IN THE past, social businesses were seen as something of a novelty. But that has changed. Earlier this week Royal Bank of Scotland launched the RBS Social Enterprise 100 index, which has attempted to quantify social enterprise for the first time. And the results are surprising.
The index revealed that social enterprises in the financial sector grew by more than 17 per cent last year. The average turnover was £4m and the total turnover for the top 350 social enterprises in the UK was more than £800m. Companies include Pictures to Share, which publishes scrap books for patients suffering from Alzheimer’s disease, and Cosmic, an IT company that aims to get more people connected to the internet.
But how do you define a social enterprise? The formal definition for a company to be included in the index is that it must have either a social or an environmental aim and use
its profits to deliver the social and environmental goals it set out in its mission statement. Also, 50 per cent of its profits must be generated from real trading, as opposed to government grants.
Doug Richard, the former BBC Dragons’ Den star, says that in the future every business will have to be a social enterprise: “All big businesses have to be socially responsible, and taking a holistic view of your bottom line doesn’t hurt profits.” And entrepreneurs are central to developing social enterprise in the future, he says.
One such example is Kresse Westling, founder of ethical fashion company Elvis & Kresse, which has seen turnover increase from £10,000 in 2008, its first year, to £150,000 in 2009. Sales were boosted after Hollywood actress Cameron Diaz wore a belt made by the company in a shoot for Vogue. “I was working for a venture capital firm in Hong Kong when I first graduated, but I wanted my job to mirror my principles,” says Westling.
But Doug Richard says that the legal structures for social enterprises don’t encourage
investment. For example, a lot of social enterprises are organised as companies limited by
guarantee, which are not allowed to have investors. “This is senseless, the whole point is
to apply capitalist principles to social issues, and there is nothing wrong with profits.”
The RBS index is a step in the right direction, and entrepreneurs should get in on the trend.