Toby Johnson
20 January 2015

Background and hints for implementation - support infrastructure

Background

The realm of support structures for social enterprises is a complex topic. As social enterprises are addressing social issues as well as operating in the market, the ecosystem supporting them needs to be multi-faceted. Social enterprise development requires a more wide-reaching approach than that offered by conventional small business support.

As well as addressing all aspects of business development, the support infrastructure needs to stay connected with the value base of social enterprises, and with the networks through which innovative ideas circulate. For this reason it is often provided by the federal bodies representing social enterprises, usually with support from public authorities which see the excellent value for money that can be achieved by gearing up existing networking relationships.

However social enterprise support should not be divorced from the mainstream business advice system, which is usually widely accessible to intending entrepreneurs and benefits from a widespread presence on the ground. Instead, all business advisers should have the skills to give initial counselling on social enterprise, and should then be able to refer clients to specialist advisors at the appropriate stage. This is known as a ‘braided’ support system.

Different elements of the support infrastructure need to be brought into play at different stages of the business life-cycle:

Stage of business life-cycle

Developing business ideas

Business planning and development

Social entrepreneurship and leadership development

Growth, scaling, replication

Start-up

Incubators & workspaces supporting innovation

Schools for skills development

Advisory services

Schools for skills development

Advisory services

Mentoring & coaching, peer support networks

 

Established social enterprise

Social R&D programmes

Capacity building

Strategic skills development

Mentoring & coaching

Peer support networks

Social franchising

Consortia

Growth

Diversification

Spinoffs

 

Issues in support infrastructure

1. Academies for social entrepreneurship

The development of social economy schools and academies are longer-term strategies for more advanced level of infrastructure development. Both the Scottish and the Andalusian good practice cases provide very fruitful models. Their learning provision is driven from the bottom up, so that it is customised to social entrepreneurs’ needs. Their curricula not only improve hard business skills and value-based know-how, but develop leadership.

2. Training

Typically support structures provide training and advice for core business and social development. Explicit knowledge is more easily transferred through conventional means, whilst tacit knowledge requires mentoring/coaching. Mentoring is useful for developing leadership and specialist roles. It is also important for supporting continual skills development as a social enterprise grows. It is important to recognise that training needs to develop consistency around standards, preferably leading to accreditation, and that good systems of evaluation, by appropriate stakeholders, need to be ensured.

3. Asset-based strategies

Asset-based strategies are generally considered to be an advanced step in the development of infrastructure. But they can form a pathway to financial sustainability, because a building not only provides space to house support services, but can generate an income. It may be possible for assets to be financed through community share issues. However incubators can be expensive to run given the cost of employing permanent staff. An alternative model is coopératives d’activité which can be considered as ‘virtual’ incubators (i.e. without physical premises).

4. Balancing support between start-up, growth and replication

One view is that an emphasis on start-ups will inevitably lead to growth, so this is a priority, and initial grants for start-ups are important in all countries. Another view is that capacity building to enter procurement markets is very important. Both require a focus on business aspects to support the development of sustainability (through marketing, financial control and good leadership). There are a variety of pathways to growth; these include extension or diversification of a social enterprise’s activities, as well as spin-offs from public services. Acquisitions can work well (as in Scotland and France); and worker takeovers of failing businesses are a well-established model in the social economy of many countries.

Replicating a successful existing business is less risky than starting one from scratch, and this can be done through social franchising. But knowledge transfer models are equally important, like the Ditto approach of Firstport: http://www.firstport.org.uk/projects/ditto. Here, successful business models are deconstructed by support agencies, and replicated by social entrepreneurs in other localities.

5. Knowledge and innovation

Research to strengthen knowledge about social enterprise has to be collaborative research, and it needs to give back to the social enterprise sector. The choice of research issues also needs to be collaboratively selected and developed. University research on social economy can sometimes be rather academic; and needs to be complemented with know-how that comes from well-grounded business courses developing professional skills, and informed by social economy studies.

Social innovation is a rapidly emerging field, and evidence is needed on what models support it, or hamper its development. It is generally recognised that cross-sector collabora­tions can be effective, and so there is a need to connect academia, research centres, policy-makers, practitioners and the social economy sector. Working with established research centres can be useful, and provides a way of leveraging data, which needs to be quantitative and qualitative data on innovations, processes supporting them, and ways of replicating or scaling them up.

It is also important to strengthen innovation leadership, since challenges faced by society should be seen as issues for innovation by social entrepreneurs.

6. Dedicated or mainstreamed support

Support services can be operated by social enterprises and their federal bodies or by the state, and they can be specific to social enterprise or can be integrated with business support to conventional businesses. Dedicated support structures appeal to existing social entrepreneurs, but the alternative of embedding this support in mainstream provision may offer the advantage of reaching new audiences. Whichever pathway is chosen, sustainable support rests on political stability (but there can be stable political factors which militate against social entrepreneurship too).

The strategy of developing an independent parallel support structure requires the gradual building of structures step by step, with support from the network of social enterprises. Such structures work best if they are co-produced with support from other stakeholders particularly within the third sector/social economy, but also with other influential actors such as universities, think tanks, education and training institutions, etc. The involvement of trade unions (as in Andalusia) can be influential but is not always easy to achieve. Involving providers of important resources (such as financial bodies) is clearly a priority. A parallel support structure needs to complement the established provision, and integrate support from start-up to growth.

7. Geographical structuring of support

Localised support has the strength of responsiveness to users’ needs and access to target groups, but can be too limited and so needs complementary regional/national level support and standard-setting.

The strength of the national level lies in establishing legal frameworks and policies, with appropriate measures; having a helicopter vision and a strategic view; developing a social enterprise brand; and developing a national website (especially for start-up enquiries, as in Finland). Thematic specialists and regional bodies can be organised within this national framework. If these capabilities can be developed within social enterprise structures, it is clear that core funding for these strategic partners can be extremely good value for governments in terms of penetration of policies and programmes.

8. Coordination and partnership

In some countries, public-social enterprise collaboration works well, but this is not always the case. The sector needs to take responsibility for coordinating its side of this partnership, and governments sometimes nudge the sector to coordinate itself better. In this respect, pacts can be very useful (as in Andalusia). It is important that coordination builds on existing systems, and acts to draw in and coordinate different institutions, which does not always take place and may be easier in smaller countries.

Coordination can be problematic due to ministry silos; a major weakness is that labour/ESF ministries don’t understand entrepreneurship, while business ministries don’t understand socially oriented labour policy. However a focus on prominent societal issues can pressure ministries to integrate provision.

Countries which are trying to scale up the provision of support should guard against a too rapid or random growth which can result a large number of poorly developed small support organisations (as happened with Poland’s first call for regional support structures).

9. Sustainable funding strategies

Funding is a complex issue because typically both social enterprises and support organisations survive on a mix of resources: sales, volunteers, donations and government funds. Also, countries face quite different funding challenges, for example support organisations in: Poland and Greece mainly use ESF funding, but may draw on other government funds too; it is too early for them to start charging fees. On the other hand in Sweden, where the social economy in more developed, the support body Coompanion is funded via municipalities and regional funds (via Tillväxtverket), and often charges fees. In Scotland support derives from infrastructure funding, procurement contracts, plus lottery funds.

Government and ESF: It is beneficial to mix government and ESF finance. Government will get ownership and a stronger involvement when it contributes; indeed it is preferable if core funding is from government with ESF as additional support – the activity then has the status of a national operation, which gives stability, provided political support is maintained.

Fees including membership fees: Users may value the service more if there is a charge, and it can add a sense of co-ownership, but some may not be able to pay. This can depend on the action being supported e.g. start-ups would usually have difficulties in paying fees, but for growth actions it may be easier; similarly it may be different for different target groups. Membership fees need to be considered; and it may be possible to use a “freemium” model where some basic services are free, with more advanced services as a benefit of fee-based membership.

Mixed income model: The path to sustainability typically requires a movement towards some kind of mixed income model. But using a mix of resources leads to challenges over issues of accountability to different stakeholders: users, donors, government; as well as the appraising the mix of goals and their priorities. There are also issues managing division of staff time in relation to different resource flows.

Sectoral funds: Sectoral bodies need to generate their own funds to support activities for their users and members; but they can also attempt to strategically coordinate sources of finance outside the Structural Funds. They may also be able to use legislation regarding asset locks as a source of funding, potentially leading to the creation of a new investment fund. Also large social enterprises can play an important role in generating sectoral funds, since they can afford to pay more (Coompanion uses this approach). In Italy and France sectoral funds benefit from a compulsory contribution of 3% of profit.

Funding challenges: Structural funds need co-financing (private/governmental) in old member states, which may add to sustainability, but this can be barrier for social enterprises and their support bodies. There is a need to exploit the possibilities of more independent co-financing from private bodies such as banks, business angels, philanthropic funds and lotteries, and to manage the resulting complexity.

10. Service design for social enterprises

Service design can be improved through improving quality standards and moving towards certification; using common branding of services to enhance visibility and improve transparency of access; being close to the user in a bottom-up process of service/product design; multi-stakeholder governance systems with service user participation; drawing in more experienced social entrepreneurs e.g. from larger social enterprise, as well as using sympathetic experts from conventional business; establishing mentoring and coaching systems both as a service and as a way of strengthening the sector network.

Hints on implementation in 2014-20

The three best practice cases presented as good examples of support infrastructure provided a mix of architectures of support:

  • Scotland’s Social Enterprise Academy is social enterprise-driven
  • Andalusia’s School of Social Economy is driven by social economy actors
  • Finland’s two support structures are very much government-driven

The choice between these depends on many factors, related to the stage of infrastructural development, and the developmental pathways taken. Many stakeholders argue that a self-owned parallel system is better, as it establishes the independence and builds the capacity of the social enterprises sector. Others argue that reorienting state provision is a more effective route to sustainable support structures, although there remain question is over the extent to which the quality and specificity of that support for social entrepreneurship can be maintained.

The Structural Funds have an important and often crucial role to play. However it is beneficial to mix government and ESF finance. Government will get ownership and a stronger involvement when it contributes; indeed it is preferable if core funding comes from government, with ESF as additional support – the activity then has the status of a national operation, which gives stability, provided political support is maintained. From a government perspective, some core funding to set up a structure with ESF is very good value – it promotes self-help, and it is good politics, generating a positive image. But some countries do not have government finance as matched funding, so have to rely on corporate sponsorship (CSR) and private funds and fees. It may be possible to use existing community assets, along with tax breaks such as relief from rates (local taxes).

ESF funding for regional support centres is good for capacity building but there are issues of sustainability, and time constraints due to bureaucratic procedures. When using the five European Structural and Investment (ESI) Funds and national funds, accountability needs to be addressed transparently.

Diversification of funding: On the other hand, in the old Member States the Structural Funds require private or governmental co-financing, which may add to sustainability, but can be barrier for social enterprises and their support bodies. There is a need to exploit the possibilities of more independent co-financing from private bodies such as banks, business angels, philanthropic funds and lotteries and from third sector funding like mutual funds. More diversified funding can be complex to manage, although it does have the advantage of being more resilient to policy changes.

Innovation: A key route to addressing these challenges is continual innovation and the development of good products and services which can attract financial support and also fits better into a procurement framework. Funding should be flexible, to allow and support innovation.