Social enterprises out-performing traditional SMEs – How can LEPs best leverage the growth potential?

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.
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