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Last night I had dinner with some enlightened bankers. They were once of the traditional city elite – all confidence and billion dollar portfolios – until personal epiphanies (somewhere between the financial crisis and now) led them to turn their talents towards investing for social good.   Armed with the self-belief that is hard wired into the investment banker’s DNA - and the explicit goal of becoming the leading asset management company in the UK social investment market – they launched Social and Sustainable Capital, a bold new social investment fund, and set off in search of the pool of talent that could save the world.

Talent is everywhere. The problem is one of scale

Their stated mission is, “to invest in sustainable and scalable solutions to UK social issues to help dismantle poverty and increase social mobility and social fairness.” Indeed, talent-spotting has not been a problem. They have found no end of enterprising, ingenious third sector organisations doing important work for social good. In their search for investees, they have uncovered a surfeit of talent in organisations hungry to take on more of the important work presented by the social challenges we face. These organisations include those tackling the gaps in social care for the elderly as our population ages, for instance, or those who are inventing new models for rehabilitation, working directly with offenders to reduce crime. The enterprising nature of the third sector has been refreshing to my new friends, but it quickly transpired that talent is not their primary problem. Talent is everywhere. The problem is one of scale.

On paper, the SASC mission is straightforward: They want to “help social sector organisations deliver scalable and sustainable solutions to social issues by providing simple financing for viable organisations so that they can continue to grow and achieve greater impact”. Brilliant. Let’s get on with it then…

But – and it’s a big “but” – in practice, the problems lie in the words “scalable”, “simple” and “viable”. The reality for social enterprises who want to deliver against government contracts is that these three small words are the big barriers to entry. While we may bemoan government contracts being let to behemoths like G4S or Serco, the reality is that for government to cede power of treasury funds, it needs to be confident of two things: simplicity and viability. And for the third sector to deliver against this, they need to be able to scale to meet demand (in other words, they need to be big). On paper, very few social enterprises meet this criteria, and so the Sercos and G4Ss become the go-to guys.

At the RSA, we have a number of current projects looking at how to unlock the latent talent in SMEs and the social sector, that is trapped in this systemic bind (see the Power of Small and some of Adam Lent’s musings on enterprise and the Power to Create). This is fascinating work and I am enjoying my new role leading the Connected Communities research programme, championing the systemic shift in power from the governmental or institutional budget holders to communities and social enterprises. My early observation is that fundamental system change is required, and we all need to understand our role as actors in the system. But to get to system change we must take some baby steps, so here’s my starter for ten on how to begin to disrupt the status quo:

From the supply side:  What the social entrepreneur must do

Before they can scale and become “viable”, social enterprises need to ask themselves the following tough questions:

  • Do you want to grow?

  • Do you want to do the work on the ground, or do you want to manage an organisation that does?

  • Does your business model allow you to move from a grant funding model to an investment loan model?

  • What skills do you need to develop to grow at scale? Has your organisation got the time and resources to develop these skills?

  • Imagine a future where you have the reigns of the contract of your dreams – are you up for that reality?

From the supply side:  What the government must do

For the system to shift, government must ask itself the hard questions, too:

  • Can we reshape procurement processes to enable less hierarchical contracts – building alliances rather than requiring tiers?

  • Are we really up for the risk that comes with investing in innovation?

  • Can we tolerate failure?

Investment bankers will work with a model that includes the potential for failure – they understand that risk is important in fostering innovation. But can the government hack it? Without this soul-searching by the actors in our complex system, the enlightened bankers will remain hamstrung by a system that will boomerang back to its default setting, and we won’t be able to scale innovative and sustainable social businesses.

That would be a shame now, wouldn’t it?

Rowan Conway is Director of Connected Communities at the RSA Action and Research Centre. Follow her on Twitter @rowanelena


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