Is the growth in CICs actually damaging the wider social enterprise movement?

Some people may be aware that I've always questioned and challenged the Community Interest Company (CIC) legal form (see previous blog posts here) - largely because I've found that most social enterprises who've incorporated with this form have subsequently learnt that it wasn't actually the 'best fit' for them and their business model, and because what they're usually presented/'sold' as it being, doesn't actually stand up to scrutiny when looked at by evidence and research...

However, there are several social enterprises out there that I've supported to gain this status - I've always seen my role as an adviser to help people make better informed choices, not to tell they what decisions they should be making.

And it's in that vein, that I come to be typing this latest blog - prompted in part by a recent article by Pioneers Post on the 'explosion' of CICs during the pandemic: https://www.pioneerspost.com/news-views/20210825/record-number-of-community-interest-companies-amid-rise-of-grant-funds and CIC regulator wind up extent and causes

My concern about this sudden 'blossoming' of CICs is that rather than being a good thing in showing the growth of social enterprise in general, it may actually be more damaging to the sector in the long run...

Let me walk through through my thinking here, so as to try and help clarify and explain this rather bold assertion - and as always in my blog posts, you can leave comments to refute or challenge any of these:

1) Social Enterprises should be trading businesses, but most CICs aren't

In the absence of an overarching legal definition of what absolutely defines a social enterprise, the sector bodies have reached a consensus on what their defining characteristics should be (interestingly, none of which specify particular legal forms). Front and centre in these is that a social enterprise should be (or be clearly moving towards) generating most of its income from trading activities - but there is no requirement for CICs to need to trade, in order to generate their income or achieve their social mission! 

• when you apply to be a CIC, the application asks "if" you make a profit, not "when" - so the CIC Regulators' assumption is that most CICs' default business model will be that they expect to them lose money each year and/or will be reliant on grant funding to achieve their social purpose (you can't make a profit/surplus from grants);
• according to the CIC Regulator in their own published annual reports, most of the CICs they register will be wound up within 18 months - usually because they were unable to access the grant funding that they thought this legal form would enable then to be awarded.

2) Why are social entrepreneurs being encouraged to set up social enterprises in ways that mean they don't need to trade? 

As this legal form seems to be oft promoted to start-up social enterprises and social entrepreneurs as being the 'best form' for them, but it doesn't actually require them to act in ways that facilitate them to better meet the qualifying criteria of being what they say they want to be - how do we reconcile this apparent contradiction?

3) Are the public now seeing CICs as another form of charity, creating confusion about what social enterprise really 'is'?

If the most feted legal form for social enterprises to adopt therefore doesn't encourage the 'social enterprises' using it to act as social enterprises (with some evidences finding that CICs are actually more reliant on grants than charities are!) - it's going to cause confusion amongst others (who are already confused about what social enterprise is from the lack of a legal definition). If CICs are seen as not trading to achieve their social purpose - how will this not confuse people as to the need for social enterprises to trade: are social enterprises therefore just another type of charity, rather than a revolutionary/innovative/transformative way of doing business?. And this confusion will surely mean its harder to create more consistent messages about what social enterprise is and can do, in order for the sector to realise its full transformative potential.

However, as will all things, there are exceptions to the above - there are social enterprises out there who've never taken a penny in grant funding; who have found clever ways to harness what many feel to be 'too risky' elements of the CIC form with regards to the powers of the CIC Regulator over them; and who are trailblazing for the wider sector as a result.

My interest here isn't to decry this specific legal form wholesale, but rather to try and contribute to a wider ongoing discussion that means as a sector we can be more coherent, and ultimately make it easier to achieve the things we aspire to.

why the lifeline of SEISS may bankrupt us next year...

At the start of the pandemic, roughly 5 million of us were self-employed.

At the start of the pandemic, government made financial support available to business owners (in the form of grants linked to business rates) and employees (in the form of the furlough scheme).

Only after what seemed an eternity of panic and doubt, did government make an equivalent scheme for us in the form of the SEISS (except about half of us aren't actually eligible to apply for it!).

At the time, may argued that this was further evidence that despite their rhetoric about entrepreneurship, the current administration don't actually understand or care about us unless we're employing lots of people (despite the fact that we pay more tax than our employed counterparts, and other types of business owners). And this led to lobbies, campaigns, and the formation of #ExcludedUK to try and challenge this discrimination.

For those of us who are eligible, the SEISS grant was a lifeline (because even if we can land paying work, we all know it can sometimes take months to get paid which means weeks of little, if any, income to keep the lights on with).

But for those of us who began breathing sighs of relief, having gone through the small print and talked with others who haven't, we may actually be worse off next year for having received it, than if we'd not been eligible for it in the first place...

Unlike the business rate grants and employee furlough schemes, the SEISS grant carries a clause that says we may have to pay it back if HMRC deem that we managed to end this current financial year in a better place than we feared we would (perhaps because in the last few weeks of it, we suddenly land a large contract or finally get paid those back-invoices we never thought would be honoured). But we don't know exactly what the threshold for that looks like, or might be, beyond terms and phrases that are as equally vague as "substantial meal" is for pub landlords.

We'll only know if this is the case after we've done our tax returns, and as the SEISS grants are taxable, we'll have already paid about 20% of them back as tax. 

So if HMRC deem that we shouldn't have received the grant after all, the SEISS amount will magically transform from a grant into a very short-term loan that carries at least 20% interest - 20% being the amount we've already paid in tax on it, and then there's additional interest on the full amount again unless we repay it straight away. It's cheaper to take a bounce-back loan, or arrange  (and you have more time to repay it).

But there's more...

Lets say that you also pay child maintenance through the Child Maintenance Agency. They calculate what you should pay annually, based on your last tax return. Which means that for next year, the SEISS grant(s) you received will be counted as part of your income/earnings (because it's taxable income), pushing you into paying a higher amount of child maintenance. But if you've had to pay the grant (plus at least 20% interest) back, then they've fixed your amount too high. You're already facing the threat of legal action from HMRC to repay money that you no longer have, and now are also being forced to pay levels of child maintenance that haven't been worked out properly that will stretch you even further than you are now.

The pandemic and lack of government support for the self-employed has already seen nearly half a million of us giving up our enterprises, with many more seriously considering doing the same by the end of this year.

My concern is that the SEISS grant that initially seemed like a lifeline to some, actually shows that the government who've designed them have a contempt for people who are self-employed based on larger business owners and salaried workers not facing any such fears, because of the grant support they've received has no such risks attached.

All we've ever asked for as the self-employed is parity with our employed counterparts (who already enjoy far greater privileges than us in terms of lower taxes, pension contributions, better pay, and such like). Initially this parity was about making sure we can all have access to some form of support, but maybe we should also be asking for this support to be equally non-discriminatory in the risks it forces us to take when/if accepting it?

UPDATE AS AT 10 MAY 2021

and so the panic of having to repay these grants begins (but still with very unclear guidance...): https://www.gov.uk/government/publications/penalties-for-not-telling-hmrc-about-self-employment-income-support-scheme-grant-overpayments-ccfs47

sources and references

https://www.statista.com/statistics/318234/united-kingdom-self-employed/ 

https://thirdsectorexpert.blogspot.com/2018/02/who-in-their-right-mind-would-be-self.html

https://www.accountancyage.com/2020/08/07/self-employment-income-support-is-it-payback-time/

https://www.excludeduk.org/excluded-uk-an-inclusive-alliance-for-the-excluded 

https://www.lse.ac.uk/News/Latest-news-from-LSE/2020/K-November/Hours-and-incomes-of-self-employed-workers-stayed-low-over-summer 

https://www.altfi.com/article/5997_uk-smes-now-wait-an-average-of-23-days-for-late-payments

https://www.bbc.co.uk/news/uk-55129828 

how the law is perversely stopping charities and social enterprises from being able to 'trade they way out' of the crisis (unlike private businesses...)

I blogged recently about why we need to stop using the word 'pivot' - but we should keep encouraging everyone to think about how they might make changes to what they do and how they do it (one thing most people seem to agree on is that whatever world we emerge into from this pandemic, it won't be the one we were in when it started...).

And for private businesses, this is fine - they're designed to be orientated to changing marketplaces, and their legal forms mean that they can diversify (relatively) easily.

But this isn't necessarily the case for charities, and social and community enterprises - many of whom are on the 'second line' behind the NHS in supporting communities and people in need.

Now, just as there have been lobbies on government to widen the eligibility of business support schemes that have been introduced, and to introduce new ones, so there have been attempts to get the State to also develop support packages for social and community businesses to help them get through these crisis months.

But there's something else that this all brings up that no-one seems to be talking about (or maybe doesn't want to, because it's too uncomfortable?) - MANY CHARITIES AND SOCIAL ENTERPRISES ARE NOT ALLOWED BY LAW TO CHANGE HOW THEY TRADE. 

Let me explain: 

- private businesses are usually incorporated with governing documents that say they can trade however they want (as long as it's legal).

- charities have to prove to the Charity Commission when they form, that what they are being set up to do (and how they will achieve this) is in keeping with charity law. And there are clear and strict rules about how they can approach undertaking or developing trading activities within these. Even if they think they will be able to make a change within these, then they need to get the agreement of the Charity Commission first. If they fail on either of these points, then what they're doing will be technically illegal - I don't know of any grant making bodies who would be happy to fund a charity that was doing something illegal. The same also goes for insurance policies: if you needed to make a claim and its discovered that you weren't supposed to be doing that activity because of charity law, then the policy becomes void and the charity is left exposed to its Trustees carrying unlimited personal liability...

- But this doesn't just apply to charities - Community Interest Companies (CICs: the much hyped and promoted legal form for social enterprises) has similar restraints as set out and enforced by the CIC Regulator (albeit with much less clear guidance).

* The Charity Commission shows that there are over 150,000 charities in the UK

* Social Enterprise UK says that of the nearly half a million social enterprises in the UK, nearly 1 in 4 are CICs (so roughly another 170,000)

That means that of the organisations who are stepping up the most in this global emergency to support local communities, roughly 320,000 of them are constrained by law from being able to easily adapt to introduce new trading services or to best respond to meeting the changing needs of people.

And that's why there needs to be more explicit and dedicated support to the sector from the State.

the problems with prioritising social value maybe aren't that straightforward...

Having worked in the 'social value' arena for about 20 years now in guises ranging from developing reporting toolkits for national sector bodies, supporting national programmes from the likes of nef and Social Investment Business, and delivering masterclasses with commissioners and individual groups, there seems to remain a widespread frustration as to why more charities, social enterprises, businesses, and others simply aren't getting on with just (fukcing) doing it...

And I have an idea (well, several in fact) as to why despite the rhetoric and good intentions, it's proving so hard for so many to start with even the first steps of starting to think about how they capture and report the impact they're already making, let alone start to grow it to benefit more people and communities in need:

1) most groups and businesses face a daily trade-off between investing in systems and processes, and being able to 'keep the lights on' - until we can find better ways of presenting the imperative of social value reporting in the context of their current operating pressures and immediate consequences, then it'll always be being put off to the next month...

2) despite social value now being a compliance thing for charities, companies, and even societies (public benefit reporting requirements, legal responsibilities of company directors, and such like), there's little by way of enforcement by these respective regulatory bodies - so if there's no stick, then what's the motivation..?

3) the introduction of the social value act in 2012 was going to herald a new era of social value in public procurement - except it's not that obvious or widespread yet (with most contracts only giving a 5% weighing to social value)

4) we see grant making trusts and bodies seemingly at odds with each other in how they're prioritising social value and impact, with some being so vague as to leave the applying groups more confused, and others contradicting each other, so is it any wonder that charities applying to them are focusing more on outputs and budgets than outcomes..?

5) and the 'professionalisation' of reporting our social value (despite it originating within the social enterprise sector) is starting to see our own people becoming disenfranchised and demotivated when they're asked to start to report and manage it, according to recent research papers...

So is it any wonder why despite the efforts of nationally funded programmes, sector bodies, and rhetoric of others, that 2 decades in, we're still seeing so many groups struggling to begin to even engage with social value, let alone report, manage, and develop it..?

Maybe we need to create more carrots to incentivise and nudge behaviours and thinking, rather than relying on an approach of 'tell people why it's so important, and they're bound to come round...' (after all - how many of us actually manage our recommended '5-a-day' of fruit and vegetables, or religiously floss after every meal, despite knowing how important both are...?)

defining success in enterprise support means not measuring what you think you should

We need a way to check that everything we spend money on, or invest our time in, has worked - otherwise, how do we know if it was the right thing to do? how can we learn from the experience otherwise? and if we don't have some type of indicators of success, how can we be accountable to the people whose money we've spent doing it?

Some readers of my blog will be aware that I have a slightly unusual business model as a freelancer, in that I always try and find, and work though, funded programmes when supporting clients - I have an idea that as well as making my work more transparent and accountable, I'm also helping someone else 'tick their boxes' with regards to helping them spend their budgets where it might be of most benefit.

But within any funded support for enterprises or charities, there's an element of reporting against 'indicators of success': how many jobs were created, how much more turnover does the organisation now generate, what new products or services have been introduced to the marketplace, and such like.

However, I've always had a concern that having such reporting measures, while useful for the reasons I've referred to above, risks the supported organisation starting to focus on doing the wrong things.

Case in point: in recent years, there has been a rise in interest in encouraging more charities and social enterprises to take up the option of 'social investment' (loans and debt) to help them grow and do more good in the world. This has been through programmes offering funded consultancy, workshops and training, and such like. And having been involved in supporting the delivery of several of these, the reporting of any group who accessed support through it has invariably focused on how much of an 'investment' the organisation has now secured.

But the problem with this focused approach to reporting on the success of the support is that its prejudiced and biased - my experiences (and that of many others) through programmes like these, is that many organisations receiving subsequently support find that their business model will never be able to generate the financial returns, nor satisfy the diligence requirements, of investors, however good the support they receive has been.

So they, and their funded supporters, face a quandary: 'fudge' the reporting to suggest that a loan deal is imminent (but never quite materialises), or be honest, and risk the funder asking for their money spent on the support back, with it apparently having failed to achieve what they wanted it to.

And it's a pattern I've seen in other funded business support programmes in other sector over the years as well, with private businesses in initiatives aimed at stimulating job creation and economic growth.

So does this mean that funded enterprise support will never achieve its aims, or that we can never trust what these funders share as the collated impact of their programmes, in many of the reporting of it's activities being 'less than completely transparent'?

I'm inclined to suggest that there's a third option we have, and it's one which I'm encouraged to see some providers of such funded enterprise support starting to take: funders of these programmes starting to openly recognise that the way they measure and consider the success of their intervention should consider a wider range of outcomes, rather than a simple binary measure as has been traditionally used. 

And a leading example of this is the Social Investment Business, whose reflections on 5 years of programmes supporting social enterprise access social investment is identifying this:

"Success should not be solely defined by growth or whether investment is raised. 

Instead, improving resilience should be the primary aim."

So perhaps we can all take encouragement from this and have a little more courage in future when reflecting on the benefits that come from engaging with offers of business support and how we report this, and be open to the good things that happen when we do?

and the least sustainable legal form of social enterprise is...

Anyone who's ever asked me for (professional) advice or guidance will know that I always try refer to what published research has to say about your question - I'd much rather offer option and direction on the basis of objective evidenced knowledge, rather than any personal preference or other bias.

And many know that I also seem to be able to make sense of all the options around legal forms for social enterprises here in the UK (at my last count, 14 options that fall under 7 regulatory bodies depending on which you pick) - something which has led me to be invited to develop and deliver training courses throughout the wider sector, be interviewed for webinars, and also offer some of my famous beer/cake mentoring in relation to as well...

Historically, when helping people navigate these choices as to their legal form, I've always referred to the legal powers of the respective regulators, what published research shows about their apparent success in being awarded grants, and their relative 'popularity' based on sector mapping studies.

But today I add another dimension to this referencing and research about social enterprise legal forms - how they affect your future financial performance!

Given the complexities around understanding and mapping the wider world of social enterprise, there's scant research or monitoring around how any enterprises' chosen legal form may impact on its future potential for success in financial terms - and while there are lots of other contributory factors which means that we can never look at the legal form as the sole indicator of this performance outcome, I felt it might be useful to take an initial look at what the studies that are starting to be published might be suggesting.

To this end, I'm indebted to Power to Change's research team, who have started to track and publish bench-marking data for social and community enterprises around a number of themes, but also a couple of other bodies too. There's not many sector mapping studies that look at the performance of an enterprise correlated to its legal form, but the initial ones I've been able to draw on are:

• Follow the Money (2017), Power to Change
• CIC 10 year survey (2016), CIC Association
• Open source economic data set (2017), Co-operatives UK
• Charity Register Statistics (2017), Charity Commission

And yes, the data from these will be subjective - for example, Power to Change will only be reporting on data from social/community enterprises that it has directly engaged with and supported; but as I said already, this is a first go at seeing what might be gleaned and identified from cross-referencing what these studies and mappings appear to be finding.

And what they seem to show is:

1. Charities are consistently the best performing legal structures with average turnovers having the least variance of all legal forms between the different studies (£450k - £650k); they also seem to generate the highest profit ratios from trading activities (averaging 11%)
2. Companies limited by guarantee have the lowest reliance on grant funding (averaging 48%), but also a lower profit ratio of 4% of income
3. Co-op Societies seem to struggle to generate profits (2% of turnover), but in having the largest average turnover of all the legal forms (£7.2m), this equates to far larger cash amounts than the other options do

The biggest surprises though, come in relation to CICs - the Power to Change study shows them to have an average turnover of nearly £2m, but the CIC Associations own mapping found the vast majority generate less than £10,000 a year. This clearly shows that there's HUGE variances between individual CICs that are trading: there are a few 'unicorns' out there, but most are 'zombies'. 

And I use the phrase 'trading' loosely, as these various studies also highlight that CICs are the most grant reliant and dependant of all the legal forms (58% of all income is grants - for comparison, it's 53% for charities; and grants are used as the main route by the majority of CICs for raising any investment). Worryingly, they are also the only legal form whose average enterprise seems to be generating a loss - Power to Change's mapping found that the average CIC makes a loss every year of -1.5% against its income...

I've blogged before about how the 'honeymoon' for CICs may be waning, so does this add further weight to my concerns about the viability of this legal form to best enable social entrepreneurs to achieve their vision? (especially when 1/3 of all CICs also report that this legal form has been a hindrance to them doing so...).

I don't know, and I don't think that this quick snapshot across a handful of others' published data can offer any real answers. But what it hopefully does is to help further add to our knowledge about the best routes through which social enterprises can best realise and fulfil their potential. Hopefully it will also generate more and more useful questions for those undertaking future studies into this wider sector.

if you want support for your startup, you'll likely need to ignore your ethics...

I find myself in an unusual conundrum as an enterprise advisor who also has a pretty explicit set of values and ethics in how I approach the way I work:

Over the last few years, government has consistently reduced the amount of resource and support available to people who want to start up different types of businesses as a route to employment, generating jobs, changing the world in new ways, and such like. This has meant that the support that so many entrepreneurs of all types need and value is increasingly scarce.

At the same time, high street banks and financial services bodies seem to be moving into this business support space through creating startup grant funds, developing (free) incubators and workspace, and sponsoring national thematic enterprise support initiatives.

All seems pretty straightforward? And economists would probably point to this as an example of how market forces are creating responses that people and enterprises need, without the need for state intervention.

But here's the rub - a recent survey of the 'ethical-ness' of high street banks seems to suggest that those who are scored as 'most unethical' are the ones doing the most around these startup and social enterprise support initiatives. A case of 'buying your way out of a guilty conscience'? (http://www.thegoodshoppingguide.com/ethical-banks-and-building-societies)

And for the entrepreneurs accessing this support - some won't care where the money's coming from, but I see that people increasingly are interested in how that money has come to be on the basis of choices about where they choose to invest their own savings, suppliers they choose to procure from, and the places they try and recruit their staff from.

Market forces are all well and good, but remember that the market isn't a person - it doesn't have ethics or values like you or I. And that likely means that entrepreneurs' difficult choices will only be added to in the future when they start to weigh up the ethics of accepting the support that they know that their enterprise needs, but comes at a cost of having been raised from investing and trading in practices that they'd otherwise be very uncomfortable with...

crowdfunding grants for your project - the shape of things to come or a dystopian future?

I find myself talking a lot about crowdfunding these days - partly because I'm starting to deliver more training and learning programmes around strategic finance and managing accounts, but also because it seems to be a space where more grant makers are moving into...

I've always held that the main benefit you can derive from crowdfunding isn't about the money, but rather proving interest and demand, and building a tribe of supporters. I've also always argued that it's a lot of hard work to make a crowdfunding campaign a success (most fail to reach their targets, or come anywhere close to them...)

Recently though I've started to notice grant making bodies starting to increasingly move in the crowdfunding space - offering 'top up' grants to groups and projects who raise either a minimum amount, or who offer to match the amounts raised in this way (step forward Power to Change Community Shares Booster, Santander's changemakers, el al). And in some ways this makes sense: grant making bodies only have so much cash to go round, and want to make sure that their money makes the most impact where they spend it. So to have a project that shows it has high levels of public and community support from people already donating to it, would seem to be a good indication that it will do very well in having a body of people already wishing to support it and see it succeed.

And there are also calls from various national sector bodies that even if charities don't integrate crowdfunding into their income generating strategies, everyone should try it at least once... 

But... crowdfunding can be a fickle game. It takes a lot of time and skill to be successful at it. It's also a form of popularity contest in trying to get a community to support your project over someone else's. And what about those projects and activities which, while we all agree are worthy and needed, are also those which we might struggle to otherwise offer support to if they started crowdfunding?

Crowdfunding can generate all sorts of benefits and unexpected outcomes. It can also be a large waste of time and effort. But is a space that people and funders are increasingly interested in - and if we haven't tried it, how can we have any credibility when we try and subsequently argue that its not for us?

Like Oscar Wilde (or someone like him) famously may have once said - try everything once, apart from Morris dancing; but I'd say just make sure you go into it with your eyes open and don't believe all of the hype...

Why I just did an 8-hour round trip to London by train for a 50 minute chat

I’m on my way back from London where I’ve just spent 50 minutes chatting with a medium sized charity about what I might be able to offer them if they took me on as a ‘critical friend’ to their senior management team. And I know that for most of the conversation, the charity was principally trying to figure out what a ‘critical friend’ might look like and do, rather than hearing how great I might be for them in that role… (they’ve been asked to recruit one by a one of their funders, but not had any guidance and not had any prior experience of what one is!).

I get the strong impression from some passing references made by the charity’s executive team during the chat that I’ve a relatively low chance of success in getting this work; the contract value means that I won’t really make any money on the work if I’m awarded it; and it’s quite a travel distance from my usual patch around the North West, Pennines, and Yorkshire -  so why did I even consider spending time on drafting the initial proposal and then committing to the cost and time of such apparently excessive travel?

1. They approached me direct. This wasn’t an open or advertised call for consultants to bid, but rather they did some pre-selection and research against the sorts of backgrounds that they knew they wanted their new ‘critical friend’ to have. It only seemed polite to reciprocate (and it was very flattering…)
2. The role of ‘critical friend’ to charities and other organisations is one that’s only just starting to be explored and introduced here in the UK, so it was a clear opportunity to be in the inside of this emergent trend and model to keep myself best informed, and also share some of my own experiences and insights (including likening the ‘critical friend’ to that of the historic ‘court jester’) that I’d otherwise struggle to do in not being a published academic or writer of books…
3. It was an opportunity to reflect on my experiences and skills within a different context and framework to that I usually find myself in – a valuable CPD opportunity in keeping myself ‘fresh’ and trying to avoid becoming ‘professionally complacent’
4. I had the time and resource to follow up their invitation: one of the things I think has meant that I’ve been able to develop and keep a successful and profitable freelance consultancy practice going for 13 years is having an inquisitive nature – if someone shows me a door that’s ajar and says they think it might be interesting for me to have a peek inside, I’ll always try to…

So – a mixture of good manners, the opportunity for business and professional development, and personal values, meant that I’ve just done something that I suspect most of my counterparts would have passed on without a second thought. Perhaps another reason why I’m labelled as being ‘not your typical consultant’ in the worlds of facebook and Instagram?

maybe social investment isn't that different after all..?

I was able to make it along to this year's "Working Capital" conference that was recently staged in Sheffield - a day to immerse myself in reflecting, arguing, sharing, and further exploring the wonderful world of 'social investment'.

Depending on who you speak with, Social Investment is either the next big thing (and has been for a few years...); is a market that's suffered failure in the past and needed interventions from government; or a smoke screen for covering the cuts to grants that sustain many charities and social enterprises...

money might not grow on trees, but these desktop garden
pots from Key Fund mean you can grow most other things 

The day offered a range of perspectives and stories: Cliff Prior of Big Society Capital stating openly what many are starting to whisper in hushed tones - social enterprise should be moving more towards retail and consumer markets because public commissioners are very tough nuts to either crack, or to change their behaviours; and Hazel Blears encouraging those same commissioners to do more to learn from each other to progress the social value act (but in doing seemingly having forgotten previous national initiatives over the last 20 odd years that were designed to do just that...).

But the impressions I'm left with (initially at least - as always, I'm open to others coming back to me to challenge me on these points) are:

• most of the specialist lenders to social enterprise make it difficult for the sector to borrow from them because they usually have repayment terms of only 5 years maximum. But in the private sector its not uncommon to 'refinance' a loan - it can often be hard to get a loan because you've no history of repaying debts; but once you start to, you can flip your loan to another lender on better terms... So what's to stop social enterprises getting what seem initially expensive loans in comparison with the high street banks who see them as being too risky, showing they can manage repayments, and then transfer the loan to their high street bank on better terms?

• the things that are important to those seeking investment (quick decision, affordable terms, flexibility), are the same as for any other type of organisation in any sector seeking a loan

• as a general movement, social investment seems to be a little bit too 'introspective' for my liking: NESTA undertake regular national surveys of social and alternative finance, which no-one referenced today. Without understanding how different 'flavours' of social finance compare to other finance types in how widely they're being used, how can we hope to make a best informed decision about where we should be investing our time in pursuing investment?

But but in all, a good day to reflect, see some friendly and familiar faces, and hopefully the start of most other enterprises' journeys into investment that will ultimately help them create bigger and better impacts on, and for, their respective communities.

does pursuing social investment reveal a weaking social enterprise sector?

As some of you will know, I'm an approved provider for various enterprise support programmes, one of which is Big Potential - funded development support for social enterprises to better explore, and develop their businesses cases to pursue, social investment.

There are various aspects of this programme that continue to impress me, some of which I've written about before, but one that I keep coming back to is its transparency and openness about its data. It's committed to undertaking an annual evaluation of both its performance, and the profiling of enterprises whom it engages with. (It's also started to publish performance data about how well us approved providers are doing as well...)

Last year, I blogged about the first of these published reports, seeking to better understand what it's data might tell us if we compared it to 'typical' social enterprises (spoiler alert: Big Potential seems to be attracting social enterprises who are younger, more ambitious for growth, and more locally rooted than your typical social enterprise). But this years' data gives us a bit more to consider as we can now start to compare year on year data - and my cursory analysis of the data tables while on the train seem to suggest that while Big Potential may either be getting more generous in awarding support or the sector is getting better at targeting whom it should support for support, (there's an increase in initial enquiries from social enterprises who go on to be awarded a development grant: 2.16% vs 0.6%), there are signs that the wider social enterprise sector may be weakening:

1. enterprises being supported typically have a turnover that's 7% less than last year
2. typical net profits have fallen from nearly £18,000 to £3,000 (equivalent to net profit margins falling from 6% of turnover to 1%)
3. assets held by enterprises are roughly half of what they would have been expected to be in the previous year
4. the self-reported standards of current social impact reporting, and assurances over data used within it, by applying social enterprises has fallen by 9% compared to the previous year
5. the overall average investment readiness score of applying social enterprises has fallen from 59.3% to 48.7%
6. and there have been increases in the incidences of poor governance, and poor financial performance on the part of social enterprises being the reason as to why Big Potential hasn't feel able to award support to them

All of this would also seem to reflect a wider narrative and sense of 'struggling' amongst charities and community groups in light of prolonged austerity and recessions...

But... there are also signs that the Big Potential programme is doing what it set out to do - as well as supported social enterprises securing around £3/4m in investment of different types, they are also reporting increases in turnover in the region of nearly £100,000. However, most of this increase seems to be from growing existing services, rather than entering new marketplaces, and the sample on which this part of the data is based is so small - 4% of enterprises supported, it can only be taken as highly anecdotal at best?

For those of us so inclined, there are also some other findings in the data of interest:

• ventures are less likely to be hyper-local than they were previously
• social enterprises are more likely to be structured as 'straightforward' companies limited by guarantee, than CICs (a sign perhaps that CICs are starting to loose some of their initial appeal?)

But these are only my initial playing with the tables in the report while on the train heading out of London this evening - as with my previous initial analyses of evaluation reports like these, I hope others in the sector will pick these up and explore them further, and in doing so, help us all to better understand this sector, and how we might best continue to support it in the future.

latest research suggests CICs are still trying to make their way in the wider world of social enterprise

So - as some of you know, I can be a bit of an anorak when it comes to sector governance, and statistics. Not just because my brain seems to enjoy doing it, but because I think that sometimes it's hard for us to get a proper understanding about what's really going on in our sector unless someone looks at published data afresh and offers an alternate view. (David Floyd and Nick Temple are both great at this, and also much more thorough too - I tend to look at headlines only here on my blog)

Anyway - every so often, someone publishes a survey about their part of the sector, and inevitably they never benchmark their charts against other peoples findings... This makes it hard to understand what might be really going on in the context of the 'bigger picture', and therefore how we can best support and celebrate each other.

So in spare half hours, I try and find a comparison against which to try and make sense of such published surveys.  Last time I did this was on the Big Potential programme from the Social Investment Business. Comparing their report of social ventures supported against the wider sector suggests that they've been very successful in engaging a 'new breed' of social enterprise.

But this time I'm interested in CICs, because the CIC Association has recently collated and published its 10 year survey of this form of social enterprise. Now, I want to be very open and honest here in that I've never been completely sold on the idea of this legal form for various reasons, but I've always been open as to why, and also supported some clients to gain this legal form (see other posts here tagged with 'CIC' for more).

The CIC Association survey contains lots of charts and headlines, and in trying to make sense of if these show this type of social enterprise to be in 'good health' or 'having some cause for concern' I've compared it to the wider Social Enterprise UK 'state of the sector' report.

But - a few words of caution before proceeding further:

1) the CIC survey was published in spring 2016, and the SEUK survey in autumn 2015 so there's bound to be a little 'drift' in the sector over that year

2) the CIC survey is concerned with CICs only; the SEUK report includes CICs as part of the wider response base, so there's also some variance and risk of some 'double counting'

However, for my own purposes and interests in trying to stimulate some wider discussion, I'm not too hung up on such technical variances as I think the 'broad brush' comparisons are what are interesting:

• CICs are more likely to be trading directly with the public (75%) than other forms of social enterprise (30%)
• CICs are more likely to fail in their applications for finance (43%) than other forms of social enterprise (20%)
• CICs are more reliant on grants - 25% have them as their main income compared to 11% of other forms of social enterprise
• CICs are likely to be smaller than other forms of social enterprise - most have turnovers under £10,000 compared to in excess of £50,000
• CICs are more likely to be structured to have share capital (private ownership) than other forms of social enterprise (34% vs 11%)

• Both CICs and other forms of social enterprise prefer grants as the preferred option for financing growth
• Both CICs and other forms of social enterprise are likely to be micro enterprises (less than 10 employees)
• Both CICs and other forms of social enterprise are growing year on year in similar ways (60% and 52% respectively)

So there's potentially some clear markers here that make CIC very different to their wider family of social enterprises (more public facing, more open to having private ownership), but also a lot of common ground too (size, growth, and preference for grants to support growth).

However, might there also be some contradictions emerging within this latest survey of CICs too? Potentially they could be seen as a weaker form compared to their 'cousins' in the wider sector, based on their being:

- more likely to be reliant on grants,

- seen as a riskier proposition by investors (based on the extent that they're able to access finance applied for),

- more likely to be marginal businesses (based on most having turnovers below what the average salary in the UK currently is..,)

- that 28% of CICs saying that this form has not had a positive effect on their business.

But its still relatively early days for CICs: while their 'honeymoon' period looks like it might be starting to wane, other forms of Social Enterprise have been around for a few hundred years longer, so investors and funders are probably still getting to grips with the CIC form.

And as I caveated earlier, the above are very much 'broad brush' findings that I've drawn out in a half hour over a cuppa.

However, my hope is that this will help to contribute to the wider discussion, debate, and further analysis. The aim of which should be to help us to better understand how to best support and encourage this (and other) form of social enterprise, so that they can realise their full potential. And in doing so, help bring about a slightly shinier, fluffier, and groovier world for all of us to enjoy.

just because you didn't get wet, doesn't mean your business won't be killed by floods...

We're fast approaching 2 months since Todmorden and the rest of the Calder Valley got hard hit by the floods that washed out last year's Christmas.

It's a good time to pause and reflect on not just how far we've come in our recovery, but also how far we've still to go - some businesses are now admitting that they were perhaps a little optimistic in initial estimates of how long it would take to re-open, and many are also starting to feel the wider knock-on impacts, realising that the damage the floods have wrought continue long after the waters have subsided, houses dried out, and stock replaced...

While many businesses were fortunate not to be directly flooded, those that were have had mixed fortunes in their recovery - the local Council has recently extended its criteria for business recovery grants to now recognise home-based businesses, and there have been a number of successful crowd-funding campaigns, but others have found the cost of recovery just too great a burden to manage and have sadly shut up shop for good leaving us poorer as a valley in terms of our diversity of employment, industry, and character.

And it's that knock-on effect that people are now starting to feel able to talk about - although their premises weren't flooded, they've still lost trade and income from losing their suppliers to floods, or there being far less trade along the valley as consumers start to shop elsewhere, believing that nowhere will be open after seeing the widespread images of devastation broadcast by the media of the area.

And it's only now that they're starting to talking about it, because of feeling guilty that they weren't flooded so they don't have the same right to complain as those of us who did - yet their livelihoods (and those of their employees) are suffering nonetheless.

Although there are support packages being made available for businesses affected by floods, (and they all have different criteria), one thing they share universally is that your business has to have had water enter your premises. But as we're starting to see as people increasingly come forward and start to speak out, flooding can destroy any business without having to come anywhere near your building...

But as before, when I profiled what local businesses responses have been in the initial aftermath, the community is once again rallying to support its employment and livelihoods - Hebden Bridge is becoming the 'North Pole' of the Valley at the end of June when we're re-staging the Christmas we lost: festive lights are being put up, a big tree in the square, snow machines, carol singing,... a great opportunity to remind the rest of the world (and its consumers!) that the Calder Valley is rising to greatness again! So please feel free to come and share some of your spending power in supporting those businesses for whom you're the only source of support..

on being 'washed out' by floods and becoming a homeless entrepreneur...

Along with thousands of others across the North of England at Christmas last year, my home was 'washed out' by the worst floods on record - and I suspect that a significant proportion of my fellow flood victims will, like me, also be self-employed and based from home as well, so hit with the 'double-whammy' of the floods not only having displaced us (and our families) from our homes, but also impacting on our livelihoods too (as if running your own business wasn't already stressful enough at the best of times...)

And while the initial rallying of community spirit has been fantastic in dealing with the immediate aftermath of the waters, there are growing concerns amongst local business communities as to how well people will be able to restore their livelihoods - an initial survey of businesses in my local area found nearly half believe it may be up to 6 months before they can recommence trading. And as great as public donations are, these can only go to affected households, to replace lost clothes, furniture, and such like, and not to businesses to help maintain the lives of the same local people and their communities;

The local Council, Calderdale, has made a great initial response to support local businesses, but it too is limited by criteria and eligibility checks which means that hundreds of micro-businesses, freelancers, and sole traders who are otherwise 'below the radar' in not having dedicated business premises, paying rates, or being VAT-registered, will have to find their own sources of recovery support.

So just as we did as householders, we therefore turn to ourselves again as businesses to offer each other a helping hand: I've been working with the relatively new Todmorden Business Network to try and map and collate what support there might be for local business to make sure people don't miss out; a number of businesses have come together to form the world's first crowdfunding campaign for a collection of businesses; and I've also been trying to encourage the development of other forms of support - such as the Hit The Rocks fund from Enterprise Rockers.

But all of these things take time - time that we would normally be spending running our businesses and with our families.

The nature of works our home needs to be restored means that we can't live in it for potentially up to 6 months - as a family we're physically displaced until then.

Thankfully we have relatives along the valley who have been able to not only offer us spare beds, but also temporarily rearrange their rooms and own lives to offer us space and support over this period. As for working, I'm having to develop a new mindset of being more of a digital nomad and needing to factor in having less time that I'm used to owing to having to plan more carefully about where I can work from, travel arrangements, and such like. 

But life continues - it's a new lifestyle that we'll get used to eventually, and I know others are suffering far more than I.

But that doesn't stop it hurting when I'm with others who are talking about how to best support businesses and entrepreneurs affected by the flooding and I realise I'm sometimes the only one around the table that's living it...

So - this has been rather different to my usual posts here, but it isn't meant as a sob story or plea for alms, but rather a polite request to give anyone you meet over the next 6 months who's been affected by floods a little more patience and time while we resume 'normal service'.

Thank you.

Do you really need to win an award to start your enterprise?

I was following an enterprise start-up awards ceremony on twitter recently that had sought applications from people who felt they had great ideas for a new venture, to be considered for being the recipient of a relatively small grant to support their start-up needs.

There are always programmes such as this running somewhere, all with different priorities and criterion for applicants and would-be entrepreneurs, but how much do they actually help?

 

Setting up any new venture takes time and involves risk – anything we do during this critical stage has to assure us of the best possible return for our investment of all-too-precious time: applying for a grant/award takes valuable time, and is inherently risky: not just in outcome, but also with the conditions that will invariably be attached to it.

By encouraging start-ups to apply for such funds are we therefore actually doing more harm than good? Not only will any such awards will come with constraints on their use, and have an economic cost of other options not pursued, they also engender a culture and mindset of 'handout': establishing a venture on the philanthropy of others means that it will ultimately weaken its ability to be sustainable and viable – always needing a crutch of some type, rather than standing on its own two feet as other enterprises who've bootstrapped their start-ups are subsequently better able to do.

But...

For some, such awards really do make all the difference owing to their personal circumstances: there's no way that they could afford, or be able to access the finance they'd need any other way. So such awards have their place – perhaps we therefore need to be more stringent in their application criteria, encouraging would-be award winners to explore other options first that they may have recourse to that others in our unequal society can't?

Why the government's latest scheme to encourage start-ups will lead to generation of failed entrepreneurs...

The current government seems to have a somewhat lopsided approach to encouraging entrepreneurship – while making speeches about how much they admire and how much they want to support people to set up their own businesses, legislation and policies are passed that make it harder for small businesses to be able to afford to employ people, for local authorities to be able to offer rate relief, and tax regimes that favour large international corporations over local enterprises...

 

But its their latest initiative that perhaps gives me cause to be most concerned – not because it affects 'us' (people currently setting up new enterprises), but our children: the next generation of entrepreneurs...

As a parent, I'm constantly trying to make sure my boys are best equipped to get on in the world, and develop resilience to be able to deal with the inevitable adversity and set-backs that we all face. Part of this is about appreciating the true value of money, and the need to earn it. But the governments' latest scheme is to offer primary school children 'loans' of £5 to set up their own businesses as a means to help them learn about being an entrepreneur – all well and admirable on the face of it, as it will offer some children an opportunity they might not otherwise have enjoyed, but there are 2 key issues with this that make me upset:

1)      in the 1980's, there was a short-lived scheme that gave unemployed people small grants to set up their own businesses as a means to move out of unemployment: 30 years on, and this government policy has so impacted the collective consciousness that most people I meet who are thinking of setting up their own enterprise expect that they're automatically entitled to such a hand-out without having to do anything to merit it – if this is the legacy of a scheme targeting unemployed adults, then this £5 'loan' will surely engender at least the next generation of entrepreneurs to expect that there'll always be government cash to help them out and so become less resilient...

2)      what about all the work of encouraging entrepreneurship amongst school children of all ages that already takes place through national bodies such as Young Enterprise and Live Unltd? Their approaches seem to work very well without the need to be offering 'financial incentives' to participants, and are based on developing long-term supportive relationships – much more beneficial to any enterprise than a quick cash hand-out...

 

If government really is serious about encouraging entrepreneurship amongst children, then it needs to make some more informed choices about how it does this: investing in existing, proven national programmes rather than wasting money on new schemes and managing them would be a good start; teaching financial literacy from an earlier age would be good too – I can't tell you how much I despair when start-ups I'm walking alongside deliberately avoid wanting to understand how the money in their enterprise is working and as a result, many I haven't been able to 'win over' have subsequently gone bankrupt, racking up greater personal debt and making people unemployed, and yet could easily have been prevented but for their being more comfortable with some basic financial literacy...

So – the government’s latest great idea to stimulate and encourage business growth and entrepreneurship seems to not only be doomed to fail (like so many before it), but will so do in such a way that it'll drag down the next generation and limit the future potential of our children.