a financial one? That was our aim and it still works six years later.”

The financial agenda is important. Some social enterprises, such as One water, are social enterprises because they make as much profit as possible in order to give it all away, demonstrating that not-for-profit doesn’t mean profit isn’t made, it just doesn’t go to shareholders. This leads to a different relationship with profit: minimal salaries (Goose takes £6,000 a year and supports himself by fitting in the odd bit of consultancy work), and an unwillingness to take investment. But businesses such as Livity or Fifteen still pay salaries and can even take investment, but as social enterprises, they reinvest the surplus in the business.

As Jonathan Bland summarises: “You have to make a profit to stay in business. It’s really about the distribution of profits. If the way you distribute them ends up turning you into a conventional business then what’s the difference? It’s an issue of proportionality.”

Spot the difference

However a social enterprise decides to raise funds or distribute its profits, it will be first and foremost a business. The usual challenges still apply to social businesses: being quick to market, managing cashflow, staying ahead of the competition – all the necessities of running a successful business are just as important. Similarly, a social entrepreneur is the same beast as a traditional entrepreneur, albeit with their social conscience tied in.

There are particular challenges though. “The way you engage with stakeholders as a social enterprise is more complicated,” says Bland. Liam Black is more blunt. “Private entrepreneurs have it easy!” he laughs. “All they have to do is make money.”

In some ways, though, entrepreneurs running social enterprises are also finding unexpected and encouraging benefits. “We shot a £200,000 TV commercial with a team of about 20 people from the BBC, and no one charged us a penny,” recalls One’s Goose. “I think the biggest expense was the chocolate that got eaten!”

He has also enjoyed support from retailers such as the Co-op, Waitrose and Tesco, describing working with them as “less of a consumer-manufacturer relationship and more of a partnership”, and his business is working. “Our original goal was to put access to water in one community. We now do one community every 14 days. By the summer that’ll be every 11 days, and in two years, every day.”

Another benefit of running a social enterprise is its attractiveness to the workforce. In an age where the search for talent is one of the biggest issues facing business, a firm that can offer recruits more than the standard financial benefits might have the edge. Added to this is a change in what consumers demand from their products and services. Goose believes there’s been an “interesting sea-change in consumer attitudes. The growth of fair trade shows that people are starting to consider what they’re buying and why they’re buying it.” Developing a social, as well as financial return therefore, can be worth it in a business sense.

This does raise an obvious problem, though. If more businesses start developing a double bottom line because of a financial benefit, will this turn increasingly cynical consumers off? Or will it normalise the concept? Most social entrepreneurs think the latter is more likely. Sam Conniff of Livity goes so far as to express dislike for the term social enterprise because it “lets other businesses off”.

So what’s the future for social enterprise? Many believe it will be among the most important business models of this century. Gordon Brown has said: “In my view, social enterprise is a new British success story, forging a new frontier of enterprise.” Entrepreneurs, by their very nature, drive change. Fifteen’s Black believes there will be “a new generation of businesses where the double or triple bottom line is standard.” Will you be among them?

Social enterprise: an interesting investment

There is a growing willingness among investors to work with social businesses. Put simply, investing in social enterprises often makes good business sense. Liam Black, director of Jamie Oliver?s social enterprise The Fifteen Foundation, says: ?I see private equity managers who have staked their careers on advising their investors they can put their money in social-purpose ventures, get a good return and know their wealth will be adding value to the world.?

Michelle Giddons, director at Bridges Community Ventures, a private sector venture capital company, which raises funding for businesses in economically deprived areas, upholds this view. ?We are seeing an increased appetite from the private sector for investing in a socially positive way,? she says.

Bridges Community Ventures could be seen as a social enterprise itself. By funding businesses in the most deprived parts of the UK, it increases employment and regeneration in those areas. But it also has a good insight into socially responsible investment by the private sector.

Giddons notes a desire from consumers to address social and environmental issues, making the area more attractive to investors. She adds: ?This is still a very, very new area, and it?s still challenging, at the moment, to raise funds for this. But it has appeal, and I think it will grow.?

Other options have also been explored by growing social enterprises in need of funding. Fair trade tea and coffee company Caf?direct, for example, chose to go through a public share option and raised ?5m this way.

Social enterprises will always focus more on social value than shareholder value, but investors who recognise this and still want to put their money to good use are growing in number. Jonathan Bland explains: ?The issue is the need to ensure that the social mission is locked in, and the balance on the triple bottom line doesn?t get out of proportion. The danger is focusing only on shareholder value.?

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