Using grants as a tool to help charities and social enterprises reduce their reliance on grants is a paradox. And yet developing enterprise capacity in the sector needs to be resourced.
Before the pandemic, trading was the fastest growing part of the sector’s income, and many organisations have applied an enterprising approach over the past year to help them pivot their models and continue to support their communities.
Rebuilding earned income streams will be a critical element of the sector’s recovery. So how best to design this sort of capacity building support?
Grants can help organisations to buy in skills and expertise to help them to develop new enterprising activity; to refine a business plan, undertake market research or create new systems.
When delivered well this sort of consultancy support can upskill the organisation and have a lasting impact. But it requires a good match, for charities and social enterprises to know what they need and who can deliver it well.
This is difficult when the support is likely to be provided in an area in which, by definition, the organisation is not well versed.
Various approaches have been put in place by funders over the years to address this imbalance.
Some use an 'approved provider' list of suppliers where quality can be centrally controlled.
This can effectively ensure that consultants are all well qualified, but it can also have the effect of gaming the “market” for support, sometimes leaving charities and social enterprises feeling disempowered, and may not drive the best value for money.
Another approach is to involve a third party in the commissioning of support. In Access’ Reach Fund, for example, the charity or social enterprise works with a prospective investor to identify the support needed (in the case of the Reach Fund usually support needed to raise investment).
The programme is created in such a way as to seek to align the incentives of the charity or social enterprise, the investor, and any consultant they commission, ensuring that the work undertaken is focused and that power lies with the charity or social enterprise at all times.
An evaluation in 2019 suggested that this was working. While the Reach Fund is focused on raising investment, a similar approach might work with engaging prospective customers – for example public sector commissioners – in designing the support.
Other approaches to developing enterprise capability rely more on working specifically with the leadership of the organisation.
The School for Social Entrepreneurs has been supporting leaders in the sector to develop enterprise skills for more than 20 years. Its philosophy is based not on being taught enterprise, but rather on learning through shared experiences with peers and from other sector leaders sharing real experiences.
For our Enterprise Development Programme, which was launched in 2018 and focused on supporting new enterprise activity in charities and social enterprises, we offered both enterprise grants and peer-based learning for leaders.
The programme takes a thematic approach, and in the first year we worked exclusively in the homelessness and youth sectors.
The data so far shows that these tools have helped, especially in accelerating the growth of enterprise concepts that were already in development.
However, the two parts of the programme (grant and learning) were run separately. Some organisations benefitted from both, others only from one.
Many more applied for a grant, and some were clearly chasing money in doing so. So following the pilot, we have concluded that grant and learning need to be better integrated.
Participants are now recruited into the programme based on their enterprise potential; then a bespoke package of support is developed.
Perhaps the most exciting development over the past few years in this space has been match trading.
Developed by SSE, match trading grants are a form of “incentivised grants”, which reward charities and social enterprises for increasing their earned income from one year to the next.
This alignment of incentives helps to keep the leaders of those organisations focused on growing their trading, rather than being distracted by chasing grant pots elsewhere.
It also recognises the reality than many enterprise models in our sector are unlikely to meet the full costs of delivering an organisation’s impact and helps to quantify the additional income needed over the long term.
The approach is instinctively appealing, and data is now starting to flow about how the model works in practice. It paints an impressive picture.
New research from Power to Change looks at nearly 300 community businesses funded through this approach since 2017.
The organisations were offered pound-for-pound match grants for the increase in trading income earned compared to the previous year, up to a maximum of £10,000.
This was compared to a control group of organisations, which were offered a £10,000 grant without the match trading incentive. Both cohorts were offered a learning programme.
Those offered a match trading grant increased their traded income by more than £9,000 a year.
Compared with the control group, the approach is shown to drive a 9.5 per cent increase in trading as a proportion of turnover. As the report says: “Match trading has a large and significant impact on trading performance above and beyond traditional grants.”
Used well, the tools of aligned and incentive grants, along with peer learning, can help more charities and social enterprises to develop enterprise income.
As we embark upon the long and winding road to recovery there is an opportunity for more funders, and for government, to support, collaborate around and benefit from this cause.
Seb Elsworth is chief executive of Access, a foundation that helps to widen access to social investment for charities and social enterprises