Could Partnerships And Collaboration Save The Third Sector?

In a recent post on whether the Retail Industry Could Save Itself Using Game Theory I discussed how retailers have exhibited classic non-cooperative behaviour, which has significantly damaged their abilities to survive the credit crunch. By focusing only on individual interest and survival, their collective hyper-competitive actions have likely damaged their entire industry's market size.

The charity sector is becoming similarly nucleated by self interest in raising funding. In my previous post on Small Charities Struggling To Survive The Crunch I discussed reasons why small charities are struggling to adapt in the current climate. What I didn't go into is the fact that there is a plethora of small and mid-sized organisations out there, all competing against each other for diminishing funding, and this is only accelerating their slide towards closure.

The trouble is that the funding they are competing for tends to be governmental or Trust based, or small scale social funding for Social Enterprises. This is because their small sizes mean that they struggle to tap into large scale CSR philanthropy or investment, because their brand recognition and localised outcomes are too negligible to return any associative value back to big corporations. The top 400 UK organisations handed out nearly half a billion pounds in 2008, and small charities and social enterprises probably saw very little of it.

However there is no need for things to be this way. More than commercial industries, the social sector is perfectly placed to cooperate and collaborate to survive. Partnerships can help reduce costs and increase the scale of funding that can be accessed. More importantly however, they can create connected support networks and buffers to keep each other going through difficult periods.

As the Chair of a medium sized youth charity, I can see potential in 3 forms of Partnership that could save many small charities and social enterprises from going under over the next few years.

  1. Sharing operational costs and services
  2. Collaborating with competitors to develop better and larger scale joint-propositions
  3. Developing complementary partnerships with non-competitors to reach new audiences

I'll discuss these in more detail in my next post on the 3 Types of Partnership

Small Charities are Struggling to Survive The Crunch

Children England, the umbrella group for children's charities just published results of a survey of small charities (under £250,000). Turns out 4 out of 10 are now in a vulnerable state and could be facing closure if their fundings don't come through. This is up from 1 in 10 in 2007, which is a clearly indictment of the current situation.

Unfortunately this is something I'd predicted a little while ago in my post "Will Charities Survive The Credit Crunch?"

The charities closer to this size are feeling it worst. It's a problem I'm seeing with BANG Edutainment too. The underlying issue that the funding needed directly reflects operating costs, which are based on contracted outputs or services. Raising funding in the quarter to half million bracket is very hard right now, because typically it relies on lots of small sources rather than one massive one. If even a small number of the sources of funding are impacted by the credit crunch it means that operating costs cannot be met and without the reserves of profit making organisations, debts pile up very fast.

Scaling down unfortunately is not as easy as you might imagine either. To do this in advance of a financial crisis requires significant strategic pessimism; which commercial organisations typically dont have, let alone charitable ones. If you haven't already anticipated problems, the tightly stretched capacity of charities means that there is little or no room to adapt, and their close knit nature means that letting staff go is an absolutely last ditch choice; one that is usually held off in the hope of new funding coming through and rarely made until its too late. The result is a pile up of salary, overheads and tax debts by this point, leaving the organisation little option but to close.

A survival strategy that is not being considered carefully enough by many small charities is partnerships. I'll discuss these in more detail in my next post.

Future Trends in Social Enterprise

In my previous post I talked about Social Enterprise Trends to expect in 2009. I outlined 5 key ones:

  1. Rise in social startups and skills available to the sector
  2. Higher expectations from funders
  3. More support for big ideas
  4. More partnerships and collectives
  5. Blurring of lines between Charities and Social Enterprises
The trends outlined below however, are not time-boxed to just 2009. These are shifts I believe will happen at some point between now and the next few years, and are therefore worth considering in your future planning.

Future Trends in Social Enterprise - 2009 onwards

  1. Disruptive innovations will continue to flourish as commercial sector skills are turned towards solving social problems.

  2. Social innovation from the developing world will begin to drive developed world commercial innovation. We are already seeing this in the way western banks are looking at micro-loans and telecoms firms are looking at mobile payment systems.

  3. Corporate Social Responsibility departments will have to adapt and revise their policies, because social enterprises are redefining the parameters of giving and support as they continue to effect major social change.

  4. Increasing pressure on social sector to become business viable will result in more social startups emerging as social enterprises rather than charities.

  5. Charities on the other hand will get smarter in their trading setups, further confusing the definition of Social Enterprise.

  6. As the Green movement embeds further into the global cultural psyche, both social enterprises and charities will face increasing expectation to be green just to be credible.

  7. Social Enterprise will mobilise more people to enter the social sector by making it more competitive, responsive and modernised.

  8. The CIC will start to come into its own, and will evolve into a more viable organisational definition.

  9. As more organisations begin to deliver both financial return and social change, a more practical measurements of Social Return On Investment will arise. Over time we should expect to see clear standardisations of SROI for comparative purposes.

  10. As SROI measurement standardises we should see increasing numbers of Social VC's, philanthropists or Trusts whose funding has social conditions. Some of these currently exist, but regardless of their mission statements, returns are still predominantly measured on financial profits or ability to repay these social loans and investments.

  11. New business models monetising social need will continue to arise, as social entrepreneurs look to innovate under pressure of financial difficulty and social demand.

  12. If social collaboration really does take off, we should also see an increase in collaborative shared services that let small social enterprises and charities focus on their core goals without worrying about peripheral activities like HR, accounting and fundraising.

  13. As the social sector evolves down the commercial route, and as more commercial sector staff enter the social space, the general quality of skills expected from CEO's and managers is going to increase.

  14. Consequently I'd expect a trend towards higher wages for nonprofit workers as demands cause skills profiles to increase.

  15. Finally we should also expect to see more courses and better training for social entrepreneurs, with something like the IOMBA specifically for social entrepreneurs.

Social Enterprise Trends 2009

Every January people typically start to wonder what's coming up in the year ahead for their industries. The social enterprise and the non-profit sectors are no different. It's just that fewer people publish anything of value, mostly because these sectors are not awash with analysts in the way the private sector is. Anyway in case you're curious, here's my thoughts on where things might be headed for social enterprise.

Let's start with immediate trends to expect in 2009. Most of these are inevitably going to be defined by the impact of the credit crunch and the increasing ubiquity and impact of the social web.

5 Trends in Social Enterprise for 2009

  1. Rise in social startups and skills available to the sector.

    Increasing numbers of highly skilled private sector employees are being made redundant, and many of these are looking for ways to keep their skills sharp and occupy themselves positively and productively. Some will join the existing wave of social and third sector enterprises, and others will take the entrepreneurial route. I'm seeing this trend already with one of the charities I'm involved with.

  2. Higher expectations from funders

    As the markets suffer and investments fail or continue to provide lower returns, many of the large trusts and social funders will rapidly find their liquid funds diminishing. While I doubt this will stop them continuing their missions, I would in turn expect them to become significantly more focused on quality and viability of financial and social return.

  3. More support for big ideas

    As social enterprises continue to leverage the web and mobile to effect social change, social funders like UnLtd will have to start catering for big ideas rather than simply grass roots start ups. Google has already upped the ante with its Project 10^100.

  4. More partnerships and collectives

    These should emerge as more forward thinking Social Entrepreneurs look for ways to partner together to stay afloat in the face of financial pressures. I'd expect to start seeing more collectives like the Hub bringing small startups together, and more web services dedicated to letting groups collaborate.

  5. Blurring of lines between Charities and Social Enterprises

    We already know social enterprise is blurring lines between the profit and not-for-profit sectors, but the rise in success of social enterprise in both social and financial terms is also increasing the pressure on more and more charities to become financially sustainable through commercial revenue streams. Conversely I'd expect to see a number of social enterprises abandon their financial goals under pressure of the credit crunch, and look to use their social impact to gain charitable status in order to survive.

(Note: I've explored some more trends in Social Enterprise in my post Future Trends in Social Enterprise, which covers developments to expect beyond 2009.)


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