The Future of Social Enterprise

Two questions have been on a lot of people’s minds lately: what’s all the fuss about social enterprise for and does it have a future in New Zealand? Here are some of my thoughts…

A social enterprise is a business trading for a social and/or environmental purpose. Social entrepreneurs want, and choose, to make the world a better place. Muhammad Yunus puts it a little more poetically. He says that a social enterprise is a business designed to solve a problem, which is not-for-loss, and where everything is for others.

This might sound idealistic but it comes from the entrepreneur who built Grameen, a multi-billion dollar bank that has lifted millions of people out of entrenched poverty and pioneered the micro-finance industry. It also describes a rapidly growing global movement that is fundamentally changing how people perceive, and do, both charity and business.

Hikurangi recently partnered with Enspiral, Chalkle, and Start-up Weekend to run New Zealand’s first Social Enterprise Week – we did this to build the case for investment in social enterprise, and the development of a thriving, innovative, and sustainable sector in New Zealand. Why? Simplistically, we believe we have three drivers to consider – starting with the need to step up and catch up.

The 21st century is nothing if not an exciting time to be alive, but we face fundamental and intractable challenges at the global, national and local levels. Persistent problems like child poverty, educational under-performance, youth unemployment, violence, addiction, and local development are colliding with new long-term trends such as changing demographics, environmental degradation, climate change, and growing inequality.

Regardless of the amazing technological breakthroughs that we achieve, these collisions are creating systemic social, economic, and physical risks. They also come at a time when the Global Financial Crisis has led to both a tightening of public resources and an increased demand for social and economic regeneration.

Undoubtedly we need to adapt what we do in mainstream government and business, but we also need to find new ways of getting things done. Social enterprise represents such an opportunity, and while other countries are innovating and building coherent sectors, here in New Zealand we’re getting left behind.

To give a sense of the commitment and investments that other countries are taking, it’s worth considering what’s happened in the UK.

The sector was kick-started back in 2002 when the Department of Trade and Industry developed a ‘whole of government’ strategy for social enterprise. This has led to an overall public investment of £350 million and produced a rapidly growing sector that, at last count, constitutes more than 68,000 organisations that contribute more than £24 billion to the economy.

‘The People Business’ – a report recently released by Social Enterprise UK – found that the sector now has three times the start-up rate of mainstream business. It is also a sector where women and ethnic minorities are flourishing as entrepreneurs, and in leadership roles.

Closer to home and not so far ahead, Australia has made multi-million dollar investments at both the state and national level in the last few years. In many cases this has been matched by investment from the corporate and philanthropic sectors. In Victoria, the state government has partnered with a private foundation and formed Social Traders – an incubator for social enterprise, to the tune of $2 million a year.

In June, another intermediary, Social Ventures Australia, raised $7.5 million for Australia’s first Social Benefit Bond – leveraging private capital to finance social enterprise to deliver certified outcomes that are purchased at low risk and, in turn, provide a financial return.

And this is a critical point. Worldwide, there are now more than 250 Impact Investment Funds – while the majority of this capital is targeted towards emerging markets, we shouldn’t ignore the trend that a different class of investment is seeking new types of enterprise to realise triple bottom-line returns. This represents an opportunity to get private capital driving social and environmental change in a way that simply isn’t possible with traditional charity and project-based models.

The second driver is demand. New Zealand already has vitality and activity in the sector but it is fragmented and under-served. In a state of the sector study produced earlier this year by the Department of Internal Affairs, 65 per cent of the 400+ organisations that responded, identifying themselves as social enterprises, stated a need for business and management support to speed up their development.

At Hikurangi, the number of enquires we’re receiving from communities, organisations, and entrepreneurs seeking guidance on business models and enterprise strategies is tangibly on the rise – and more than we can support given our current resources.

The tertiary campuses are also becoming a hot-bed of social entrepreneurship and enterprise. This year’s ‘Spark’ business plan competition at the University of Auckland received around 450 applications – a third of which were ideas for social enterprise. Again, this is consistent with trends overseas, where this energy is being harnessed through specialised campus and inter-campus skills development programmes and competitions. However, in Auckland, while the commercial proposals had the opportunity to graduate into the IceHouse, the hybrid ideas had nowhere to go.

The case for demand was also borne out by sign-ups for the first Social Enterprise Start-up Weekend that took place during Social Enterprise Week. Sure, it built on the success of the previous events but it was more subscribed than any other Start Up Weekend previously run in New Zealand.

Be it community enterprises, transitioning not-for-profits, or the wave of new entrepreneurship coming through – there is a groundswell of talent and commitment focused on changing our country and communities for the better. There is clear and growing demand and this talent deserves a coherent and enabling response.

The last driver is the most compelling – the opportunity for transformation that social enterprise represents.

Why wouldn’t we want more young entrepreneurs like the three undergraduates at Harvard who created Soccket, the world’s smallest power plant (inside a football) that after 15 minutes of play returns three hours of light for children, who live without access to energy, by which to do their homework?

At the community level, why wouldn’t we want more small towns like Widpodsried in Germany who, having grown frustrated with rising energy prices, established their own power generator, and now export more than €4 million of energy a year, and have transformed their community with opportunities for skills development and employment?

Why wouldn’t we want more not-for-profits seeking to transition their business models from being reliant solely on grants and donations, to generating revenue streams as a result of capturing the value that they create?

At the corporate level, because social enterprise doesn’t have to be small, why wouldn’t we want our own versions of joint ventures like the one between Grameen and Danone, who have created a not-for-loss enterprise producing super-foods for families living in poverty? This venture is tackling exclusion and malnutrition at immediate scale and does so on a self-sustaining basis.

The social enterprise sector is not just about start-ups and it doesn’t have to be on the fringe. It has the potential to be as diverse and dynamic as the mainstream business sector. In essence, it is simply the application of business skills in service to the noblest cause – improving the lives of others.

The development of a social enterprise sector in New Zealand is not only desirable; it is inevitable. But given the challenges we increasingly face and the proven opportunity that exists, we should surely seek to realise it sooner rather than later – intentionally and with commitment.

Alex Hannant is the Executive Director of the Hikurangi Foundation.