Background to the research
Big Society Capital and the Government Inclusive Economy Unit (GIEU) co-commissioned the research in order to learn more about businesses that want to serve wider stakeholders (e.g. communities, disadvantaged groups and the environment) as well as their shareholders.
This research forms part of a variety of work that Big Society Capital undertakes to build and develop social investment. We hear increasing commentary about the rise of for-profit businesses, outside of our core universe of organisations with traditional social sector legal forms, which are strongly committed to social and environmental impact. On one end of the spectrum, within the larger corporate world, there is an awareness that their own stakeholders are questioning the traditional ‘profit maximising only’ purpose of business and this is driving change, while at the other end of the spectrum, motivated entrepreneurs with new revenue models are striving to build and scale businesses where the product or service itself addresses a societal problem and creates impact. In our role as a market builder we at Big Society Capital would like to know if there is an identifiable set of these companies with a strategic commitment to impact delivery, as evidenced both by the revenue model and the people who deliver them, and to see if they face roadblocks and challenges to their success where it might be within our remit to help. We already see evidence of this in some of the investments of our own portfolio funds such as Nesta and IVUK.
The Minister for Civil Society launched the Mission-led Business Review earlier this year, with the aim of developing recommendations to support these businesses to double their social, environmental and financial impact over the next decade. As part of that work, this Deloitte report provides government with an important starting point in understanding the quantity and profile of these businesses in the UK.
But it is a wide spectrum of businesses. There are as yet no clear boundaries or means to map businesses along it. One thing we know is that business is a powerful force and if there is a way to focus at least part of that energy toward solving the growing needs of the disadvantaged within UK society it can only be a good thing. Another is that all entrepreneurs require some element of support, and if there are additional needs that come with building new businesses that explicitly aim to create impact for society, they need to be identified.
But what do we mean by ‘mission-led’? Is it the same as ‘profit-with-purpose’? How does one define it? Is it a static assessment or does it encompass different characteristics over a company’s growth cycle? Rather than imposing a tight subjective definition we took an approach which focuses on businesses with no legal restrictions on their profit distribution but which have a genuine commitment to wider social and environmental impact. We asked Deloitte to develop a set of definitional criteria to be applied to companies once they passed through the ‘gateway’ of having declared their intent to be mission-led. 4 critical aspects were considered, (a) the strength of the strategic commitment to a social or environmental mission, (b) how central the mission is to the core business model, (c) whether the governance and operations of the business reflect the mission and (d) whether the business publicly positions itself as mission oriented. The definition was then used to capture a statistical estimate of the volume of mission-led business in the overall market.
In an increasingly interdependent world, more and more businesses are recognising that commitment to a wider social or environmental mission isn't just a good thing to do, it's good for business. At Deloitte, we want to help more of our clients succeed by making an impact beyond profit. We welcome Government's commitment to mission-led businesses across the country and are proud of the contribution this report makes to understanding the nature of commitment to mission in the market today.
What did we find?
Taking this definitional approach gave an overall indication of 123,000 mission led businesses in the UK, a lower figure than previous estimates of 195,000, but accounting for 4.3% of turnover in the UK private sector.
The research also included an example set of 250 businesses, generally accepted to be Mission-led Businesses, and examined them using the same definitional criteria to generate more detailed insights. Page 4 outlines some key findings including the observation that most of the sample businesses tend to be younger and that these businesses tend to be smaller, more locally focused with less mature reporting structures. The latter is important as impact reporting is widely argued to be a key identifier of a MLB but this is an area where far greater support may be required for useful impact reporting to be viable.
Given the indications as to the importance of smaller businesses we are pleased that government is working with BMG Research and Aston University to refine their understanding of social enterprises and mission-led businesses within the wider SME population. The findings of this research will be integrated into BEIS’ annual Longitudinal Small Business Survey starting in 2017. The aim is to improve understanding of social enterprise market trends, as well as wider trends amongst SME businesses that have a clear focus on social and environmental impact. We will look at the results of this work to understand the sector better and to consider how more businesses might be helped to become more social.
Page 29 identifies particular challenges raised by sample companies in creating, sustaining and scaling mission-led businesses. Some of these resonate strongly with points raised in a separate report also published today. The advisory panel to the Mission-Led Business Review 2016 has published their own report today ‘On a Mission in the UK Economy’. Part 2 of the advisory panel’s report sets out the challenges that the panel believes the mission-led movement faces. It outlines 10 Recommendations for Government and Industry to help to address the challenges to support mission-led businesses. Our conclusions in this Deloitte report as to the need for better financial advice, stronger networks and informed advisors and standardised reporting are strongly echoed in recommendations 5, 6 and 10 of the advisory panel’s report. Recommendation 8 of the advisory panel’s report, which points to the need to establish clear entry points for entrepreneurs, also aligns with the challenge our report has identified in creating a mission-led business.
Profit with purpose, mission-led business, whatever we call it, is a major phenomenon growing in the UK and beyond, it is a movement to generate social benefits and in some cases to fully commit to social value for the long term. We seek to understand this wave of energy and to understand whether, and if so how, it needs support to fulfil its initial promise. We want to build upon our ongoing effort around profit with purpose as a contributor to the Global Social Impact Investment Group and its UK National Advisory Board, and our own Business Impact Challenge. We hope that this work with Deloitte and government is a step along the way, we would welcome your thoughts on the research and/or challenges and improvements, and in particular any suggestions or ideas as to how we might carry this work forward together.
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