Will the private sector discredit or absorb social enterprise?

These (discredit / absorb) are two opinions of the private sector: social enterprise relationship I’ve read recently.

The first was from Cliff Prior, CEO of UnLtd, who was reported (in this Third Sector article) as making the point that "social enterprises are in danger of being discredited by private sector imitators" (aka profit-making businesses adopting a social enterprise model). Nigel Kershaw (of Big Issue Invest) rebutted this with "if you are transforming society, it doesn’t matter what you are".

The second was from Julia Meek on Catalyst’s Social Business Blog (Social Businesses: Victims of their own success?). In this post, she discusses the trend for mainstream businesses to adopt the approaches of social businesses, and then adopt them wholesale at a much bigger scale. Or, as Julia puts it:

"These supermarkets, electricity suppliers, market leaders and others
have been able to watch the market and let social businesses prove the
effectiveness of their various approaches. On observing a successful
one the companies have been able to leverage their infrastructure,
human capital, market positioning etc. to adopt it quickly themselves,
marketing ’social’ products and services to the same target audience
and at a lower price than can feasibly be offered by smaller, social

This is partly a conversation about scale: can social businesses ever break the ‘ethical glass ceiling’, as Julia’s colleague puts it, and get the necessary investment to compete on more equal terms with the big boys? Does it mean that the best way for social businesses to make change is to pioneer/prove and hope for adaptation by the mainstream? (an approach often seen in the public sector and web 2.0 alike). She then posits 4 potential approaches, around quality, brand, partnerships and acquisitions. Well worth reading.

On the first, I partly agree with Cliff, in that just adopting a model / particular legal structure proves nothing, and this is a problem. This is as true for PCT’s hiving half of themselves off into a CIC (excuse acronym-itis) and then commissioning that ‘new’ half, as it is true for the private sector. Unless the primary mission of an organisation is a social one and the initiative is driven by a social entrepreneur / team of socially entrepreneurial leaders, then its motivation can always be called into question. But we see social entrepreneurs operating across all sectors, and that is where I agree with Nigel: ultimately, moving forward, there will be this increasing blurring of boundaries, and what will matter, as I’ve posted before, is:

– the quality of the work/activity/product
(reputation / measurement / evaluation / provenance etc)
– how well this is communicated
(brand / voice / connections to stakeholders etc)
– the transparency with which the organisation operates
(mission / finances / governance etc)

Regardless of the legal structure chosen, these will be key things for all organisations operating across this field; from enterprising charities through to socially-responsible companies.

It’s interesting to relate the second post to the ‘six practices of high-impact non-profits’ (which I mentioned here), in that one of those practices was to ‘serve and advocate’. If the pioneering role of social business in getting ethical / fair / green / social practices adopted by the mainstream is seen through this lens of advocacy, then maybe that helps place it in a slightly different context. Also, as I am bound to say in this context, the assumption is also there that social enterprises and the like want to scale up. As the Small Business Blog posted the other day, "69 percent of small business owners said that they prefer to have their business remain small.” If that is true in the private sector, surely the same can be said of the third sector / social enterprise movement as well? (If not more so, as ‘small and beautiful’ is a mantra to some).

And surely the movement should be proud to be influencing and changing the mainstream in the way that it has: how satisfying, however imperfectly done, to see big supermarkets pushing fairtrade coffee, to see Fiji water pushing its carbon neutrality, to see M&S put out its Plan A…none of which would have been achieved without hundreds of activists, campaigners and social entrepreneurs, and none of which we could have said even one, two, three years ago. Where we are strongest is in demonstrating, through quality practice and delivery, that things can be done differently….and that they are better done that way.

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4 thoughts on “Will the private sector discredit or absorb social enterprise?

  1. Hey I said that! Or something like it, you know the media…
    My point was that the brand “social enterprise” is getting some marketing cachet. When that happens, people want a bite of the cherry. Pure for profit outfits will try to look like social enterprises to get some of the market, sure as eggs is eggs. At some point the public will rumble them and the “brand” will be discredited.
    Compare organic food with carbon offsetting – the one reliably regulated and trusted, the other unreliably regulated and seriously discredited in the public eye.
    Now that’s a different argument to the question about what makes for most change: growing some real social enterprises, or inciting businesses to adopt some social business characteristics. It’s arguable that a 1% change by Tesco would have bigger impact than 100 new social enterprises. And yes, social entrepreneurs operate across and despite all organisational definitions.
    But the question in the debate that started this discussion (the New Statesman/Edge Upstarts event on social enterprise day)was the future of social enterprise. And whilst social enterprise is clearly a strong cultural movement, it has no legal, trademark or quality standard to underpin it. It’s fuzzy, deliberately so. And markets eat fuzzy for supper.
    Thanks to Nick for kicking this off. Putting on the flak jacket now for the replies 🙂

  2. They are two different questions, Cliff, with slightly different answers above, but they are linked: not least because both put forward the private sector as a threat to social enterprise / social business. I guess my point about the importance of quality / transparency means that there has to be movement from the public on that as well (i.e. they need to know how to judge the quality / transparency, so that those who aren’t the real deal, from whatever sector, can be ‘rumbled’). The issue is that social enterprise is generally defined by legal structure (CIC, Coop etc) but whilst this provides some safeguards (asset lock, governance..), it provides no guarantees: as I’ve often said, a CIC can be as poorly run, ineffective and non-“social” as any other organisation. Trying to quality assure social enterprise is, therefore, a little like trying to quality assure companies limited by share. Organic food and carbon offsetting are much narrower fields by comparison and easier to define/regulate/assure as a result. The impetus will therefore be on individual organisations to prove/demonstrate their quality and communicate their difference to their customers / consumers / beneficiaries [No doubt Divine and CafeDirect will explain how their fairtrade agreements are better / fairer than supermarket replacements: keeping the pressure up, whilst also maintaining/growing their share].
    The two points are connected though, not only because they are both positing the private sector as a threat, but also because if people focus on the model or structure as a way of making change, they miss the crucial point that it is passionate, driven, skilled, effective people who are the key in this process (as I know we agree). That might still be too fuzzy, but I would say the challenge is to influence and challenge existing markets (public and private), and create new ones; cooking supper, and devising new recipes, rather than being eaten.

  3. I did a blog post on this some months back that I hope adds something..
    In a recent McKinsey article veteran researcher and business thinker Daniel Yankelovich reports that executives today in corporate America overwhelmingly agree that their businesses must not only make money, but must also serve the public good. Some 68% of executives believe that their business does both – only 48% of consumers agree with them.
    It is clear that the ‘for profit distribution’ strategists are split over the role of ‘public service’ and ‘corporate social responsibility’ in the strategic mix. However the pendulum is clearly swinging in the direction of doing ‘public good’ as a core component of business strategy. The ‘profit distributing social enterprise’ is just around the corner – if it is not here already. Some would say that companies like SERCO, running everything from hospitals and prisons to railways and business support organisations, are already building this type of business structure – delivering ‘public good’ from a for profit platform.
    What advantages will the third sector retain when more of the ‘for profits’ demonstrate a strong track record in providing public good? They might include:
    1 the ability to release and channel the power of volunteerism in support of service delivery
    2 the potential to attract philanthropic investments to fund the work
    and perhaps most importantly
    3 a genuine passion for delivering the mission. A belief in doing it because it is the right thing to do; because it is an expression of what we value as human beings and not simply a preferred mechanism to increase return on investment to shareholder.
    If we are serious about social enterprises challenging the dominant private enterprise model it is perhaps in these areas that strong management and leadership skills will be required.

  4. This is an interesting one. My introduction to social business came through working for a fairtrade co-op in Leeds. We ran a shop, and then expanded into running a cafe. When we opened the cafe we were the only place in the centre of town where you could get a fairtrade cuppa. And we thought we were great. But where we went wrong is that we failed to keep an eye on how the market was changing. Starbucks opened a coffee shop (yes it’s hard to believe that 8 years ago there were no Starbucks in Leeds), then they opened another one. And another one. Then all of our (and others) campaigning started to bear fruit as cafe after cafe in Leeds switched to fairtrade. We campaigned to change our marketplace and ended up making the marketplace more difficult for ourselves. But as you say above maybe that’s one of the tensions in a pioneering social business.
    Ultimately we ended up closing the cafe. As always there are lots of reasons why, but one of them was that we didn’t keep up with changes in the market. As a small business, social or not, you have to innovate to survive. We did that at first, but then thought that because we were the righteous ones, we’d survive. But people just went elsewhere for their coffee.