'Extraordinary' rise in socially-driven start-ups says report launched by Vince Cable

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'Extraordinary' rise in socially-driven start-ups says report launched by Vince Cable

Social enterprise has three times the start up rate of mainstream small and medium sized businesses, according to a report sponsored by RBS Group.

Inspiring Social Enterprise logo

UK-wide research carried out for the report, The People’s Business, shows that social enterprises are much more likely to be led by women that mainstream businesses: 38% of social enterprises have a female chief executive compared with 19% of mainstream SMEs and just 3% of FTSE 100 companies.

Social enterprises are businesses which exist to address social or environmental needs, and rather than maximising profits for shareholders or owners, they are reinvested into the community or back into the business.

The report, released by Social Enterprise UK and supported by RBS Group, shows that 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. Social enterprises are twice as likely as mainstream SMEs to be led by someone with a Black, Asian or Minority Ethnic background.

Susan Allen, Chief Executive, Customer Solutions Group, The Royal Bank of Scotland, said:

“RBS has been working with the social enterprise sector for over 10 years and it has been fascinating to see it develop into what we see today. 

“It is particularly striking to see the diversity of both the leadership and workforce of social enterprise.  It seems that the sector is not just “changing the way we do business” but also changing ‘who’ does business.”

Out performance

The report’s findings also 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. Yet close to a third of all social enterprises are three years old or younger.

More than half of social enterprises - 56% - developed a new product or service, compared with 43% of SMEs, while 63% of social enterprises expect their turnover to increase in the next two to three years, almost double the number of SMEs (37%).

The research shows that social enterprises are creating jobs and stimulating local economies where they’re needed most. Nearly two fifths operate in the UK’s most deprived communities, compared to 12% of traditional SMEs - and half of social enterprises 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 draw all of their workforce from the local areas in which they operate, and one third are planning to grow their staff teams over the next 12 months, compared to a quarter in 2011.

Peter Holbrook, Chief Executive of Social Enterprise UK, said: “There’s growing interest in social enterprise – it’s the sector where entrepreneurs are choosing to set up businesses. This fact speaks volumes about people’s motivations and a desire for change in the way that businesses behave and their contribution to society.

“Social enterprise is steadily proving that it has an important role to play in bringing about an economic recovery and lasting social change. Entrepreneurs are using business to regenerate and rebuild their local communities, often where it’s needed most urgently to tackle the causes and effects of deprivation.”

Access to finance is main barrier to growth

Social enterprises say that access to finance is their single biggest barrier to growth and sustainability, and 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.

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