Loaded Dice: Tuesday 9th May 2006

The past few years have seen the development of many social enterprises.  The need for sustainability in a new funding climate is prompting many community and voluntary organisations to explore engaging in 'profitable' activity. As Director of The Quinn Group, Peter Quinn Consultancy Services and as someone actively involved in the community and voluntary sector, Peter talked about the relationship between the private sector and the social economy.

Helen Lewis welcomed all attendees on behalf of INCORE and the Cresco Trust Ltd and introduced Marie Taylor, a Senior Associate at the Judge Institute of Management, Cambridge , as the facilitator for this event. Marie welcomed and introduced Peter Quinn.

Objectives of Presentation

Peter began the presentation by noting that social economy ventures are easy to start but hard to keep viable, and stating his belief that few ventures will fail if they are managed correctly. He then went on to outline the objectives of his presentation: to give a private sector perspective on how the aims of the social economy sector might best be achieved; to examine the problems faced in setting-up any new business and how they might be solved; to compare how the private sector addresses the issues of starting a business and making and keeping it viable, with how the social economy sector operates; and, to give some examples of ‘Best Practice’ in starting and running a business. Peter noted that he would finish his presentation by answering the question of whether social economy ventures are a matter of “making a profit and selling your soul.”

With regards to the social economy, Peter said it is about doing what is right, and then doing the right things. He noted that he has personally been involved in the voluntary sector for more than forty years, and that he previously managed the development of the biggest voluntary sector project on the island of Ireland . Peter is currently chairman/director of three social economy companies (and about ten ‘for-profit’ ones) and has provided consultation services for social economy projects for the past ten years. However, he is also obviously heavily involved with private sector businesses. Peter conceded that he is sceptical about the value of some current social economy activity and that he may not have the same attitude to business as most social economy activists.

The Social Economy

Peter describes the social economy as:

“A sector of the economy, comprising ‘Mission Driven’ businesses which deliver societal change or reform and social benefits, by generating enough profit to allow it to continue to invest and thereby to survive, so that it can continue to deliver those benefits and, where necessary drive a ‘change agenda’ through its existing or related areas of activity.”

With regards to the current scope, the social economy is growing in Ireland and Europe and is approximately 5% of GDP (the same as tourism and construction), and an even larger percentage of employment. It is highly diversified in its projects and activities. In Ireland , the biggest proportion of the social economy focuses on community economic development. Peter noted the social economy puts people and communities before profit and its aims are primarily social, though often diffuse. As examples of social economy ventures, he mentioned training, capacity-building, empowerment and provision of social services. A social economy organisation is owned by, and accountable to, stakeholders (users, community, clients etc) and adopts strong ethical positions, for example, on the environment. Peter added that social economy ventures need to produce profit from trading to be viable and to re-invest in their social aims.

The social economy is operating in a rapidly changing environment. European grant-aid is drying up; despite the fact there is continued and growing need for it. Social economy projects are by and large failing to attract financial support from the public or from private sector organisations – why is this? Peter suggested that social economy ventures are often seen as wasting resources and as lacking focus on long-term, strategic development. Moreover, people within the sector seem to feel it has a ‘right to support’ and have not paid attention to building up public confidence in the sector. The social economy also tends to struggle in times of economic stress. Finally, social economy models are evolving - Americans now talk of social/community entrepreneurship, and promote the use of business approaches in social economy activity.

Peter then outlined the characteristics of social economy organisations: being mission driven; social objectives being paramount; highly participative and inclusive organisation; aim to create sustainable communities; local ownership and accountability, with most of the benefit being retained locally; strong ethical values, including environmental protection, fair trade etc.; and entrepreneurial and innovative – they do what others ignore or refuse to do. It is this final characteristic that makes social economy ventures of such great value to society.

Funding issues

Peter proposed three questions of relevance to funding issues: 1) Why do new businesses need money? 2) Where can they get the money? and 3) Why do social economy projects have difficulties raising money?

With regard to the first question, Peter pointed out that new businesses need money for fixed assets, and contended that this is the main area most new businesses focus on. However, he noted that new businesses also need money for working capital – something which business people often fail to understand or underestimate. Similarly, money is needed to cover initial losses which always happen. According to Peter, the availability of money for working capital and initial losses makes the most difference in terms of the success of new businesses. It is worth noting that money is also needed for interest, loan repayments, set-up costs, development costs, research etc. and these costs are often unpredictable.

When it comes to the question of where new businesses can get the money from, Peter suggested the following sources. First, from the promoter’s investment (matching funds), although this can be difficult. Second, from other investors, although banks will need securities. Peter advised, on the basis of his own experience, not to give any personal guarantees. Once operational, new businesses can get money from suppliers. Moreover, new businesses can get money from grants. Peter emphasised however, that grants (especially revenue grants) should be seen purely as bonus and that a project must start up without them. Money can be taken from profits and cash flow from operations. He also mentioned charity and fund raising as possible sources of money, but added that “ You cannot help the poor by being one of them. ”

In relation to the third question regarding why social economy projects have difficulty raising money, Peter noted that they offer little security, that people do not think that they will survive, and that there are credibility problems. He referred to a poll in the U.S. that indicated that one third of people believe that ‘[social economy projects] should be disbanded’. He also said that people think that social economy projects are ineffective, inefficient, unethical and wasteful. Moreover, there is, according to Peter, no obvious plan for success and often no measure of success. He added that banks will often require a realistic plan. Furthermore, social economy projects often have no track record, and lack clarity about the market they are targeting and sometimes about the product they are offering.

Marketing Issues

Peter then moves on to discuss marketing issues. According to Peter, businesses need to be asking themselves a range of questions: what product(s)/service(s) are you offering; who/what is your target market and do they want it; will they pay for it; how do you get into this market i.e. what is your entry channel; what is your break-even; can you reach break-even/margin; can you make money on it/lose on it; how big is the market and how can you find out? (Speaking from his experience, Peter said that this can be quite difficult to estimate and estimates can be unreliable); does it provide an opportunity? i.e. is it growing/static/declining, what is the competition etc.; what are your unique selling points and will they make any difference; who will pay for the product/service; what might happen to funding in times of economic stress; and finally, are you selling the right product/service at all?

Peter talked the audience through the grid depicted below, as an example of a tool he uses in his companies to help inform decision making about which products to promote (generally those products that can be sold to several different markets).

Markets Products	A	B	C	D	E
1	Yes	No	No	Yes	No
2	No	No	No	Yes	Yes
3	No	Yes	Yes	Yes	Yes
4	Yes	No	No	No	No
5	No	Yes	No	Yes	Yes

Another important factor for success is an organisation’s competence, including: contacts/networks (which is how Peter and his brother initially got started); ability to meet quality and service requirements – something often lacking in social economy businesses; capacity to supply required quantities; and capacity to fund (working capital/credit taken by customers).

Business Failures and Business Models

Peter went on to discuss the following reasons why businesses fail: they run out of cash; are managed poorly (wrong product; selling into wrong market; bad service; poor quality; poor marketing); changes in the business environment; lose sight of their mission; and wrong business model.

Peter listed three general business models:

1. Administrative model (civil service, bureaucracies, unions etc. – emphasises human relationships and internal networks – leads to petty politics, low output, inefficiency).
2. Marketing/Strategic model (too high level, too little emphasis on efficiency and outputs).
3. Production model (emphasis is on output & results, with high earning capacity)

Peter said that social economy organisations tend to use either administrative or marketing/strategic model. However, he applies the production model to both his ‘for profit’ companies and social economy ventures.

Peter then discussed the survival rates for new social economy businesses. He told the attendees that in Britain , 50% of new social economy businesses fail within three years, which is more than twice the U.S. figure. In terms of entrepreneurship, in Northern Ireland between 1 in 30 and 1 in 40 people start their own business. Peter compared this to the U.S. where the corresponding figure is 1 in 10. He stated that 8 out of 10 successful businesses in the U.S. are run by people who have previously failed, whereas in Ireland you don’t get a second chance. Peter further suggested that businesses here are too dependent on grants and that when things go wrong (as they always do) management often panics and fails to react appropriately.

Peter referred to a theory that companies have a natural lifespan with birth, life and finally death. He contended, however, that if managed correctly there does not need to be a death - businesses can survive. What do you need to do this?

Success

Peter outlined what businesses need to succeed: vision for the project and for success and imagination; clear objective and hunger to succeed; adequate resources and networks; realism and a willingness to learn from others; willingness to delegate; focus on results (be the best, most efficient); willingness and ability to take risks (strong stomach); ability to lead/motivate a team (leadership); think strategically, but mind the kitchen; confidence, courage and determination; and luck.

Resources needed to succeed include: a product/service for which there is a demand (which is not the same as a need). Peter contended that needs have to be converted into demand, that is; a market which can pay for it; the money to produce and deliver it; the skills required to produce and deliver it; the management structure to run the operation; and the business model to succeed. He added that pricing is very important, as well as a feedback system to identify if the business is going off the rails, and the guts to take remedial action - including pulling out.

Comparing Social Economy with Market Economy

Peter then made the following comparison between the market and social economy:

 

Market Economy		Social Economy
Responds to: Demand (Pays Bills and Generates Profit)		Responds to: Need (Creates Sympathy and Charity)
Objective : Profit – Then More Profit!		Objectives: Financial Return & Social Return
Strategy: Product-Market Driven		Strategy: Need-Competence Driven
Organisational Structure: Steep / Based on Targets		Organisational Structure: Flat
Culture: Stand-Alone / Self Sufficient / Viable	Culture: Dependency / Grant-driven
Ethos: Autocratic, Effective, Pressurised	Ethos: Democratic, Caring Laid-back
Decision-making: Quick, Market Focus, Profit-driven	Decision-making: Slow, Participative, Trade-offs
Business Model: Market-Led, Efficient, Pro-active, Based on Quality & Service	Business Model: Ethical, Based on Relationships & Need
Pricing Policy: “What the Market Will Bear”	Pricing Policy: “What the Client Can Afford”
Approach to Risk: “Part of the Job”, Manage It; Personal Assets!	Approach to Risk: Mainly Averse (Once Established) Image!
Managers’ Attitudes: “Get Out of My Way” / Leave It to Me; Stuff the Board; Cerebral	Managers’ Attitudes: “We Need Everyone Involved”, Ours Is A Shared Vision; Emotional

Conclusion

Peter summed up by stating that he believes that the social economy is not fulfilling its potential and tends to forget that it has an economic dimension. He pointed out that there needs to be a balance between economic goals and social aims and said that when well balanced we won’t get it wrong.

Questions and Answers

• Peter made the comment that most people who start new businesses will not get it right the first time but also criticised managers who ‘get things wrong’ isn’t this a contradiction? Peter replied that everyone deserves a second chance. A manager who gets something wrong, should get a second chance if he/she learns from his/her mistake. He noted that intelligent business persons learn from their own and others’ mistakes and average ones only learn from their own mistakes.

• If the social economy should have a more product oriented approach, is there a need to keep separate structure for that? Peter answered that he would never change the aim or mission of the project. Rather, the focus on the need and the focus on the product need to be interlinked (not parallel). He admitted this is more difficult for the social economy than the private sector.

• One attendee pointed out that Peter refers to “we” or “the management” etc. but social economy projects are often accountable to their clients and communities. Peter replied that democracy can hinder a business from working efficiently. He added that sometimes you have to fire people, and the social economy sector is no exception to this.

• Was Peter invited in to social economy companies to change them or did he take the initiative to intervene? How did he change them? Peter said he was invited and that he “went in with the big stick”. He was appointed by a bank and tried to persuade organisations/projects to change.

• A participant noted that Peter argued that there must be a demand for products provided by the social economy sector, that is, someone has to be able and willing to pay for them; at the same time, Peter noted that the social economy is unique in meeting needs that the market won’t and sometimes the people with those needs cannot pay for the ‘product.’ How can this be reconciled? Peter said he understands the importance of this. He suggested government should sometimes bridge the gap.

• Marie Taylor asked what Peter thought about the administrative business model. He replied that he would like to abolish it. Peter also added however, that he believes that private sector has something to learn from social economy sector and working more in partnership would be a good idea. He admitted that he does not think this will happen, but there is still scope for mutual for learning.

Finally, Helen Sayers from the Cresco Trust Ltd. thanked Peter, Marie, participants, INCORE and CRESCO’s funders for all of their contributions to the Think Tank.

Points Captured on Flip Charts during Group Discussion

Evaluation of Think Tank

Learning

Share through social economy network

Avoid re-inventing the wheel

Business opportunities of the sector

Engagement between private sector and social economy sector is key- How?

Structures of dissemination + delivery ↔ DSD + Champions

Report on findings + refresher

Contact info structure – promote + awareness raising. Lobbying for change.

Broader audience

Practical peer learning

New networks. Directory of social economy businesses. Needs to look into what’s wrong in the strategies / structure. Best way through network.

This was the last in the Cresco Trust Ltd/INCORE’s 2005-2006 Think Tank Series. A report of the Series is currently being compiled and a review conducted about the possibility of future activities. Should you wish to make any comment or suggestions in this regard please feel free to contact Helen Lewis, INCORE, University of Ulster, Tel: 028 71375525, Email: h.lewis@ulster.ac.uk