SOCIAL ENTERPRISE: COMPASSIONATE PROFIT - A charity that pays its own way? It sounds unlikely, but through social enterprise some charitable activity can become self-sustaining. Lexie Goddard reports

LEXIE GODDARD

Richardson is open about the fact that Aspire has not yet broken even, and won't do so until 2004, but is proud of the fact that it has relied on just a handful of small grants from, for example, the Rough Sleepers Unit, which funded its support workers.

It is now launching a series of breakaway businesses selling fairly-traded goods. Half of them are already profitable. These businesses are run by people who previously delivered the Aspire catalogue door-to-door but wanted more challenging work. They include a painting and decorating business in Blackpool, a landscape gardening firm in Bristol and a bike shop in Oxford.

Aspire also aims to cut its overheads for the catalogue business by centralising the delivery of goods through Parcelforce, something it hopes to bring in-house to provide more jobs in a few years' time.

"There are a number of organisations providing 'first aid' such as food and shelter, but there is still a real lack of employment opportunities for the homeless,

says Richardson. "Around 95 per cent of people who have been homeless never manage to find full-time employment, even when they have found permanent accommodation.

He adds: "Charities in the developing world have been using the social enterprise model for years, basing their work on the old adage: 'you can give someone fish and feed someone for the day or teach him how to fish so he can feed himself for a lifetime'.

"Most charities rely on the whims of foundations over whether they receive a grant and can't plan more than three years ahead. Because we are running a business, we can look 10 to 20 years into the future."

Many charities are having to find new ways to finance their activities as voluntary income levels out and weak equities markets hit investments.

The Victorian notion of charity - going cap in hand or, Oliver Twist style, sheepishly asking for more - may have had its day.

"Profit is good,

says Nick Wilkie, head of the National Council for Voluntary Organisations' sustainable funding project "There's nothing wrong with being a compassionate Gordon Gekko."

He's referring to the venal corporate raider in the movie Wall Street, whose profit-for-profit's-sake ethos seems to lurk at the opposite pole from the aims of most charities.

But you don't need to be a rabid capitalist to make money, less so to spend it. Gekko spent his profit on houses, women and art: social entrepreneurs use theirs to do good.

That charities can generate their own funding through "business

activity isn't a new idea, but as traditional sources of income become less reliable, it's becoming a more relevant one.

The Furniture Resource Centre in Liverpool is an example of a successful social enterprise. It describes itself as a social business, trading goods and services to achieve its charitable and social goals. The centre provides furniture to the inner-city poor and, in 2001, had a turnover of £5.5 million. It employs 120 people and offers salaried training to long-term unemployed people. In seven years, it has reduced its income from grants from 90 to 10 per cent.

"The world is changing,

says Geraldine Peacock, chief executive of Guide Dogs for the Blind, "particularly for traditional charities like us that have grown up heavily dependent on legacies, voluntary income and branch fundraising.

"All these things are now under threat: legacies are shrinking because people live longer. Also, of the £25 million we were left last year, £20 million came from just 10 people so, to make a humorous point, if the right people don't die, we're lost. Income has been volatile since 11 September and branch fundraising produces great publicity but only raises £3 million a year, which is not enough to sustain a £45 million business."

Peacock believes social enterprise has an increasingly important role to play in her organisation's work. Guide Dogs is considering undertaking several social enterprises, from dog-training classes and a kennel business, to renting or selling some of the buildings that Guide Dogs receives in bequests every year. Any margins generated will be ploughed back into the charity's work.

The Government is keen on encouraging charities to get more involved in social enterprise. In October 2001, the secretary of state Patricia Hewitt launched the Social Enterprise Unit.

The unit, which is housed in the Department of Trade and Industry, will champion the sector by promoting it within Whitehall and externally.

It will also provide information and advice for social entrepreneurs, such as helping them tap into existing sources of funding and giving advice on how to pitch their business case more persuasively to banks.

DTI minister Douglas Alexander also recently announced the Government's support for the formation of the UK Coalition for Social Enterprise, a group that promises to give social enterprise "a more coherent voice", and launched this year's awards scheme to encourage best practice, Enterprising Solutions.

"Both the Enterprising Solutions award and the Coalition for Social Enterprise will help to move social enterprise into the mainstream as a business sector in its own right, that combines the creation of wealth with the creation of opportunity,

said Alexander.

The Cabinet Office's performance and innovation unit (PIU), meanwhile, is considering the legal and regulatory side of social enterprise, as part of its wider review of the voluntary sector. The results are scheduled to be released in the winter but it is expected to be largely in favour of the idea of charities exploring social enterprise.

But despite the Government's enthusiasm, there are still plenty of barriers to widespread social enterprise.

The most obvious obstacle is lack of business knowledge. "Many charities just don't have it,

claims Andrew Robinson, head of the Natwest and Royal Bank of Scotland's community development banking arm, and chairman of the UK Social Investment Forum.

"The big issue for chairmen is financial management,

he explains. "You need people with business acumen on the board because the tension between running a business and a charity has to be managed very carefully. Also, just because you are a charity, the products or services that you deliver still need to be of good quality to avoid a case of 'third sector, third class'."

"Unfortunately,

he adds, "there are some very flabby charities that need to tighten their belts to become more business like. Some have lost sight of their social purpose and have just become experts at sucking up grants."

Even if none of your staff has an MBA, you don't need to fork out for an consultant from the commercial sector. The DTI is looking at how to encourage the giving of professional expertise. Some business schools, for example, are willing to loan their students for free.

By far the biggest hurdle, however, is the mindset of some trustees, donors and foundations. They are often uncomfortable with the idea of their charity making a profit.

Robinson recalls the case of one charity helping ex-offenders in east London that was forced to cease its social enterprise because it was threatened with the withdrawal of its grant.

The organisation put motorbike thieves to work, stripping bikes in return for the chance to ride around a Moto-X course. It dreamt up the idea of charging city boys to use the course as a corporate entertainment offering and was making a tidy profit until the grant-making foundation got cold feet. "The organisation is now partially insolvent,

says Robinson.

"There is still a perception that charities should go around with begging bowls,

says Peacock. "They don't like you to be too business-like, which is mad. It's easier to change legislation than change this culture."

But can charities compete with hard-nosed commercial businesses in the scramble for income? Robinson thinks so.

"If charities used their social cuddly soft side and turned it into competitive advantage, they'd wipe the floor with private companies in tenders for particular contracts since they also bring social benefits, such as recycling, helping the homeless or children. They also already have a special relationship with the public,

he says.

In the US, the most successful social enterprise schemes are cause related, such as creches set up by child charities.

"The public does feel more comfortable if you stick to offering something in your core area, instead of say, running cafes, even if all the money is spent on the cause,

says Peacock.

Age Concern has been working in this way for more than 10 years. It offers household insurance, travel insurance and funeral plans to the elderly, through Age Concern Enterprises. All the profits are put back, both into the enterprise unit, and into campaigning and fundraising.

By the very act of selling these services to this particular group, Age Concern fulfils some of its charitable aims, since it can be difficult for the elderly to buy them from private companies.

"Older people with lower incomes are prevented from purchasing insurance as there is a usually a minimum premium set for household cover,

says Age Concern's sales and marketing director Neil Churchill.

"Most private insurance companies also refuse to insure people over a certain age whereas our policies have no age limit."

He adds: "We're unusual for a charity in that we've always seen trading as a way of delivering our social purpose. As long as you offer value-for-money, and your customers can see that, they are happy with it."

But despite Age Concern's success, social enterprise is only one weapon in the fundraising armoury, warns NCVO's Wilkie. There will always be a need for grants, he says.

"Voluntary organisations should regard social enterprise as just another tool. If people can earn 100 per cent of their income from it, then good on them, but for most charities it's just not realistic,

he says.

"It's all too easy to say 'grants are bad',

says David Carrington, the former chief executive of PPP Healthcare Medical Trust and member of the Social Investment Taskforce. "But most social enterprises were reliant on grants in their early days, even if now they are self-supporting. Organisations go through stages of development and, at some stages, they can only survive if money is available in the form of grants."

He adds: "It's true that there is untapped earning potential in the voluntary sector but it's dangerous to think that charities can trade their way out of every social situation or earn every grant. Social enterprise will never replace fundraising; there will always be a need for subsidy."

CASE STUDY: ASPIRE HELPS HOMELESS PEOPLE INTO EMPLOYMENT

When their business plan to launch a catalogue company providing employment for Bristol's homeless was rejected by bank managers in 1999, Aspire founders Paul Harrod and Mark Richardson took out personal loans totalling £45,000.

Three years later, the not-for-profit organisation operates in eight UK cities, has helped 130 people off the streets and into work and is aiming to double that by the end of 2002. Employees deliver catalogues for fairly-traded goods, and collect orders, for a wage of £150 a week.

Sixty-five per cent of its employees move on to other full-time jobs after their time with Aspire.

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