‘Extraordinary’ rise in socially-driven start-ups unveiled today in report launched by Vince Cable

‘Extraordinary’-rise-in-socially-driven-start-ups-unveiled-today-in-report-launched-by-Vince-Cable

Business Secretary Vince Cable will speak at the launch of The People's Business report today in Westminster.

Tuesday 9 July 2013 READ REPORT

New figures published today in The People’s Business report reveal a thriving social enterprise sector in the UK that is attracting a wave of entrepreneurs. UK-wide research [1] carried out for The People’s Business shows that social enterprise has three-times the start-up rate of the mainstream SME sector [2]. Close to a third of all social enterprises are three years old or younger.

The report, released by Social Enterprise UK and supported by The Royal Bank of Scotland Group, says that social enterprises are much more likely to be led by women than mainstream businesses. Thirty eight per cent of social enterprises have a female chief executive, compared with 19% of SMEs, and 3% of FTSE 100 companies [3].

The figures show that people are gravitating from mainstream business to carve out a career in social enterprise. More people are moving from the private sector than any other sector to work in social enterprise (35%, compared with 33% from the public sector and 17% from charities and the voluntary sector).

The report also reveals a promisingly diverse sector. Almost a quarter (23%) of social enterprises are run by younger leaders aged 25-44, while one in ten (13%) are led by ‘silverpreneurs’ - people over the age of 65. And social enterprises are twice as likely as mainstream SMEs to be led by someone with a Black, Asian or Minority Ethnic background.

There are currently 70,000 social enterprises in the UK contributing £18.5 billion to the UK economy and employing almost a million people [4]. These businesses with a social mission include The Big Issue, Pants to Poverty, Belu Water and Jamie Oliver’s Fifteen.

Social enterprises out-performing traditional SMEs

Findings in The People’s Business point to social enterprises out-performing mainstream businesses. In the last 12 months, 38% of social enterprises surveyed saw an increase in their turnover compared with 29% of SMEs. More than half of social enterprises (56%) developed a new product or service, compared with 43% of SMEs. Two-thirds (63%) of social enterprises expect their turnover to increase in the next two to three years, almost double the number of SMEs (37%).

Creating jobs and tackling deprivation in local communities

The research shows that social enterprises are creating jobs and stimulating local economies where they’re needed most. More than a third (38%) of all social enterprises operate in the UK’s most deprived communities, compared to 12% of traditional SMEs - and half of social enterprises (52%) actively employ people who are disadvantaged in the labour market, including ex-offenders, people with disabilities and the long-term unemployed.

The majority of social enterprises (57%) draw 100% of their workforce from the local areas in which they operate, and a greater number of social enterprises are planning to grow their staff teams over the next 12 months than two years ago (33% expect to employ more people, compared to 26% in 2011).

Access to finance is main barrier to growth

Social enterprises say that access to finance is their single biggest barrier to growth and sustainability. Hungry for finance, twice as many social enterprises as SMEs sought capital in the past 12 months (48% compared with 24%). The average sum applied for by social enterprises was £58,000, suggesting a need for smaller-scale lending than is currently available to the sector from social investment sources.

In 2011, just 8% of social enterprises cited the economic climate as a barrier to growth – in 2013 this figure has quadrupled to 32%, the second biggest barrier for social enterprises to grow and become sustainable.

For social enterprises who mainly trade with the public sector, there has been an increase in the number who report prohibitive public sector commissioning and procurement as a major barrier to growth and sustainability. In 2013 the figure stands at 34%, up from 25% in 2011. That this situation has worsened rather than improved since the last survey should be of concern for policy-makers, says Social Enterprise UK.

The report makes a number of recommendations, including that:

  • Government should implement the Public Services (Social Value) Act to its full effect to public service markets with genuine plural provision in which smaller social enterprises can compete.
  • Policymakers and investors should recognise that grants and ‘softer’ social investment (which is patient and risky) remain critical parts of the mix for many social enterprises, and design financial products and support programmes to reflect this.

Comment 

Peter Holbrook, Chief Executive of Social Enterprise UK, said:

“There’s growing interest in social enterprise – it’s the sector where entrepreneurs are choosing to set up businesses. This fact speaks volumes about people’s motivations and a desire for change in the way that businesses behave and their contribution to society. Social enterprises are businesses that serve people and communities.

“Social enterprise is steadily proving that it has an important role to play in bringing about an economic recovery and lasting social change. Entrepreneurs are using business to regenerate and rebuild their local communities, often where it’s needed most urgently to tackle the causes and effects of deprivation.”

Susan Allen, Chief Executive, Customer Solutions Group, The Royal Bank of Scotland, said:

We’re delighted to be supporting this report as part of our long-standing partnership with Social Enterprise UK.  RBS has been working with the social enterprise sector for over 10 years and it has been fascinating to see it develop into what we see today. 

“It is particularly striking to see the diversity of both the leadership and workforce of social enterprise.  It seems that the sector is not just “changing the way we do business” but also changing ‘who’ does business. This report shows some impressive growth and optimism within the sector and highlights some areas where, arguably, social enterprise is leading the way for how to do business in the 21st century.”

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Key findings 

  • Close to a third of all social enterprises are three years old or younger, with three times the start-up proportion of traditional SMEs. This is a trend that has increased since the 2011 survey.
  • 11% of social enterprises export or licence abroad – and the newer start-up social enterprises are more likely to export than established social enterprises.
  • Social enterprises are very heavily concentrated in the UK’s most deprived communities. 38% of all social enterprises work in the most deprived 20% of communities in the UK, compared to 12% of traditional SMEs.
  • Social enterprises are far more likely to be led by women than mainstream businesses. 38% of social enterprises have a female leader, compared with 19% of SMEs and 3% of FTSE 100 companies.
  • 91% of social enterprises have at least one woman on their leadership team. 49% of mainstream SMEs have all-male directors.
  • 56% of social enterprises developed a new product or service in the last 12 months compared to 43% of SMEs. New product or service development is often used as a proxy-indicator of business innovation.
  • 15% of social enterprise leaders are from Black, Asian and Minority Ethnic (BAME) communities. 28% of social enterprise leadership teams have BAME directors. Only 11% of SMEs report having directors from a BAME background.
  • Business optimism has improved since our 2011 survey, with 63% of respondents expecting their turnover to increase in the next two to three years – compared to 57% two years ago. Only 37% of SMEs expect their turnover to grow.
  • 38% of social enterprises saw an increase in turnover compared with 29% of SMEs, in the last year. This means that proportionally, almost a third more social enterprises grew based on turnover last year than SMEs.
  • 22% of social enterprises experienced a decrease in turnover in the last year compared with 31% of SMEs.
  • Our 2011 survey called for decisive action over concerns that 25% of social enterprises that worked mainly with the public sector cited procurement policy as a principal barrier to their sustainability. In 2013, that figure stands at 34%.
  • The most common (32%) main source of income for social enterprises is trade with the general public. Close to half of all social enterprises now trade with the private sector too.
  • The proportion of social enterprises that trade with the public sector is increasing – and attracting a higher proportion of social enterprise start-ups.  Over half (52%) of social enterprises do some trade with the public sector – twice the proportion of SMEs (26%).    
  • Twice as many social enterprises (48%) as SMEs sought finance in the past 12 months and 39% cited access to finance as the single largest barrier to their growth and sustainability – the most common barrier experienced. 
  • The median amount of finance sought by social enterprise was £58,000 – below the minimum thresholds of many specialist social investment vehicles. 

References 

[1] BMG Research were contracted to carry out the survey fieldwork: A total of 878 responses were gathered both online and via telephone interviews with social enterprises, in February and March 2013. 

[2] Comparisons have been made with SMEs in the Small Business Survey 2012: SME Employers, commissioned by the Department for Business, Innovation & Skills, (March 2013). Available at www.gov.uk/government/publications/small-business-survey-2012-sme-employers. Measures have been applied to ensure that comparisons are as commensurate as possible.

[3] Robert Half FTSE 100 CEO Tracker (2013). Available at www.roberthalf.co.uk/id/PR-03593/FTSE-100-Companies-UK-Press-Release 

[4] Social Enterprise: Market Trends (Based upon 2012 Small Business Survey), Cabinet Office (May 2013). Available at www.gov.uk/government/uploads/system/uploads/attachment_data/file/205291/Social_Enterprises_Market_Trends_-_report_v1.pdf