The Young Foundation and NESTA: Growing social ventures

The Young Foundation and NESTA:  Growing social ventures
Alistair Grimes (Rocket Science)
18.03.11

There was a famous review some years ago in Rolling Stone of Bob Dylan’s album, ‘Self Portrait’, which started with the sentence ‘What is this shit?’  A similar reaction is prompted by the Young Foundation’s report, Growing Social Ventures, funded by NESTA.

The apparent sourness of this reaction is prompted more by disappointment than anything else.  The Young Foundation is full of very clever people and yet they seem to have managed to produce a report that is conceptually confused, weak on evidence and methodology, analytically poor and with a set of recommendations which fail to address most of the important issues.

Perhaps none of this matters; the world is full of unread and unlamented reports from think tanks.  But I am inclined to think that it does matter, because I think (like the Young Foundation) that social ventures could be an important part of how we deliver services in the future and that they deserve something much better than this.

Conceptual confusion

One of the most irritating things in the report is the way it seems to have no clear idea of what it is talking about. Despite the wheeling out of a definition of social ventures at the start, it makes no attempt to either justify this definition, or indeed stick to it. It treats, for example, the terms ‘social venture’ and ‘social enterprise’ as if they are the same thing and they are often used interchangeably in a single sentence.  However, the definition of either term is unrecognisable to anyone who has worked in this field over the last 30 years, managing to be both too restrictive and too lax at the same time.

We are told (pg 5) that a social venture is defined as an organisation that ‘tackles social problems’, is ‘financially sustainable’ and aims to ‘scale what works’.  This is repeated in other places in the report so we must assume it is not just an oversight. The point about scale is completely bizarre, since there are many social ventures (or social enterprises, who cares about a name?) that exist at a small scale and have no desire other than to meet the needs of their own community or area (local childcare provision, local advice centres, small scale arts projects, community shops and so on) which are excluded by this arbitrary and imposed definition.  In fact on page 13 we are reminded about the importance of the definition about scale and then on page 14 reminded that ‘many people’ think that certain types of venture should always be small scale, but are legitimate social ventures.  Scale may be desirable, or better value, and there may be too few organisations at scale, but that is completely different f
rom demonstrating that it is necessary, without showing that small scale projects (even if they are sustainable) are somehow illegitimate.  No such argument is put forward and indeed such enterprises are embraced.

Furthermore, the definition is self contradictory.  We are told that social ventures tackle social problems, but the first example of a social venture we are given, in the very next sentence, is Ebbsfleet United, a supporter owned football club.  I agree that it clearly is a social venture by any common sense definition, but having looked at its web site, it is difficult to see what social problem it is tackling and how it ‘[effects] a significant improvement in the quality of life of people who have significant needs’.  Or, for that matter, how it is about scale, unless Ebbsfleet harbours secret ambitions for the Premiership and Champions League.  It is simply a group of supporters who want to own their own club. Again, why impose this absurd restriction on aims?

Wittgenstein makes the point that if we want to know the meaning of a word, look at its use.  Anyone looking at what is included in the family of social enterprise, and how it is used, would see that it is wider and messier than the Young Foundation’s  ‘definition’ and none the worse for it. 

If the points made above suggest that the definition is over restrictive and excludes organisations that are indeed social enterprises by some arbitrary fiat, then we also need to see how, in another way, the definition is too lax and allows in organisations which no-one would actually think of as social enterprises.

For example, if we take the Young Foundation definition at its face value and say that a social venture must tackle a social problem, can either distribute profits or re-invest them and must aim to go to scale then why can’t BUPA be seen as a social venture, or Provident Financial, or A4E?  Surely it is absurd to fashion a definition which could include these and apparently exclude Greenwich Leisure Services, Wooden Spoon Catering in Dundee or Impact Arts in Glasgow.  Now the Young Foundation may reply that they don’t see BUPA, Provident or A4E as social ventures (mainly I suspect because of what happens to their profits) but my point is that there is nothing in the definition presented that would prevent them from being included.  And if the definition can’t do this, then what use is it?

There is a similar confusion in the discussion of ‘social venture intermediaries’ where we are told that they have a commitment to social goals, without any explanation of what such a goal might be. But this is, perhaps to labour the point.

Weak methodology and evidence base.

The report makes a number of impressive claims for itself.  We are told that it is ‘the first comprehensive survey of the state of the institutions that support a dynamic and emerging sector of social ventures’ (pg 4).  Sadly, the small print tells a different story.  If we look at the organisations consulted or interviewed it is very difficult to escape the conclusion that they ignore most of England outside of London, and ignore Scotland, Wales and Northern Ireland completely.  This is not just a matter of anti-metropolitan chippiness.  My own personal experience as the Chief Executive of the largest specialist support organisation for social enterprise in the UK, based in Glasgow with over 50 staff, for eight years until 2005 suggests that the Young Foundation might have something to learn from CEiS and its 30 years of toiling in this particular vineyard.  Apparently not.

Indeed, if we look at numbers, then the conclusions from this report are founded on a survey of 11 actual social ventures (pg 6) or possibly10 social ventures (pg 72).  To say that this is analysis by anecdote rather than evidence is, I suggest, not unfair.

We are also told that a lot of information is missing, because funds and intermediaries do not keep data, measure things differently and so on (see pg 17).  In one way this is fair enough, as data is hard to come by and difficult to interpret, but in another way it completely undermines the claim to be in any sense comprehensive.  To be comprehensive implies that you have found the information, not that you have found that it is unavailable.  It is rather like a mediaeval cartographer claiming that his map showing Africa as not much more than the coast as far as Morocco is ‘the most comprehensive map of Africa yet made’; true, but not much use if you want to find anything further south than Casablanca or more than 50 miles inland.

Poor analysis

So far the Young Foundation team seems both confused and doesn’t have much methodological rigour or evidence to substantiate its rather grand claims.  Still, it might all be saved by some interesting and rigorous analysis of what they have found; or indeed of the issues facing social ventures and those trying to support them.

Sadly, this does not seem to be the case either.  For example, they make the interesting observation that Triodos Bank closed down its social enterprise fund because of the lack of business.  This is then left completely unexplored.  One might have thought it important to understand why a bank that is committed to supporting social ventures can’t find any to support.  Especially when we are told that supporting social ventures ‘ought’ to part of the portfolio of any ‘substantial financial institution’. This is indeed an issue that vexes many of us in the field who are trying to find more effective ways of investing in social ventures whilst remaining as sustainable financial businesses ourselves.  Is it because social ventures cannot make adequate rates of return, is it that the existence of ‘free’ money from other sources is both more available and attractive, or something else? But the report has nothing of any depth or substance to say about this.  Part of the reason is that they don’t seem to understand uch about banks.  We are told that there seems to be a reluctance to lend or invest in social enterprise and that they are seen as commercially unattractive.  This is apparently refuted by the information (pg 16) that in the tough financial climate of 2009 60% of social enterprises were making a profit and a further 16% breaking even.  But of course a bank isn’t just looking for something making a profit.  What level of profit, what security of contracts, confidence in management depth and who are the competitors may all play a part in deciding how much to lend/invest or whether to invest at all?  If the Young Foundation is pinning hopes of progress on conventional banks putting social enterprise as part of their portfolio, they haven’t been watching what banks actually do at the moment in terms of supporting the real economy (as many small businesses will testify).

It does tell us that the design of the Big Society Bank (BSB) should be ‘carefully thought through’ (as opposed to carelessly put together?) and should focus on filling clear finance gaps.  But this just begs all the questions about whether the BSB should be itself sustainable (in which case it will need to generate a return from most of the portfolio in order to compensate for the inevitable write-offs) and thus impose market disciplines or, in fact, run down over time as a sort of non-renewable trust.  This seems to me to be worth having a view about and explaining how that view can be implemented in operational terms.  Sadly, the report ducks the issue -comprehensively.

The authors are, of course, right to argue that the availability of finance is not a sufficient condition for the prosperity of social enterprise as a business model (and I’d be happy to argue the point that social enterprise is closer to being a business model than a ‘sector’ like the voluntary sector) but it really isn’t clear what else it thinks about this. Do we need more cheap or free public finance (the implication of its view on BSB), in which case how can this be sustained in the face of inevitable write offs (especially if the Foundation argues in favour of riskier, ambitious, start-ups being supported)?  If private finance is the answer (and given the state of public finance this seems a reasonable conclusion) then  will we need to accept a relatively high cost of money to generate the required rate of return given the risks perceived by banks?.  Or we could mix the two (as happens with some CDFIs) where a proportion of ‘free’ money enables lower costs and more risks to be taken, whilst private fina
nce means the CDFI must still be maintaining the discipline of the market place on both borrower and lender.  CDFIs are pretty much ignored in the report, both in their finance and general support roles.  Far more attention is given to ‘boutique’ operations such as Social Innovation Camp than organisations investing in, say, 50-100 social ventures a year.

The confusion about whether the answer is a market or not in finance spills over into the discussion on intermediaries.  For example, at times the report wants more collaboration and sharing between intermediaries (especially around the mysterious area of SROI) and implies that the real issues are around transparency and accountability, but at others it hints that competition would drive up performance (pg 48).  I suspect that the latter is true.  There are too many mediocre geographical monopolies on services for aspiring social ventures and effective choice and competition would cut out a lot of dead wood that has accumulated over the last 20 years.  Of course there are good intermediaries that should be supported, but there are bad ones that need closing down.  The problem with the present set up is that by having what the Americans charmingly call ‘the living dead’ cluttering up the landscape and consuming resources, these resources cannot be redeployed to more effective organisations who thus lose any incentives to get better.  If you want a market then you have to accept that this means some organisations will fail and go out of business.  There is, to me, a strong argument that says instead of trying to prop up and support mediocre intermediaries, we should let them fail and put something better in their place.  I may be wrong about this.  My point about the report is that it seems to want to ride both horses.

The whole intermediaries part of the report is also bedevilled by a curious absence of reliable figures and evidence as well as some completely baffling language. 

We are told, for example, that those social ventures surveyed and supported by intermediaries showed increases of 149% in revenues and 132% in beneficiaries helped, with 75% rating support as ‘good’ or ‘excellent’.  We have already pointed out that 10 (or 11) is not a terribly robust sample and surely it would be incredible to extrapolate these figures across the board.  Moreover, an interesting piece of proper research by Glasgow University (of which the authors seem comprehensively unaware) has compared generic business support to social enterprises in Scotland with specialist support from intermediaries and found virtually no difference in either satisfaction ratings or improvements in performance.  This raises the interesting (and unexplored) question of whether social ventures actually need specialist support, or just need more and better support from conventional sources.

We are also told (pg49) that ‘An alternative to intermediaries could be the creation of markets specifically designed to deliver social outcomes.  These markets could function through purpose-made-mechanisms like currencies, or through something as simple as social subsidies’.  I have no idea what this means, and given the lack of any further detail on how this might happen, neither, I suspect, have the authors.

Weak recommendations

Not all of the recommendations are weak.  However, it is difficult to make sense of many of them.

We are told that Government should set specific social challenges for the sector (around, say, re-offending or drug abuse).  This language is continued with talk about an ‘industrial policy’ for the sector. Apart from the fact that it is a business model, not a sector, we are talking about, it is hard to see why a top down understanding of problems should be better than that at the bottom. The track record of industrial policy is not especially strong in the UK, nor has it been ‘innovative’ as the report constantly pleads.  Indeed, the principal strength of markets is that lots of individual decisions give you better results than the top down views of the centre, which usually limit or cripple innovation.

The report makes an interesting point about the need for procurement and public commissioning to evolve but, as usual, gives no idea about what this means or how it might be done.  In particular it fails to address the real obstacles to better procurement that exist in bureaucracies and seems to think that a more coherent policy is the same as actually changing something.  For what it is worth, I would suggest that part of the problem is that Ministers and senior civil servants don’t believe in evolution, they believe in ‘intelligent design’ creationism.  That is to say you get the brightest minds to design a policy (say the Flexible New Deal) and then run with it virtually unchanged (since ‘moving the goalposts’ is a mortal sin) until a new Minister or Government washes it away in the political equivalent of the Great Flood and the brightest people are reassembled to design something new in the same area (the Work Programme).

Given, for example, the current financial constraints of local authorities they are (sadly) much more likely to take a bid to deliver a service from Capita, serco or G4S who could offer savings of around 25% plus other incentives (free computers for benefit recipients) than a 10% saving through a social enterprise.  And it is no use just exhorting them to be ‘good’ when all the practical indicators point in another direction.  As the cartoon character Charlie Brown says at one point ‘how can we lose when we’re so sincere?’ 

Finally, the recommendations for intermediaries are so bland and woolly, that it is difficult to know quite what to say.  Social venture intermediaries should put social ventures first; well, no shit Sherlock.

If the reader has managed to stick this out they will know that in summary I think that the report doesn’t really help us understand what social ventures are, or give a very complete account of what support they are getting.  It tells us some quite interesting things about the issues they face, but doesn’t really help us identify a way forward, since it leaves most of the important questions at best half explored.

The Young Foundation is a well respected brand, but like all brands it is susceptible to being damaged by spreading itself too thinly and going into areas where it lacks the time or the expertise to deliver.  Think about Jamie Oliver’s current disaster with his ‘Dream School’ and what damage that might do to areas in which he is actually very good (the food and healthy eating stuff).  If the report echoes one Dylan song ‘What’s the matter with me, I don’t have much to say’, we can at least be encouraged by the fact that Dylan went on to produce some of his best material after ‘Self Portrait’; but he deserved, and needed, the boot up the arse the critics gave him.

See Young Foundation report Growing Social Ventures http://www.youngfoundation.org/files/images/Growing_Social_Ventures.pdf