Insight: The agony and ecstasy of social enterprise's boom

When the Aspire Group catalogue company went bust in 2004, the negative headlines demonstrated that social enterprises are more open to criticism than traditional companies when things go wrong.

The Aspire Group was launched in Bristol in 1999, a classic social enterprise start-up designed to create jobs for homeless people. Most of those people came to Aspire with a history of drug or alcohol abuse problems, and were at a stage in their lives where they were ready to change but unable to find work because of their past. Aspire paid them to deliver fair-trade catalogues and process the orders through its warehouses.

Rather than seeking grants, Aspire’s seven directors were determined that the company should be funded by investment, including a £5,000 loan from the Prince’s Trust.

One of those directors, Paul Harrod, points out that they also turned conventional business practice on its head. "Most catalogue companies pay employees through commission so you secure your profits first, then pay the staff,” he explains. "But we believed it was important that staff should have secure take-home pay. So we paid the staff a guaranteed wage, as well as investing in their training and development."

Initially, the business was extremely successful, generating £1.3m in sales, but the nature of the company’s social aims soon came into conflict with business sense.

“We were working with some of the most vulnerable groups of people,” says Harrod. “With the best will in the world they are not productive and need a high level of training, supervision and support.”

As employees’ circumstances and employability improved, Aspire supported staff to move on, but this meant that the company was constantly training workers to leave.

"We paid the price for that in the end," says Harrod. When Aspire ran into financial difficulties because of seasonal fluctuations in catalogue sales, it was difficult to raise funds because they had already exhausted their regular sources. "Our assets were stock and databases, not property - we were very cash-led," he says.

Communication between the different offices in different cities was also problematic. "We worked with local communities, so Aspire was deliberately very decentralised. We were thinking about economies of scale when we took Aspire to new cities, but the model was expanded before it had really proved itself."

Harrod admits that he felt crushed when the Aspire Group finally collapsed in 2004, owing £350,000. "It was a big blow because it was such a huge part of my life. I had let people down who supported Aspire and had taken such a huge risk on us."

On the other hand, he says that everyone who invested did so with their eyes open “They were aware it was a massive risk, but many are still happy they invested because of the social impact it had.”

According to the DTI, a third of new businesses fail in the first three years, but the failure of an innovative social enterprise attracted a lot of press attention at the time.

"It’s the inevitability of straying into a mixed funding environment," says Cathy Pharoah, research director at CAF, noting that social enterprises often receive a variety of income from statutory and voluntary sources. "It means that social projects need to be clear with funders if they are still growing and developing, because the funder has to be ‘signed up’ to the risk."

Pharoah warns that the social enterprise model is in danger of being stifled by expectations. "The Government and the voluntary sector both seized upon social enterprise with very high hopes of what it can achieve, and it is harder when things do go wrong.

"But the reality is that venture capitalists are always losing money. The voluntary sector should look positively at what Aspire was able to achieve, and learn from it."

Harrod, who is now Enterprise Network Manager at Bristol University, points out that the other Aspire companies that were set up at the same time as the catalogue company are still operating across the UK, having employed 200 homeless people since the flagship company’s collapse.

“Many of the people who bought fairtrade gifts from Aspire now have their windows cleaned and gardens mowed by the company because of the goodwill and reputation it built up,” he says.

“Our business wasn’t catalogue sales, it was creating jobs for homeless people. That was only ever going to be achieved through social enterprise. The social outcomes were there - but we just grew too quickly without building a sustainable business model first.”

However, Harrod admits that Aspire’s directors were their “own worst enemies” when it came to trying to run the business along traditional lines.

“It wasn’t realistic,” he admits. “We should have said from the start that we are going to need a substantial level of grant funding. Instead, we hyped it up and said it was all going to be funded for investment.

“If we’d been grant-funded no one would have batted an eyelid. We were hoisted by our own petard.”

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