During a meeting last week with Social Enterprise UK, Clearly So and Social Enterprise London, a lightbulb moment ocurred.

We were discussing how the brutal honest truth is that its still a very tiny % of the UK’s social enterprises that have sufficient scale to work directly with the kinds of big corporates that are knocking on our doors, looking to make their supply chains more 'social'.  Our slightly pessamistic conclusion was that if corporates really want to work with these organisations, they need to play the long-game and invest in them – both with cash and with knowledge – in the here and now, whilst acknowledging that they can’t actually work with them directly any time soon.  

The light-bulb moment was the realisation that there is, however, a short-term win too.  In the short-term, the corporates can make introductions between social enterprises and the corporate’s own suppliers – whether first, second, third, fourth tier...  These are much more appropriate customers for the majority of the UK’s social enterprises.  Customers can be found that work at the right local or regional scale and that offer contracts of appropriate size. 

In addition to these strategic introductions, the corporates can offer hands-on advice on how to grow a business in their industry – including significant clarity on what kinds of products/services are of value in the lower echelons of their supply chains – focusing the social enterprises product set around real-world demand.  They might offer cash too – as grants or investments – or they might fund intermediaries to source that investment for them and generally work on strengthening and scaling the social businesses.   

The corporates at the top of the supply chain should go further, incubating the social businesses, so they may benefit from direct exposure to and support and learning from their teams – principally in procurement but also finance, marketing, IT, strategy... Senior managers in the corporate could mentor senior managers in the social business.  Our learning from the Big Venture Challenge is this kind of industry-specific expertise is invaluable in scaling up.

If – after a few years – things have gone exceptionally well, the social enterprises will have raised investment, won small contracts within the supply chains, strengthened their management team and systems and scaled their delivery.  Then, possibly, they’ll be in a position to have direct conversations with the major corporate at the top.  But even if that doesn’t happen – the corporate who supported them has still benefited by having their own suppliers’ supply chains ‘social’-ised: something that is increasingly necessary but challenging to do.  Intermediaries in the space can offer further support by tracking the social impact delivered as a direct result of working within their overall supply chain and reporting that back to the corporates.

Yesterday saw the Shine Unconference for Social Entrepreneurs.  I hosted a panel (Small Fish and Blue Chips) on how and why social entrepreneurs and corporates can work together.  Joining me were Richard Tyrie (founder of Jobs Go Public and The Good People), David Barrie (co-founder of The People’s Supermarket amongst many others), Bob Thust (Head of CR at Deloitte) and Nick Temple (Director of Business and Enterprise at Social Enterprise UK). 

They are a group of people from very different backgrounds and with varied experience but a shared viewpoint in this regard – that the gap between social businesses and big businesses can be closed.  Turns out they have different views on how it can be done, which led to some lively debate...

I’ve only just met Bob but from what I’ve seen so far, his views are pretty close to many I’ve expressed in previous posts here.  Deloitte seem to be taking a very bold position in the CR market and are doing some great things specifically with social entrepreneurs, not least the Pioneers Programme.  I loved that Bob said any good CSR team should act not as a means to an end in itself but as a conduit or gateway for social ventures to reach the rest of the business.  He went further, saying that CR professionals should be in the business of doing themselves out of a job.  Deloitte, of course, act as a gateway to many, many more companies.  As Bob said, the real prize isn’t getting in Deloitte’s supply chains, but getting in Deloitte’s clients' supply chains.  This brokering role for CSR teams fascinates me.  We at UnLtd, increasingly see our role as being around connections: providing access to finance, support, networks and customers. But I've said for some time that , to really achieve this, we need people alongside us who have credibility and networks in the corporate world that we don’t have.

Richard Tyrie always impresses me when he stresses the importance of ‘weak tie theory' in these discussions (in summary “weak social ties..are responsible for the majority of the embeddedness and structure of social networks in society as well as the transmission of information through these networks. Specifically, more novel information flows to individuals through weak rather than strong ties.”).  Richard’s view (one I share) is that ‘weak ties’ between individuals in the corporate and social sectors need to be in place before any meaningful organisational connections can thrive on a serious level.   This approach is, again, something I’m keen to build on with UnLtd Ventures – focusing on our role in building relationships on an individual level, on the basis that these will organically grow into something much stronger.

I was also pleased to hear Richard reinforce his view that we always need to talk about the financial value of social impact created – more than ever when talking to corporates.  In his words, “until I buy food for my kids with social capital” we need to talk money.  As I’ve argued before here, I believe the CSR world does itself a disservice by giving the impression that corporates are driven by anything other than profit.   Success, for me, will be when social businesses and big businesses can sit down and have ‘adult-to-adult’ conversations about how this relationship is going to make both of them more money.

David Barrie is a serial social entrepreneur and a brilliant, creative thinker and innovator.  His views on this subject seem to be that corporates can strengthen his work as an individual, provide immediate infrastructure, resources and key skills around his visions.   He wants full incubation or adoption even within a corporate environment.  I can certainly see the benefit of this, but care needs to be taken.  I think its important that social ventures build their own robust organisations without completely relying on 'outsiders' who may walk away at any time.  

David’s secret double life is as a highly successful TV producer.  He drew interesting parallels with the creative industries, where the major commissioners invest (in the widest sense of the word) in production companies in their supply chain.  This may be ‘grant’-like investments in infrastructure, access to their back-office resources, incubation, staff secondments (in both directions), guarantees of long-term contracts and ultimately equity investments / acquisitions.  A compelling vision for a future social innovation marketplace.

As for Nick… well it’s great to have him in the centre of the action at Social Enterprise UK.  He’s exactly the sort of pragmatic, unifying force needed right now to galvanise disparate parts of the sector who all-too-often focus on splitting hairs on technicalities.   Without a united front we’ve no chance of being taken seriously by the corporate world.  They will look on bemused at our bickering and get on with the job at hand without us....

The panel was a blink-and-you’ll-miss it 45 minutes.  But I hope the conversations we started can continue for some time to come…And even, who turns... turn into action!

These last couple of months have been a busy time for all of us at UnLtd involved in the Big Venture Challenge: a call for the 25 most ambitious social ventures in England that are seeking debt or equity investment to scale their operations. 

When applications closed at the end of June we were overwhelmed (figuratively and literally) with the response of 640 applications. We've now reduced that to 41 for interviews, that start today.  The good news is that the competition was fierce and there were some truly exceptional applications - way more than the number we have capacity to interview.  Thankfully many came from entrepreneurs that we already know and work with but, equally pleasingly, many came from those we don’t.

As any funder will tell you, there's always a sizeable number of applications that, whilst impressive in many ways, don't quite tick all the boxes. This time we explicitly marketed for 'the most ambitious' social entrepreneurs in the country and that was a box that was certainly ticked by almost everyone.  But ambition alone is not enough.  A number of applications highlighted a gap in the sector between the ambition of the social entrepreneurs (i.e. those that think they're investment ready) and the reality of expectations from the investment community (i.e. their requirements of ventures in order to actually be ready for investment).

To me, this isn’t wholly unsurprising.  I’m pleased the response to BVC can put to bed the view, held by some, that social entrepreneurs somehow don't want investment. They're clearly flocking to it.   But I've worried for sometime that the hype around social investment will lead too many social entrepreneurs to rush full-speed towards the dollar signs, forgetting about the boring middle bit of actually building sustainable business models.

When doing the application assessments, I tended to go straight to the question about customers: who's buying their product, how much are they buying and for how long are they contracted? And what sort of shape are their customers in?   What value are they getting from this and who else could they be buying from?

Whilst many of the BVC applicants took the time to forecast impressive hockey-stick projections, not all detailed who they thought would be buying their products, let alone actually showed us they’d gone out and tested the market with these customers before approaching us. 

Of course, not all social ventures can or should target the private sector.  And many of those that target the public sector do a fine job of managing their sales pipelines and projections – but in general terms this is a tougher job, particularly when tendering is involved.  Whilst most SMEs working in B2B supply chains lack real security of contracts, if their customer is healthy and they're doing a good job, it's a very good start. The first lesson I learnt on my first day in sales was getting repeat sales is a hundred times easier - and manifold more valuable - than sourcing new sales.

Many social enterprises are still of the mindset of accepting the uncertainty, bureaucracy and whimsical nature of public sector tenders and grant-makers as a necessary part of what they do. It strikes me this is a very different kind of selling from the one I know in the private sector: much less focused somehow and giving much less confidence to make realistic projections.  And I also don’t think this is as attractive to the investment community – for a number of reasons.

Talking to an investor recently he echoed this.  He’d be much happier with his potential investees working with the private sector.  And not just for the securing of revenues.   Beyond strong sales pipelines, the other big piece of the jigsaw missing from the social investment market – particularly those investors like him looking for equity stakes - is readily available exits. 

Recent EVCA data showed trade sales as consistently the most frequent exit route – around 25% of all exits over the last 4 years – vs around 5% on IPO .  Yet, our sector obsesses about things like the Social Stock Exchange without any dedicated focus on putting in place an M&A market.   Operating within private sector supply chains is clearly a piece of this jigsaw: it places you in an industry, where other businesses – customers or competitors - can see your value.

For now, most of the investments in the social space are debt-based – but this means not enough risks are being taken.  To attract equity investors there must be the possibility of exits.  And, amongst other things, I suspect this requires a shift in mindset amongst social businesses to build their business models around the private sector / B2B landscape.  Exits are, of course, important as they provide financial incentives for investors and entrepreneurs alike to invest their time and money in delivering social value.

If the early indicators from the Big Venture Challenge show anything, I think they show the need for teams like UnLtd Ventures to put more focus on spotting talent early and working with them over a period of time before introductions to investors are hurried.  There’s a vast amount of money flooding to our sector at the moment.  It would be a tragedy if it just as swiftly returned from whence it came, convinced there was no market for it.  It feels like we’re only going to have a limited amount of time to prove not only that we want it, but actually that we can use it.

Surely there’s a role for organisations like UnLtd to work with the most scalable ventures not on which investors to approach and how to ‘sell’ to them, but on which potential large customers to approach and how to sell to them... To build a market that understands the value of working with social businesses and to work with them to put a value on these relationships to their financial bottom line.  So that when investors eventually enter the picture many more boxes are ticked. 

And what does this require…?  Well, after the flood of individuals from financial backgrounds to the social sector in the last few years, maybe we now need an influx of just good old fashioned sales people to help sniff out those big wins…

I've found one of the most striking aspects of the aftermarth of the UK Riots to be the ongoing debate on the 'consumerist' nature of it all. It wasn't riots, it was looting. And the looting wasn't for food and the basic essentials that would neatly fit the 'these are the people the state can't provide for' narrative. The looting of plasma screens and designer trainers suggests the most powerful influencing factor here - 2 years after the publishing of The Spirit Level - is inequality.

Reading The Spirit Level left me quite convinced that inequality is the fundamental driver to many of society's problems. The question is how to fix it. Most of the suggestions, coming from the wealthy, white, well-educated academics are for the wealthier amongst us to earn less, consume less, flaunt less. Yes, there is a huge environmental problem of over-consumption that needs tackling. But as solutions to social problems, I just find these proposals too divorced from reality. In short, businesses need to sell more stuff. And marketing departments have become very good at convincing us we need it. In amongst all the self-flagulation that somehow consumption is inherently evil, how about a radical idea: that we use consumerism as a force for good to get us out of this mess?

I'm reading Jason Saul's 'Social Innovation Inc' at the moment. A good read - encouraging corporates to focus their social efforts on generating core business value and leveraging core business competency - and to focus on outcomes not efforts (key line: 'philanthropic strategies get funded out of leftover profits; business strategies get funded out of operating budgets'). Yet it's a slightly frustrating book that you feel would have been a great article that somehow has been stretched into a very repetitive 12 chapters.  Many of the examples given seem to me as classic CSR (Pampers giving cash to third world mothers) and reemphasise that real genuine shared value is rare and tough for companies to deliver.

That said, there's some interesting bits - much centring around businesses creating new markets for themselves amongst disadvantaged consumers.

My interpretation of his message goes like this: Once businesses have reached saturation point, the currently accepted route to growth is to find ever-more elaborate ways to convince existing customers they need to upgrade to a new model. This leads to the kinds of mindless product 'innovation' that in reality is simply an exercise in marketing BS of the 'toothbrush that cleans the tongue' variety. Nobody wins here: marketers tell lies, consumers get affluenza, the planet fills up with junk. This is most famously summarised in Tim Jackson's damning assessment.

But there's an alternative. The businesses could develop new markets for their perfectly good existing products: specifically mass market access to basic mass production goods

Saul terms this 'short-tail economics' in direct contrast to Chris Anderson's Long Tail theory. Ironically enough, given I spent 3 years working in online media, eulogising I think the short-tail is more interesting than the long-tail (but argue that surely it should be the 'short-head'?).  By servicing the basic needs of the vast numbers of disadvantaged individuals, companies can take these people out of poverty and social exclusion: making the products affordable in the short-term whilst improving the health and wealth of the consumers in the process. In doing so they're creating huge future markets for themselves, something that seems to me the most sensible (and most selfish) thing a company could do. (Especially when you consider the alternative - currently considered 'the norm' - providing this demographic with products and services which actively harm them, financially or socially, thus decreasing their future spending power).

Much is made of this in the Bottom of the Pyramid: Grameen Bank and Grameen Danone in the developing world but Saul talks about Tonik, a US health insurance product for the twenty-something 'young invincibles' previously thought of as not a serious business proposition and Tesco's remarkable entry into the US Market - through Fresh & Easy stores in Food Deserts.  But there are examples in the UK too. Look at The People's Supermarket, London Rebuilding Society's Shimmer or Fair Finance, tackling food poverty, fuel poverty and financial exclusion, respectively.  Note these aren't huge corporates, however, but early stage social ventures.

But these are necessarily low margin businesses and social ventures simply don't have the scale to sell the volumes needed to make these things profitable. The thing about the 'short head' is that the volumes need to be huge. This is the reason why Saul and others focus on large corporates when extolling the virtues of this strategy. But he too references the impact on the 'nonprofit' sector, as he calls it: '...need to figure out how to sell their impact as a business proposition'. Big businesses, on the other hand need to work with partners who genuinely understand the needs of these new consumers: their motivations, their social needs, their consumption habits, their purchasing power.

So far on this blog I've looked at two ways in which big businesses and social businesses can work together:  

• Firstly those big businesses contracted to deliver public services: increasingly as they are commissioned and/or paid on the basis of outcomes they will look to subcontract to the social ventures that can most reliably and most cost effectively deliver these outcomes.
• Secondly those big businesses that are looking to achieve CSR outcomes directly through the organisations they sub-contract to in their daily operations. My colleague, Steve Leach, calls this 'hydro-electric' social value. The social value (electricity) is created as a nice side effect of the process and the people using the service (water) downstream either don't know or don't care about it.

My hunch is that the social value created through 'short-head consumerism' offers even more interesting potential for social businesses and big businesses to work together. It's certainly not restricted to traditional definitions of supply chains.  Rather it creates a market for social businesses to touch at every stage of the value chain: market research, design, production, white-labelling of products and services, routes to markets and customer services.

There's much debate over what the most valuable commodity for  businesses will be in the 21st century. Oil? Water? Carbon?

I would argue it is trust. If there’s one thing we’ve learnt over the last 12 months it’s that if you’re a powerful figure and you’re not doing what you say you’re doing, you’re going to be found out.  From Giggs to Gadaffi, Murdoch to MPs expenses, a world of Twitter and Wikileaks means money and power can no longer buy you control of message. 

These are exciting times.  But worrying times for big businesses, many of whom are suffering a crisis of trust following the perceived failure of the capitalist system in recent times.  One of the more interesting ways this loss of trust in big business is manifesting itself is in the rapid growth of online peer-to-peer platforms that are forcing their way into the traditional business of businesses: think ebay rather than highstreets, Zopa rather than bank loans, blogs rather than newspapers, carshares, skillswops etc etc.  It suggests people are happier to trade with their peers rather than businesses because they don’t trust these brands as much as they do their fellow men.   

Trust in business matters.  As Matthew Bishop and Michael Green eloquently argue in The Road From Ruin, hitting out at businesses and the capitalist system may seem an easy and tempting option at the moment, but it will only hamper our recovery.  The less the public trust big business, the more they blame them, the angrier they get and the greater the pressure on government to regulate in ways that hamper financial growth.  I would agree with this: I say we don’t need to regulate, restrict growth or reign in bonuses.  We need to rebuild trust.

The standard response to this from business is to ‘build stronger, more trustworthy brands’.  In practice, normally this means the marketing department using Twitter more so they appear 'more human'. 

But this cultural shift is far too important to be left to the marketing teams.  It has to fundamentally change the entire way a company behaves.  They have to open themselves up.  They can no longer hide behind brands they've built.  They have to be judged by the product or the service they offer AND the way they operate as a business.

This isn’t just an appeal for an end to greenwashing.  I hope that’s a conversation that’s no longer needed.  It’s more fundamental than that.  It’s about an open, frank and mature dialogue with consumers on what it means to be a business: what the goals of a business are and what challenges they face in trying to achieve these goals. 

It's about us all understanding that generating long-term wealth and handsomely rewarding those that deliver this isn't wrong.  It's also about us all understanding that no business is in the business of causing social harm.  Most just haven’t figured out how to avoid doing so in a profitable way.  Most of the social or environmental harm - pollution, carbon emissions, waste, supplier or staff mistreatment - is simply caused because the business considers these externalities that would be costly to internalise. 

This applies even for those businesses that you might think are in inherently bad industries.  Shell aren't in the business of creating pollution any more than McDonalds are in the business of making people fat.  They just haven't found ways of delivering energy and tasty fast food in maximally profitable ways that don't cause social harm in the process.  Which sounds to me like a challenge and an opportunity more than a failure... 

More transparency and more trust between businesses and the public should also create a shared interest in highlighting the instances where it genuinely is a case of individuals focusing on personal, short-term profit and risking the long-term sustainability of the company and society.  The businesses and individuals that adopt genuinely unethical business practices can and should be exposed and held to account.

Could the next big social media movement be one of leaders of big business and members of the public on the same side? Pushing for fundamental changes to the system that benefit both of them...

What's this got to do with shared value and social entrepreneurs?  Well, firstly it's about social entrepreneurs being unashamed about generating profit - for themselves and their investors - whilst creating social and financial value.  Secondly, it's about social entrepreneurs having found innovative ways to actually do this - to internalise and monetise things that big businesses consider externalities and expense.  

But it's the combination of these two that I feel gives social entrepreneurs the real competitive advantage. They have trust.  Trust with consumers, trust with staff, trust with government.  The kind of trust big business can't buy right now. CSR, by contrast, is seen by many as a tacit acknowledgement by the company in question that what it does is inherently bad.  I'm thinking McDonalds sponsoring School Sports, Shell sponsoring Wildlife Photography.   Not a way to build trust, I'd argue.   

There's an interesting article by Barry Quirk in the new RSA Journal. He suggests (public) service users look for 'competence, reliability and trustworthiness' in service providers and highlights that local enterprises might gain a competitive advantage

"from their local knowledge, experience and connections with networks in the community. They may have developed high levels of trust among their employees and may have been able to drive higher levels of trust in their products and services as a result."

But he cautions that this alone is not enough.  Big businesses certainly have clear advantages in competence and reliability if not necessarily in trustworthiness.  Social businesses, particularly those routed in local communities, on the other hand, have the trust but still need support to genuinely build the other two. 

Mr Quirk concludes saying that councils such as his

"need to encourage enterprises to seek markets not just in state service provision but also in the private economy. It is imperative that local enterprises are economically viable and financially independent. While councils may provide financial support to new enterprises in the form of grants and short-term contracts, these organisations must not underestimate the continuing demands of capital."  

Quite.  I believe social businesses can help make big businesses more trustworthy - and big businesses can make social businesses more reliable and sustainable.   Working together they offers the hope of a genuine new kind of capitalism and a new pact between business, government and the public - built on trust and shared value.