The latest ACEVO Social Sector tracker, The Changing Face of Charity, highlights the problems social organisations have when trying to expand. It cites government failings; the inability to raise finance; and a lack of certainty within charities themselves on how to work together successfully. Our recent Good Merger Index revealed how few genuine mergers actually happen in the sector – a paltry 37 in 2013-14, begging the question, what do charities need to do in order to expand?
From the finance point of view ACEVO wants to know who is willing to make social investments, but I think the more pertinent question is what is putting investors off?
Lending is a simple balance of risk versus reward. Most early stage investors in the private sector are looking for an exit value of 10 times their capital on successful investments, in order to balance their investments that fail. On this basis, in any other sector, they put money in, they get given some shares, maybe a place on the board, and if 4 out of 5 investments fail they still break even – simple. The problem with social investment is you don’t get very much for your money. You don’t get shares and the risks of failure are often high compared to the potential rate of return; (you might make 10% if you’re lucky). So what’s the point?
There are those who argue the moral issue and hope that hard-nosed capitalists will somehow do this because it’s good for society. But this phoney moral compass is hopeful at best and potentially damaging to the whole sector.
What would happen if the most talented entrepreneurs who make a go of it in the social sector got rewarded for making massive social impact, rather than castigated for making too much money? Surely more would follow them into the sector as a viable career path. Why not create some wealth for yourself if the social impact you create warrants it? We have no right to stand by and scoff, and yet so many of us do.
What we do is far more important than creating a bit of code that enables spotty teenage gamers to conquer planets from the comfort of their bedrooms, so why do we settle for being the poor relation to media and technology? Why do the very best people choose to make their fortune there instead of with us? Is it because that’s where the sky’s the limit (no pun intended), while we aim too low?
If what we do is undervalued, aren’t we all culpable? There is a reason why the biggest, best performing companies pay for the best talent and have the highest marketing spends. It’s because this tends to achieve the highest performing results. Why shouldn’t this be the in this category? For too long we have settled for mediocre results by competent people on disappointing salaries. There has to be a better answer, and it starts in the collective mind-set.
We all need to raise our game and aim higher. Much, much higher. If we targeted massive social impact, rather than just doing our little bit, and we rewarded ourselves properly for doing so, that would start attract the best talent.
And if our organisations are not large enough to create massive social impact, we should find the partnerships, mergers and collaborations that make us big enough to get the better finance, the better people and the better results. This requires the courage to let go of our conservative attachments, to our brands, to our history and to our comfortable ways of being; but we must if we are to create a legacy that we can all be proud of.
Matt Knopp. Director Eastside Primetimers
Link to The Changing Face of Charity: A To-Do List for the New Minister for Civil Society (pdf, 257KB).