Social enterprise investment - If I only had a (business) heart

if there's one thing I've learned in the transition from conventional business to social enterprise it's this. Be prepared to be misunderstood and even maligned for your efforts. We'd be taken for communists in Russia and as fraudsters in Ukraine for being "a business masquerading as a charity".

For the purpose of understanding, we thought , it was essential to have a business plan. So that's how we started in all cases.

A business plan, or organisational map, provides a reference regarding how an organizational scheme will operate to produce a specific outcome: provision of products or services in a way to create profit. Profit in turn is measured numerically in terms of monetary gains, the “bottom line.”  We reasoned however, that the bottom line could be taken past numbers to people and their needs. 

The first was a plan for microenterprise development in Russia, which led to the Tomsk Regional Intiative and by 2004 we were in the UK drawing attention to the risks of inequality.  With hindsight it must have been puzzling to both traditional finance and the third sector.

We proposed:

A business model which distributes no dividend, investing at least 50% of surplus in seeding new social enterorises via CDFIs.

A Community Benefit Society legal structure.

A national network of community managed broadband installations to address the information needs of rural communities and at the same time deliver funding for onward social investment  

"Service will be available to individuals and community organizations wishing to acquire broadband access, particularly in rural areas where few if any access options are available. With the present complexity of Internet and high bandwidth demands of many web sites, lower b andwidth connectio ns are becoming obsolete. Not only has Internet access become an essential information and communication mode, it has also become sufficiently sophisticated as to require broadband access to provide people with eyes to the world . There is a strong push at government policy level across UK and the EU for full broadband access. Rural locations will continue to be of secondary importance to traditional commercial enterprises providing broadband, yet collectively represent a multi-billion pound per year market. They are merely harder to develop and not as immediately lucrative for conventional commercial schemes as urba n centre s. Desp ite concerted government efforts to press broadband into rural areas, these markets are likely to remain underdeveloped for years to come without specific, focussed intervention, particularly in new EU entrants."

Investment on a per cell basis from conventional lenders, becoming self funding at the 20 cell mark.

A 5% projected share of a rural broadband market, estimated to be £2,2 billion in 2004.  

A focus on addressing inequality by empowering local microenterprise development.

Embedding the International Covenant on Economic Social and Cultural Rights, which includes a Living Wage, as policy.   

We warned

That the rural UK community would be subjected to second class internet service for years to come unless action was taken.  

"UK government intends to make broadband available to 100% of the population by 2005, an objective which cannot be realised by the primary broadband provider in UK , BritishTelecom. Whilst during most of the course of preparing this document BT ma intained the 2005 target, they have now pushed that target to 2006 at the earliest. Even then, it has been conceded that rural customers are likely to have inferior service for years to come. This in turn stands to create a new digital divide between urban users with faster Internet speeds and rural users with slower speeds. P-CED's plan allows for much faster broadband rollout with broadband speeds immediately equal to or greater than BT's present offerings."

That traditional capitalism was insufficient and that government needed to support business which took the bottom line past profit to people

"Traditional capitalism is an insufficient economic model allowing monetary outcomes as the bottom line with little regard to social needs. Bottom line must be taken one step further by at least some companies, past profit, to people. How profits are used is equally as important as creation of profits. Where profits can be brought to bear by willing individuals and companies to social benefit, so much the better. Moreover, this activity must be recognized and supported at government policy level as a badly needed, essential, and entirely legitimate enterprise activity.”

That failure to address inequality would inevitably lead to uprisings by those increasingly disenfranchised.

"While the vast majority of people in poverty suffer quietly and with little protest, it is not safe to assume that everyone will react the same way. When in defence of family and friends, it is completely predictable that it should be only a matter of time until uprisings become sufficient to imperil an entire nation or region of the world. People with nothing have nothing to lose. Poverty was therefore deemed not only a moral catastrophe but also a time bomb waiting to explode"

 

So what went wrong?

With hindsight, I realise that we were tallking to people who simply didn't understand our ideas and perhaps didn't believe that any business could be motivated for social benefit. At the  same time, the government were developing their own version of this community benefit concept known as a Community Interest Company.  As it turned out, it would overlook perhaps the most important point, that funding had to be delivered  from the bottom up as we'd proven with the Tomsk initiative.

When we joined the Social Enterprise Coalition in 2006, our work was beyond their current focus, we were told.

A couple of days ago Robbie Davison of social enterprise "Can Cook" replied to my tweet, saying "Change will only happen with new models/new people in front of those models. Social Investment is dominated by people who don't understand the question so have no hope of delivering"

Robbie has co-authored a recent book advocating 'Builder Capital' a long term investment strategy for social enterprise funding up front without return on investment for as long as 20 years. The obstacle says David Floyd, is that Builder Capital doesn't currently exist.OR

Long term investment for builders

Typically, the source of long term investment for development has been government, though the term 'patient capital' has been used to describe the kind of microenterprise development I've described, which has been leveraged from governemtn by arguing the benefit, in strategy proposals.

In 1999 That's where funding for a community microfinance bank had come from.  In 2003, US goverment had agreed in principle to a $40 million investment strategy for the Tatar Community of Crimea, proposting that they become the solution to their own homelessness, following repatriation.

As it was argued, the cost of simply building for them would have been in the order of $300 million, but by giving them access to the resources they needed, they could at the same time stimulate wealth within their impoverished community.  It was a case for tackling the threat of terrorism by supporting peaceful communities, rather than unleasing cruise missiles after violence had erupted.

In October 2006, with a 'Marshall Plan' for Ukraine the call for such investment on a national scale was made. It called for development funding to be supported by business with a long term view on social needs: Instead of spending 1.5 billion dollars a week in Iraq, it could be spread over 5 years:

"This program provides for near-term social relief for Ukraine’s neediest citizens, most particularly children who normally have least possible influence and no public voice. Over a few years time, the net cost financially is zero. Every component is designed to become financially solvent, through mechanisms of cost-savings and shared revenue with other components. One component, Internet, provides essential communications infrastructure as well as a cash surplus to be used to offset any lingering costs of other components such as childcare, and otherwise goes to a permanent social benefit fund under oversight of the aforementioned independent, citizens-based non-government board of directors.

Any number of other social enterprises can be created. Furthermore, any number of existing for-profit enterprises are entirely free to contribute any percentage of profits they wish to increase the proposed initial $1.5 billion social investment fund"

Does 'Builder Capital exist? 

Clearly that is the big question, since it would be difficult to imagine such long term trust. On the other hand, we have the illustration of Danone, whose shareholders were persuaded to commit to a collaboration with Grameen in which only the original capital is returned.

For Grameen Danone the 'botton line' is the number of children taken out of malnutrition whereas ours was taking children out of insititutions and I petitioned David Cameron to support it.  

Our own effort in Ukraine from 2004-2011 came at a cost of around £350,000.  The largest part being a long term view of our on incomes which were deferred pending project implementation. On the other hand. little interest was shown from mainstream business leaders. who in more recent times have been talking the walk.

When a global elite showed up in London to discuss Inclusive Capitalism however , I had no doubt where their thinking had come from. 

Open Letter to the Lord Mayor of the City of London

People Get Ready

There's a (gravy) train a' coming. A fund of £60 million to teach us how to get ready for Social Investment. Just imagine how many insects that's going to bring out from under the rock. We're going to be taught how to develop business plans which buy into the social investment middleman - at our own cost throught taxation! .      

It's revealing the Invisble heart of financial markets, don't ya know.

I'm reminded of the old joke which asks what is a management consultant. Apparently it's someone who comes to your office and mugs you, leaving behind a report recommending you're mugged by 3 of his closest freinds.  Expect to see some of those friends soon, doorknocking.

The concept of stimulating a local economy through business took a while to reach social enterprise but recently I've joined the Social Economy Alliance who now support this on one hand, while endorsing large scale government subsidy on the other.   

 

 

 

 

 
 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 

     

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