The Emerge Conference

The Emerge Conference took place this weekend in Oxford with successful social business leaders from around the globe speaking to a few hundred delegates, mostly post-graduate students.

Application of technologies featured heavily. Ken Banks, the founder of kiwanja.net, spoke about his NGO’s provision of a free, open-source platform to send, receive and aggregate bulk text messages all from a non-internet enabled phone. One recent application of this service is for Mothers to Mothers, who prevent transmission of HIV from mother to child through a peer to peer advice service and currently 1 in 5 of HIV-infected pregnant women in Africa. They are integrating SMS messages into their services to remind mothers to take medication and attend. This exemplifies the fact that technology solutions work often because they are simple, effective and focussed on the nuances of communication and delivery, rather than any technological innovation.

In two impact investing conferences, it was striking that the vast majority of investors shunned rigorous measurement of impact for a simple metric of measurement, a story that resonated, and a balanced portfolio covering different human needs (education, health care etc). It’s probable that with the inadequacy of impact measurement, investors prefer simply to be wooed by an entrepreneur’s story and assess their ability to deliver on it.

Regarding the legal structures of companies, there were a number of not for profits that used hybrid models of funding. The profit arm of Embrace handles manufacturing, distribution and R & D, whilst the NFP arm makes a loss on delivering to the most needy and performs monitoring and evaluation. The not for profit holds the IP, which the for profit arm pays a royalty for its use, and therefore supports the unprofitable part of the business.

The conference closed with some wonderfully articulated pearls of wisdom by James Chin, founder of the World Toilet Organisation (check it out: it’s brilliant, http://www.worldtoilet.org/wto/). He recommended taking calculated risks: for example, naming your organisation the WTO because getting sued by the better known organisation by the same name would be worth it for the PR storm. Another gem of many: “There’s no such thing as work that’s easy or hard, just that which is fun or boring.”

Peter's Blog Post for Business Fights Poverty

Peter Babudu, one of this year's On Purpose Associates, talks about how Start!e will directly address one of the major challenges that impact investors currently face: finding investment-ready social enterprises. Start!e has been set up as an incubator to facilitate the rapid creation of social businesses that protect the environment and reduce poverty, accelerating qualified and viable ideas from conception through financing to sustainable operation. Check out his post for Business Fights Poverty here.

Fond of the social impact bond?

In an age of government austerity, there is particular focus on spending public money wisely to achieve desired social outcomes. New schemes will involve variants of payment by results and outcome based commissioning. Another similar tool is the Social Impact Bond (SIB). It involves targeted interventions to prevent social problems occurring and the consequent public spending, for example truancy resulting in NEETs and the cycle of re-offending resulting in greater criminal justice costs. Investors fund interventions up front and are paid by the national government in proportion to the spending cuts achieved. The model is likely to work best with the following conditions:

• Timing: reasonable gap between interventions and results, say seven years or less.
• Causation: there is a demonstrable strong causal link between interventions and outcomes.
• Savings: there is a potentially large cost saving for identifiable government departments.
  

An example is an SIB vehicle put in place for St Giles Trust, along with other organisations, to provide support to 3,000 short-term prisoners over a six year period. If successful, investors will receive a return from 7.5% up to a maximum of 13% in proportion to the government savings.

With great expectations of such projects come great risks that must be allayed. The Young Foundation's paper identifies 4 risks:

• Execution risk: there is the difficulty of the outstanding results of a local project run by passionate people that can not replicated on a larger scale. Selection of providers with the ability to scale is imperative.

• Measurement risk: even if a provider can show that the results are statistically significant because the sample size is large enough, and that there is no systematic bias judged by comparison to a control group, there is still the underlying danger of gaming the measure. For example, the apparently robust measure of reoffending is vulnerable because it is measurement of the criminal justice process and not fundamental change of an ex-offender. A pressurised manager could hit targets by persuading the police not to prosecute their users of relatively petty offences for exceptional reasons or by reducing the detection rate of criminal activity by their clients, for example, by moving to a different part of the country where they are less well known to police. Fundamentally, the contractor must be trusted or measurements must be changed to capture the change in an ex-offenders' maturity, social ties and personal identity.

• Basis risk: the reality may be that there are no great savings. For example, the local authority does not save money if a provider prevents young people from going to prison because young offender institutions are funded by the Ministry of Justice. Likewise, to save on prison costs a whole wing of a prison may have to close before government achieves any actual savings. Carefully agreed outcomes and sharing of rewards may make the difference here.

• Unintended consequences: where a current provider of services affecting the target group is not included in the SIB and withdraws support for what could be a host of reasons. For example, in the Peterborough prison example, prison staff not included in the SIB may obstruct its progress so that their lack-lustre performance is not highlighted by the new initiative's success.

I have high expectations that the Peterborough project will be a success and pave the way for greater uses of social impact bonds in the criminal justice system and beyond. The next challenge will be to introduce this at a micro level by overcoming high transaction fees through a simplified model.

How Social Enterprises might change the (business) world

Social enterprises suggest a new way of doing business which provides lessons for private sector organisations and charities alike, operating efficiently whilst putting the beneficiary, the ‘social’, in a prime position.

What’s social?

Here at On Purpose we’re regularly asking “What puts the ‘social’ in social enterprise?” Is it social ownership (like Co-op), social impact, profit distribution for community goals and an involvement of beneficiaries in the spending decisions of the organisation (like HCT), or is it the general spirit of the enterprise? With no strict rules for defining social enterprises, any of these criteria could potentially fit the bill. But to be a social enterprise, no organisation can neglect the ‘enterprise’ either. Social enterprises try to take the best of business practices, operating efficiently and professionally to further their stated aims; aims which combine profit-making and social concerns.

Why bother?

But why not just have a regular business enterprise (as the BBC recently wondered)? The financial crisis reminds us that in spite of the public origins of various businesses, and of banks in particular, some have become strongly divorced from their most important resource, their customer base. Social enterprises tend to be much more locally entrenched, and prioritise social concerns too, which promises an ongoing emphasis on customers, who are inherently identified as key beneficiaries (looking beyond shareholders).

What’s next?

The social enterprise market is young but growing rapidly - various developments are expected in 2011 - from better financing, to better measurement of social impact, use of scale and engagement of marginalised populations. More broadly, I for one hope to see larger businesses learning from social enterprise’s practices (especially via social ‘intrapreneurs’), mainstreaming their Corporate Social Responsibility initiatives to cover all business practices, and, dare I suggest it, even considering becoming social enterprises!

ESG investing - what else is going on out there?

Every now and again I am reminded the the social enterprise world is not the only movement looking for ways of combining social and environmental achievements with commercial goals. CSR (or CR or sustainability as it is now more often known as) and social intrapreneurship are examples of related movements that have realted aspirations. Social finance or impact investing is also increasingly gaining in prominence.

Further back in the public's consciousness lies the land of Environmental, Social and Governance (ESG) Investing. It is populated by asset managers, bankers, private equity investors and pension funds, who wield influence behind the scenes, through the often substantial sums they can invest (or not). Whilst many of these investments still happen with a need for (near) commercial returns, ESG considerations are making more and more of a mark.

This November, London will be the backdrop for the TBLI Conference, a major annual conference in this field. Encouragingly, the conference includes a session on social entrepreneurs and social investing and On Purpose plans to be a part of it.

These different movements, which are all working to achieve social and environmental outcomes through commercial means, will need to come together more and more if serious system-level change is to happen.

Tom