Validating Tall Stories
Social Enterprise Magazine
Just how much of a role does social enterprise play in the UK? Research by Rebecca Harding takes our knowledge of the sector from anecdotal to overwhelming
To anyone who is interested in social entrepreneurship in general and social enterprise in particular, it seems rather silly to ask a question about its importance. After all, we can all cite examples of businesses that have helped build communities, improved access to key services, or have campaigned on behalf of specific interest groups by the product or service that they sell.
Yet many of our stories are just that: anecdotal evidence that social responsibility alongside economic viability -the ‘double bottom line’ -is a good way of doing business, almost by definition. In a post-Enron world, we are, maybe, beginning to see evidence of large businesses taking corporate social responsibility seriously. The investment community is increasingly aware of the need to audit social as well as economic returns and we are encouraged as consumers to take on board the social, ethical and environmental messages that companies try to give us through their marketing. How this plays out at the level of the small, entrepreneurial business is less clear.
Against this background, Global Entrepreneurship Monitor (GEM), an annual publication by the London Business School, made the first attempt at gauging the scale and nature of socially oriented entrepreneurial activity in the UK. Between June and September 2003, GEM made a telephone survey of 22,000 randomly selected adults in the UK The aim was to understand the contribution that social entrepreneurs make to society and the economy, and the ways in which they can be supported through government policy.
Measuring social entrepreneurship is fraught with difficulty. One persons ‘social entrepreneur’ is another persons ‘volunteer’ or ‘aid worker’, while ‘social enterprise’ potentially covers everything from not-For-profit organisations, through charities and foundations to co-operative and mutual societies. ‘Oh,’ said one expert we interviewed, ‘You’ll know a social entrepreneur when you see one. They ~ driven and focused, committed and tireless in the interests of solving social problems.’ An internationally renowned specialist in entrepreneurship research commented: ‘I gave up trying to measure it – it’s too difficult to pin down.’
In essence, social entrepreneurs are the entrepreneurs who ‘recognise when a part of society is stuck and provide new ways to get it unstuck’. They act as ‘change agents in the social sector’, they innovate and act according to the desire to create and sustain social value and consider themselves to be accountable ‘to the constituencies they serve for the outcomes they achieve’. In short, they are ‘one species within the genus entrepreneur. They are entrepreneurs with a social mission’ so any attempt to capture levels of social entrepreneurial activity must be able to distinguish between those individuals who participate in community or social groups and those who are actually motivated by social objectives to instigate some form of new activity or venture.
Difficulties aside, our results were startling. Around 6.6% of the UK’s adult population is engaged in some form of social entrepreneurial activity -either setting up, running or owning an activity or enterprise with social purposes. Of these, 10% are proper social ‘enterprises’ in that they have an identifiable funding stream used for reinvestment in the business or the community served (whether from public or private sources or from sales).
What’s more, there has been an exponential growth of nearly 400% in the number of activities or ventures paying wages to their employees in the last five years -suggesting a substantial shift in the organisation of social or community activities from a voluntary to a paid, commercial base.
There are a number of really interesting features of social entrepreneurs that render the activity an important driver for social inclusion in the labour market as well as community regeneration. For example, there is a much narrower gap in levels of socially entrepreneurial activity between London (which has the highest level, at 8.5% of its adult population), and the North East (which has the lowest, at 5.4%), than there is for mainstream entrepreneurship, where the figures are 10% and 3.8% respectively.
Women are more likely to be social entrepreneurs and owners of social enterprises than mainstream entrepreneurs and, in many regions of the UK, are more likely to be engaged in social entrepreneurship than men. Given that women are far less likely to be mainstream entrepreneurs than men, and that the UK has one of the world’s widest gaps between male and female entrepreneurship generally; this is an extraordinary finding.
Social entrepreneurs, like their mainstream counterparts, are predominantly white, middle class, on high incomes and well educated. This statement, however, hides a wealth of activity amongst socially excluded groups, such as ethnic minorities, those on low incomes and the unemployed. Unemployed people are seven times more likely to be running social rather’ than mainstream enterprises. Among students and retired or disabled people, 7% are involved in some form of social entrepreneurship -a much higher level than for mainstream entrepreneurship.
And, quite apart from the overall levels of activity, which are remarkable in their own right, the impact they have on jobs and their potential for wealth creation is astonishing. A social enterprise, with mixed public funding and sales revenue creates ten times the number of jobs, and has five times the level of turnover of a mainstream enterprise. A social enterprise which gains all its revenue from sales creates four times the number of jobs and has two-and-a-half times the level of turnover of mainstream businesses.
Of most interest is the fact that social entrepreneurship does not appear to be an exclusive type of activity. The government has recognised the importance of social entrepreneurship and social enterprise for many years now through the Phoenix Fund and its focus on entrepreneurship as a mechanism for regeneration and inclusive job and income creation; this work lends weight to the broader conviction that socially-oriented entrepreneurial activity is important as a driver for economic and social good. However, there are a number of lessons from this research which policy makers should bear in mind:
Female participation in those social enterprises creating the most jobs and the most turnover is a key feature of the data presented here. This suggests that women are more likely to engage in business start-up activity for social purposes than for economic ones. Recognising this and putting finance and mentoring support structures in place to enable this phenomenon to grow should form a key part of women’s enterprise strategy.
Social inclusion is another area where the government has clear strategies and policy mechanisms to broaden the participation of excluded groups, such as those on low incomes and ethnic minorities. Low-income groups are more likely to be social entrepreneurs than mainstream entrepreneurs, suggesting again that there is a commitment to driving forward social good through business means where there may not be as great a commitment to the more individualistic form of self-actualisation represented in mainstream entrepreneurship.
Similarly, ethnic minorities, although more likely than their white British counterparts to be mainstream entrepreneurs, are yet more likely to be social entrepreneurs and as likely to own or manage social enterprises. All of this suggests that social enterprise is, by its very nature, not an exclusive activity confined to the middle classes. By building enterprise amongst excluded groups through social rather than mainstream entrepreneurship, the government is more likely to achieve its targets for increasing economic activity amongst these groups.
The sectoral distribution of social enterprises suggested they were heavily concentrated in education, health and recreational services. These sectors are likely to be strongly allied to the public sector and, to some extent, assume the tasks of the public sector (for example, nursing care, special needs education and occupational therapy). Since social enterprises, particularly those with mixed revenue streams, have high turnovers and create large numbers of jobs, the model of social enterprise may well be one that is appropriate as a mechanism for informing the debate on public sector reform. This is recognised in the government’s Strategy for Success (the social enterprise strategy document). However, the material presented here gives a clear indication both of the contribution that social entrepreneurs can make and, critically, of the types of people and organisational structures that might be most appropriate in delivering these services.
Regional distribution of social enterprise and entrepreneurship reinforces the picture of its inclusive nature. The East and West Midlands have high levels of activity and large enough numbers to demonstrate that and these activities are well established. This may, in part, be due to specific funds and support structures in these regions and there is certainly scope for learning between regions about the best mechanisms for building social entrepreneurship.
Finally, it was clear from the data that successfully accessing external finance was a particular problem for most socially oriented business organisations. Full social enterprises (where all revenue is from sales) had surprisingly high levels of success in accessing equity finance -higher than their mainstream counterparts. Even so, the failure rates amongst other types of finance across all the social enterprise groupings as defined in this research suggests that there is a need to improve support in the area of access to finance. One expert was cited in the report as saying that this is largely due to lack of investor readiness -a relatively easy problem to solve and one on which policy makers and business support structures should concentrate.
We are still overwhelmed at the scale and the nature of social entrepreneurial activity in the UK and, although this is only a first attempt at gauging it, confident that there is a great future for everyone involved with social enterprise.
Above all, we have demonstrated two things. First, it is possible to measure social entrepreneurship and social enterprise using the GEM methodology as a base. But second, and more importantly in the grand scheme of things, we hope we have provided a first illustration of just how important social entrepreneurial activity is in the UK as a whole.
Our data suggests that it has potential as an economic and social force for good. It has also shown that activity is recent, increasingly business oriented and has high growth potential. This can only be good news for all concerned with research, policy and business activity in this vital area for some of the most disadvantaged and excluded groups in society.
Dr Rebecca Harding is a senior fellow at the London Business School, and chief economist at The Work Foundation. Social Entrepreneurship Monitor (United Kingdom, 2004) can be found online at: www.theworkfoundation/publications/index.jsp and on the London Business School website at: www.london.edu/news_events/