“Social Enterprise – the challenge of sustainability”
Dr Roger Evans
Evanter OÜ
Pärnu, Estonia / Troon, Scotland
evanter.ou@gmail.com
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Defining Social Enterprise
Defining Social Enterprise:
The meaning of the term social enterprise as used by organisations
promoting social enterprise:
• networks & companies
• government
• agencies
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What is social enterprise?
• Social enterprises are businesses driven by a
social or environmental purpose.
• The UK government defines and describes social
enterprise as follows: "A social enterprise is a
business with primarily social objectives whose
surpluses are reinvested for that purpose in the
business or in the community, rather than being
driven by the need to deliver profit to
shareholders and owners."
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What is social enterprise?
A more simple definition is:
• a social enterprise is an organisation that trades
for a social purpose. Sometimes social
enterprises are described as 'not for profit' as
any profit or surplus generated is used to further
the social objectives of the business.
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Social enterprises are extremely varied
All have commercial earned income and social objectives, but the
form is adaptable, with different types of social enterprises
developing in response to different sets of circumstances.
They can be distinguished by their:
• purpose and social objectives;
• ownership;
• management structures and cultures;
• activities; and
• membership, democratic processes or accountability.
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Social Enterprise – the alternative bottom line
• Traditional Business – one bottom line
• Social Enterprise – up to 4 bottom lines
– Social: improving the quality of life, access to services, and so on
for communities
– Environmental: minimising the enterprise’s own negative impacts,
making improvements
– Economic: increasing employment rates, income levels, business
start-ups, etc
– Financial: generating income and profits to be invested in the other
bottom lines
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Social Enterprise – alternative definitions
1 – Social Enterprises have social and/or environmental objectives.
As one of its defining characteristics, a social enterprise must be able to
demonstrate its social mission.
2 - Social Enterprises are trading businesses aspiring to financial
independence.
This second defining characteristic is demonstrated by an enterprise
earning 50% or more of its income from trading.
3 – Social Enterprises such as CICs have an ‘asset lock’ on both trading
surplus and residual assets.
Whether or not it’s a charity, a social enterprise re-invests all its
distributable profit for the purpose of its social mission.
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Social Enterprise – alternative definitions
4 – A Social Enterprise cannot be the subsidiary of a public sector body.
Whilst a social enterprise can be the trading subsidiary of a charity, it
must be constitutionally independent from the governance of any public
body.
5 – Social Enterprises are driven by values – both in their mission and
business practices.
Social enterprises operate in competitive - often fierce – markets but
there is an expectation that their dealings will be ethical and that they
will offer their people satisfactory wages, terms and conditions.
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Types of social enterprise
Legal structure is often viewed as helping to define a SE, but this is
complicated by international variations in
• Legal formats,
• Frameworks,
• Terminology
• Financial responsibilities and duties,
which makes international comparisons and comparative research
difficult.
It is also argued that purpose rather than structure defines a SE and in
practice the choice legal structure can be somewhat arbitrary.
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Types of social enterprise
• It can be said that the majority of social enterprises in Europe are still
operating in a traditional third-sector legal environment.
• In countries where associations are more limited in this regard, such as
the Nordic countries, social enterprises are more often created under the
legal form of cooperatives.
• In Italy, a new cooperative legal form – that of social cooperative
(cooperativa sociale) – was introduced in 1991
• Other countries followed the Italian example. Portugal, for example,
created the ‘social solidarity cooperatives’ (cooperativas de solidariedade
social).
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Types of social enterprise
• The French ‘cooperative society of collective interest’ (société
coopérative d’intérêt collectif, or SCIC), was introduced in 2001.
Another trend has been gaining speed more recently: that of introducing
more general legal frameworks for social enterprises. This trend first
appeared in Belgium, where the ‘social purpose company’ (société à
finalité sociale in French, vennootschap met sociaal oogmerk in Dutch)
was introduced in 1995.
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Types of social enterprise
In Italy and the UK have similar trends: the expansion of the set of
activities
• supplying general interest services other than welfare provisions
including:
• cultural and recreational services;
• activities aimed at protecting and regenerating the environment;
• services aimed at supporting the economic development of specific
communities.
Under Italian law, a social enterprise is defined as a non-profit private
organization, which permanently and principally carries out an economic
activity aimed at the production and distribution of goods and services of
social benefit, and pursues general interest goals.
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Types of social enterprise
In the UK the new ‘community interest company’ (CIC) is for
enterprises that want to use their profits and assets for social benefit,
There are a number of specific legal structures that are most
commonly associated with Social Enterprises including:
• a Charity (that trades),
• Trust,
• Community Interest Company (CIC),
• Company Limited by Guarantee,
• Company Limited by Shares,
• Industrial and Provident Society
• Community Benefit Society,
• Unincorporated Association.
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Types of social enterprise
The definitions and legal structures applied to SEs may seem
to be an ‘academic’ question without practical value.
Research into the issue suggests that SEs’ reasons for picking
a particular structure are influenced by factors including:
perceived tax advantages, access to grant funding, enabling
cross-subsidy between trading divisions, retaining
management autonomy and risk management.
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Types of social enterprise
Types of SE according to activity
1.
2.
3.
4.
5.
6.
7.
Social Firms
Co-operatives
Development trusts
Intermediate labour market companies
Community business
Credit unions
Charities trading branch/subsidiary
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Types of social enterprise
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Types of social enterprise
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Types of social enterprise
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The social economy
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The social economy
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The social economy
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The social economy
The term social economy or Third Sector was adopted from the French
economie sociale, and describes the sector of the national economy occupied
by associations, trade unions, co-operatives, mutual societies and other
forms of not-for-profit organisation as distinct from the public and private
sectors.
In France and most other European countries there is no equivalent to UK
charity law but charities also contribute hugely to this sector of the economy.
The social economy is composed of:
• social enterprises
• Charities
• voluntary organisations
• community groups
• other not-for-profit organisations.
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The social economy
The term social economy or Third Sector was adopted from the French
economie sociale, and describes the sector of the national economy occupied
by associations, trade unions, co-operatives, mutual societies and other
forms of not-for-profit organisation as distinct from the public and private
sectors.
In France and most other European countries there is no equivalent to UK
charity law but charities also contribute hugely to this sector of the economy.
The social economy is composed of:
• social enterprises
• Charities
• voluntary organisations
• community groups
• other not-for-profit organisations.
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The social economy
Although each type of organisation has a distinct identity, it
can overlap with the other types.
For instance:
• the majority of voluntary organisations, so called because of
their use of volunteer workforces, are registered charities.
• Many community groups are charities and also use
volunteers.
• Some social enterprises are community-based, use
volunteers and are registered charities.
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The social economy: economic principles
The social economy includes three distinct and sometimes conflicting
economic principles:
• Altruism:
• self-help:
• Trade:
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Six main ways to become a social enterprise
1. Community regeneration
2. Employee buyout
3. Local authority externalisation of services
4. Individual social entrepreneur
5. Voluntary organisation transformations
6. Voluntary organisation spin-offs
and this means starting a business- entrepreneurship!
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Motivation to build a Business
Classified into 2 broad types:
1. PULL FACTORS
2. PUSH FACTORS
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Drawbacks of running your own business
An entrepreneur:
– a person who organizes and manages any enterprise, especially a
business, usually with considerable initiative and risk.
• Uncertainty of Income
• Risk of Losing Capital
• Lower Quality of Life
• Complete Responsibility
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Start-up or Diversification?
– “The practice of varying products, operations, etc. in order to spread
risk, expand, exploit spare capacity, etc.” (Collins English Dictionary,
1994)
– the act or practice of manufacturing a variety of products, investing
in a variety of securities, selling a variety of merchandise, etc., so
that a failure in or an economic slump affecting one of them will not
be disastrous (Random House Dictionary 2009)
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Diversify- why, what benefits?
•
•
•
•
•
•
•
•
growth or business expansion
adding value and improve business profitability
Use surplus or available resources
provide more employment eg. for family
alternative source of income - survival!
possibility to grow and get better returns
hobby / personal interest
government or EU support schemes and grants
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Diversification
For
Against
New business – more income
May divert resources from core business
New/wider range of customers
May take too much time
Uses surplus resources or labour
Needs funding to start up
Can grow the business
Could be risky if little experience
Wider product range – less risk
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How do Social Enterprises differ from Commercial Enterprises?
• A Social Enterprise through the nature of its
origins has a specific understanding of local
society and local economy
• The Social Enterprise Sector has a vital role to
play in helping grow a local economy. It can help
in delivering excellent public and local services
and supporting stronger communities
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How do Social Enterprises differ from Commercial Enterprises?
The Social Enterprise Sector usually has a triple or
quadruple bottom line:
1.Social Benefits
2.Economic Benefits
3.Environmental Benefits
4.Financial Benefits
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Challenges to starting a social enterprise
1. SE’s have the same obstacles as commercial
enterprises
2. they also involve balancing the needs of the
community with the commercial imperative of
earning sufficient income to:
a.
b.
pay for operating costs and
generation of surpluses for reinvesting in community
activities.
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Drawbacks to starting a social enterprise:
• Uncertainty of income for community stakeholders
• Risk of losing capital for all investment
stakeholders
• Lower quality of life for owner managers while the
company becomes established
• Complete responsibility for business activities for
owners, managers and community taking on
managerial responsibilities
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Drawbacks to starting a social enterprise:
Factors that influence business failure include:
•
•
•
•
•
•
Weak idea
Poor management
Unfavourable economic conditions
Inappropriate type of company structure
Poor location
Over reliance on state or other subsidies to cover
running costs.
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Drawbacks to starting a social enterprise:
These factors may also be compounded by poor preparation and
planning including:
• Poor or inadequate market research lacking in-depth analysis of
specific market segments
• Excessive secrecy in developing the business ideas, limited
external evaluation and advice/comment
• Lack of planning for development of client base or marketplace
for the products/services
• Lack of capital
• Lack of a contingency plan
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What makes a successful start-up?
1.
2.
3.
4.
5.
6.
7.
8.
Motivation & determination
Idea & market
Ability & experience
Support- family, local, national
Good communication
Administration plus possibly good support from a board
Resources
Good planning
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Factors that influence failure
• Weak Idea
• Management
• Economic conditions
• Type of Firm
• Location
• Businesses receiving state subsidies
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Common problems encountered by new businesses
• Poor or inadequate market research
• Lack of in-depth market research
• Keeping your business ideas to yourself
• Not knowing your clients or marketplace
• Lack of capital
• Lack of a contingency plan
• Poor cash-flow
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Common problems encountered by new businesses
• Setting sights too high
• Focusing on sales volume or size not profit/surpluses
• Setting up poor supplier contracts
• Poor stock control
• Over-investing in fixed assets
• Hiring the wrong people
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Overcoming these challenges
• Education / Information
– Education in diversification through courses, examples,
demonstrations
– Train entrepreneurs, financiers, politicians to new and creative
thinking in social enterprise
– More research into new diversified systems
– Provide better access to information
–
• Management Solutions
– Work jointly rather than in competition - support each other
– Take risk on one prototype area
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Overcoming these challenges
• Financial / Economic Solutions
– Develop support for individuals trying new options
– Provision of start-up grants / advice
– Have loans guaranteed by public sector
–
• Individual Attitudes
– Keep an open mind and be willing to experiment
– Accept failures
– Trust others
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Successful business start-up
Happens when:
• they like what they are doing and get family or relatives
involved
• There is a real market demand
• The product / service is of high quality
• They start small, plan well and grow naturally
• They have good market information on which to make
decisions and keep good business records
• They can create a loyal customer base
• You are future oriented
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How to become a better risk-taker
• Being a risk-taker is vital, whether in business, or just in
life.
• Being a better risk-taker will affect everything from
product design, your sales and marketing, and the
journey you take.
• We think our tolerance for risk is something we are born
with, but it is never too late to learn to increase your
tolerance for risk.
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Assertiveness
• Being assertive is a hard thing to do well.
– It is not about becoming a tyrant.
– It is about having a deep-seated belief in your own worth.
• Confidence
• Don’t undersell yourself
• Learn to say ‘no’
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Success factors in Scottish social enterprise
In a recent study on success factors in social
enterprises the Scottish Government identified
a number of key issues surrounding the
concept of success in social entrepreneurship
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Success factors in Scottish social enterprise
Social enterprise leaders tended to identify success in
terms of achievement including:
•delivering on objectives achieving outcomes and
changing lives and communities whilst at the same
time•maintaining the financial viability of the company.
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Success factors in Scottish social enterprise
The research showed clearly that successful SE’s need to possess
many of the characteristics of strictly commercial companies:
1. a clear and shared social mission;
6. systems that ensure operational
2. strong and inspiring leadership;
excellence;
3. close alignment with stakeholder
7. an entrepreneurial streak and strong
and market needs;
business awareness;
4. a product of value to others;
8. a culture of learning, openness, and
5. effective relationships;
innovation;
9. a sustainable scale and income base
10. a strong grasp of the finances.
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Success factors in Scottish social enterprise
Scottish Enterprise (2005) identified 14 characteristics that define
successful businesses (i.e. those that are able to compete and
grow), which might also be applied to SEs:
1/ able to manage change
8/ committed to innovation
2/ active networkers
9/ active in their uptake and use of ICT
3/ customer aware and focused
10/ possess detailed market knowledge
4/ committed to continuous improvement
11/ active in promoting learning
5/ entrepreneurial in culture
12/ able to establish a strong asset base
6/ environmentally and socially
13/ strategic thinkers & long-term planners
responsible
14/ visionary in their leadership
7/ global in their outlook
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Thank You
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