An Entrepreneurship Learning Pack By Group Papori

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About The Editorial Board Mehroz Ashraf Being a Management and Entrepreneurship major I have been enjoying the exploration of various different aspects of entrepreneurship throughout my journey of this degree. This is not only helping me develop a vast understanding about diverse facets of entrepreneurial domain but also giving me an insight about the practicality of the overall learning experience. I am aiming to apply the different areas of this module in my everyday business life by introducing a social context in my newly developed enterprise in Bournemouth.Katie Danes Jake Fox I am an Entrepreneurship and Management major, interested in going into the social investment and development sector for my career choice. I enjoy skateboarding, playing drums and making really bad jokes.Joshua Miller Emily Parker I'm Emily. I'm a Management and Entrepreneurship major, which means I've been exposed to theories of Social Entrepreneurship throughout my degree. It's really exciting that this module makes us think about how all of the other subjects we have covered in our degree interact with the social context of entrepreneurship. I hope you all enjoy our seminar and learn lots from it!Evgeni TerzievA fourth year student at Lancaster University looking to expand his knowledge into the thirdsector. My interest in socially orientated enterprises was first brought about by investigatingJamie Oliver’s Fifteen programme in London. When I first heard about social impact bondsmodel it made me realise the importance of the social aspect of entrepreneurship and sincethen have been interested in their development.

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What is Social Finance?Social Finance refers to social investments that occur in the third sectorin order to achieve a social as well as a financial return.There are lots of charities and social enterprises working hard to dealwith some of the most challenging issues in the UK – such asHealthcare, Re-offending, environmental issues and care homes ashighlighted in the board game. In 2015, government statistics haveidentified around 70,000 social enterprises in the UK, which havecontributed £24 billion to the economy. They are also employing nearly1 million people within the UK (Social Enterprise UK, 2015). Anincreasing number of them want to use repayable finance to help themincrease their impact on society, for example by growing their business,providing working capital for contract delivery, or buying assets. However, one problem with this isthat certain charities may struggle to deliver monetary returns for investors and thus, need more ofan outcome based solution.Additionally with this funding from the private sector, a lot of social enterprises struggle betweencreating the balance between maintain their mission and values embedded in the workings of thefirm and achieving sustainability and structure as implemented by the private sector. Whilst it isadvised for third sectors to behave like the private sector in terms of monitoring their costs and maximising the use of their resources, this can often stifle the social mission of the firm and thus, means that they’re left unaddressed. For example, when Save the children withdrew their campaign on the effects of fuel poverty on children in Syria in attempt to create a partnership with EDF, they received a lot of criticism from supporters suggesting that they’d compromised their values in order to satisfy the needs of a large corporation (The Independent, 2013). Therefore, there is conceivably failings between the current mode of private to third sector funding’s that need readdressing.Another problem stems from the government cutting spending and service provision due to theincreasing growth of social enterprises entering the third sector – conceivably addressing the socialneed themselves. The government have recognised that the most innovative solutions to difficultsocial problems are most likely to come from highly motivated social entrepreneurs runningenterprises based within the communities that they serve (Davison, R. 2013). But this group finds ithardest to get appropriate funding, therefore these solutions often don’t get off the ground and thesocial enterprises providing them are unable to develop into sustainable organisations.

Social enterprises have been on the rise in recent years, especiallyin the UK. ‘The UK is viewed as a pioneer of social enterprise andthe associated practices of social investment and social value,therefore they’re investing money into the third sector, but notnecessarily enough. The government are providing more funds tothe third sector in hope they can attract the social investmentneeded and win public service contracts. For example the UKgovernment are working closely with the Big Lottery Fund and BigSociety Capital to create a new £100million endowment fund forthese charities and social enterprises (Third Sector, 2014), I think this just shows how thegovernment is trying to assist in the initial stages of social enterprises, to get them running.However you can argue they aren’t providing enough funding, as a (Social Enterprise UK, 2015)survey found that ''44% of social enterprises sought funding or finance in the last 12 months and39% believe its lack of availability is a barrier to their sustainability. Just 5% of SMEs think access tofinance is a barrier'' this shows how the government need to invest more money into socialenterprises. The government may be more reluctant to invest in social enterprises because withsome organisations, depending on the needs they won’t see results quickly and easily. For examplere-offending rates can be measured straight away but more cultural/advocacy needs don’t see theresults easily.Social enterprises do demand a high level of funding from the government mainly because theircommercial side isn’t big enough to cover the costs, or some simply don’t have a commercial side.But the government still want to fund projects, but because all these social enterprises have theirown ways of doing stuff it can lead to wasted money for the government. Therefore if thegovernment can set some targets, and say if you reach them targets we will pay you, that’s muchmore effective for them.

State Failure - The inability of the public sector to deliver effective welfare services has led socialenterprises to fill the gap (Defourney & Nyssens, 2010; Spear,2001)However, social enterprises are typically separated by what they doand thus, there isn’t a lot of cross-collaboration in the work theydo. Unlike private sector organisations, who have the benefit of astrong set of networks and competitiveness at heart of theirstrategy, social enterprises are typically limited of such resourcesand thus, often results in a variety of enterprises workingindependently to achieve the same need. For example, a survey of200 social-sector CEOs in the US conducted by McKinsey Consulting suggested that 61% of leadersput the interests of their own organization ahead of collaborating with others to solve problems(McKinsey & Company, 2012). This suggests a great failure of the third sector of a lack of cross-collaboration in order to better utilise the total resources available to overcome their set socialneed. (Quotes: guardian, independent, business insider) Even social enterprises in the same sectordon’t really work togetherVoluntary failure – the third sector does not have the capacity to deliver welfare services andrequires infrastructural investment to meet the challenges. (Salamon, 1987)Therefore, in order to overcome these problems, there is a need for a new, innovative model thatincentivises investment through “social returns”. Rather than the government negatingresponsibility to the third sector completely, e.g.: rather than looking for financial returns, thegovernment as an investor will receive financial savings through the reduction of their spending incertain societal issues. Whilst benefit is seen to come from the three areas the private, public andthird sector, there is a need for one that integrates the work of them all collectively.

Activity 1You will take on three main roles, that can work together in a better way in regards to achievingsocial benefit. The aim of this is to develop an understanding of social investors, the government andsocial enterprises and their interactions, resources, capabilities and limitations they currently have.Put yourself in their shoes and discuss the questions below, in 10 minutes you will present adescription of your ‘role’ in regards to your interactions within the third sector.



Key PlayersGovernmentDefinition – The Oxford English Dictionary defines the government as “the group of people with the authority to govern a country or state”. The Government, by nature, wants the best for their country, it’s economy and its citizens. Therefore, the government are extremely interested in understanding the best ways to solve social problems. Getting involved in solving social problems may not be something the Government always has the resources to do, for example theymay not have the capacity, infrastructure or finance to develop solutions to social problems. It isimportant for us to consider some of the ways in which the government can become involved in thesolving of social problems without straining their already stretched resources.In many cases, when social needs are addressed the government sees a variety of benefits. Not onlyin the form of support, guidance and a better life for their citizens but also through astoundingsavings. For example, a reduction in re-offending rates can improve the future prospects of those ex-offenders, but can also save the government thousands and thousands in police, court and jail costs.Social EntrepreneursDefinition – The Oxford English Dictionary defines a social entrepreneur as “a person whoestablishes an enterprise with the aim of solvingsocial problems or effecting social change”.Theorists’ definitions consist of the following:  “A major change agent, on whose core values centre on identifying, addressing and solving societal problems” (Drayton 2002).  Mair and Marti (2006) believe social entrepreneurship to be “a process of creating value by combining resources in new ways… intended primarily to explore and exploit opportunities to create social value by stimulating social change or meeting social needs”.

 Mort et al (2002) state that social entrepreneurs have the ability to recognise social value creating opportunities”Through an analysis of many of the past and present definitions of both social entrepreneurs andsocial entrepreneurship Zahra et al. (2009) found that “most existing definitions imply that socialentrepreneurship relates to exploiting opportunities for social change and improvement, rather thantraditional profit maximisation” (p521).Social entrepreneurs are undoubtedly extremely passionate about what they do, hence the reasonwhy they haven’t gone down the traditional profit driven route of entrepreneurship. They have adesire to improve societal problems and help those in need through their business idea. Growing theorganisation is something that almost all social entrepreneurs desire, as of course they would love tobe able to effect more change, impact more lives, solve more social problems. However, thispassion isn’t always enough to be able to reach the goals they desire. For many social entrepreneurs,gaining the financial resources to start up or grow their enterprise is significantly difficult.Subsequently, the fact that many social enterprises invest their profits into the communities aroundthem, having enough financial capital to operate effectively or grow the organisation is oftendifficult.Social InvestorsDefinition – The Oxford English Dictionary defines an investor as “a person or organisation that putsmoney into scheme with the expectation ofachieving a profit”.Most investors have built up financial capital andassets over many years of hard work. Some ofthese may have previously invested inorganisations that are purely profit driven andbuilt there capital up that way. Others will havealways been interested in investing inorganisations that provide social benefit. Unlike social entrepreneurs, investors don’t actively getinvolved in the day to day running of the organisations they get involved in. This may be due to alack in specific skills or a general lack of desire to do this kind of work. Either way, their involvementcan be key to an organisations development. Social investors want to ensure that their money is having a distinct impact. Whether this is in the knowledge that they are enabling an organisation to expand or more specifically in breaking down their investments to see how each bit of their money is being spent and how that spending contributes to the social change.Social investors, unlike other investors, are more interested in investing in order to be a catalyst forthat change. They want to put their resources into a cause that provides social benefit. Theirinvestment isn’t specifically about gaining a high level of financial reward, however this wouldcertainly be seen as an added benefit.

Activity 2You have now been mixed up into new teams, which should consist of at least one governmentmember, one social entrepreneur and one investor. You will now be working on a different tasktogether.Your task is to create a plan for establishingand running a DIB. Please use the examplewe have just discussed (look back at theinformation in this learning pack if you needto) to develop your case. Make sure you useas much information as possible, the moredetail the better. When you have come upwith your own examples and developed aplan, you will need to pitch your idea to the‘boardroom’.One important part of this task is that you make sure each role (government, social enterprise andinvestor) is being satisfied, used and most definitely not exploited. Remember you are workingtogether in a cohesive partnership to overcome social problems. Tips for successMake sure you think about the following important aspects:  Social problems relating to your example  What current costs this social problem bears upon your government  How can the social problems be reduced/solved?  Your business model (you need to have a commercial side to this idea)  What and how much investment is needed?  How are you going to measure the success of your DIB?  What savings can be made for the government?  How can the investor gain a return?You may not have considered exactly what each of your key players can get out of this DIB. Makesure you highlight to everyone during your boardroom pitch, what it is that is so appealing about thisventure. After all, if the investor were just looking for financial returns, for example, they would belikely to invest their money in more fruitful endeavours.

Social Impact BondsDefinition - Social Impact Bond (SIB) or also known as a Pay for Success Bond or a Social Benefit Bondare schemes organised to help improve the public service delivery. It requires a private investmentthat is paid upfront and the return on the investment is paid back depending on the success of theproject. SIB are focused on achieving an improvement to a social problem (improved health, reducedcrime) rather than focusing on the input/ outputs (increase the number of doctors, decrease thenumber of operations. Social impact bonds work when a government pays a service provider, whocovers the initial cost, if it achieves certain agreed results. A number of these providers find thisdifficult, particularly social enterprises and charities, as they often do not have the capital availableto provide services in advance of being paid. A SIB is a way to bridge this gap, enabling socially-minded investors to fund the provision of a service delivered by a social enterprises or charity on thebasis that they will receive a return on their investment from government – if the service deliversthe results specified in the agreement. (Department for International Development)“The Social Impact Bond aligns the interests of government, charities, social enterprises and sociallymotivated investors around a common goal. We are delighted to be launching the first suchstructure in the world here at Peterborough. Our work is driven by a desire to transform society'sability to invest in addressing its most intractable problems. Developing the Social Impact Bondmarket will take years, but we believe that with care it can enable future investment of hundreds ofmillions of pounds a year in these crucial areas.” DavidHutchison, Chief Executive of Social FinanceOver the past three years national and regional governmentsin Australia, England and the United States – as well as inplaces like India, Morocco, and Uganda – have starteddesigning over 40 social impact bonds and developmentimpact bonds (Guardian, 2015).

Players and Roles1. Investors - often trusts and foundations or socially orientated entrepreneurs that raise capital for the programme. The return ranged from losing all of the initial capital, to making 7.5% on average and 13% on projects that were very successful. Blended return is the term used to describe the twin motivations of financial and social returns, and is a key part of impact investing.2. Intermediary - These intermediaries are often middlemans and they manage and monitor the implementing agencies in a way that is more efficient than under traditional aid models. The monitoring conducted by the intermediary has a strong focus on service improvement and delivery of results.3. Service providers - Service providers for a SIB fall into three categories: the primary organisation that holds the outcomes-based contract with government; a sub-contractor of the contract holder; an organisation delivering services to SIB service users without receiving funds from the SIB.4. Target population - Usually the silent partner in SIBs they are the sole reason for the SIB to exist. It’s a fragment of the society at whom the social change should be delivered.5. Validating agency - A validating agency is normally needed to ensure that the reported results are accurate, given that the measure acquires some legal significance. Some of this may be a public good (in that new, useful data is created) but in practice the bulk of the cost is in verifying rather than creating new data.6. Outcome Payer - which can be a foundation or a government agency, enters into a contract to pay for specific, measurable social outputs and outcomes.

Case Study – Peterborough SIBAn interim evaluation by the UK Ministry of Justice of the Peterborough Sib, showed that over thepast 12 months reoffending fell by 6% among adult men in the programme, while reoffendingamong a comparable group of adult men outside the programme rose by 16% – an impact of 22percentage points. (Guardian, 2015). HMP Peterborough was the location of the first social impactbond. This was a test pilot scheme, used to identify whether or not SIB’s were in fact as useful as thetheory suggests. The SIB raised £5m investment towards an initiative designed to reduce re-offending rates of short-term sentenced prisoners. In September 2010, prisoners leavingPeterborough Prison after a short-term sentence (less than 12 months) were given the opportunityto take part in the programmes funded by this SIB. It was purely optional to the ex-offenders. Someprogrammes allow the offenders to complete some work in the community prior to their releasefrom prison, however the majority of the support provided occurs post release. The programmes,providing intensive support to the ex-offenders, were provided by numerous charities including StGiles’ Trust, the Ormiston Trust, and SOVA. Some of the types of things the charities would supportex-offenders with was employment assistance, parenting assistance, mental and physical healthsupport, housing issues and any substance use or addiction problems. The programmes are runthrough a peer mentor scheme, with other ex-offenders volunteering to help these more recent ex-offenders.

Different Views InvolvedWhat do politicians have to say about this?“This Government has a historic opportunity to initiate a more constructive approach torehabilitation. This means making prisons places of punishment, but also of education, hard workand change. As part of our radical approach to rehabilitation we are considering a range of paymentby results schemes like the Social Impact Bond. The voluntary and private sectors will be crucial toour success and we want to make far better use of their enthusiasm and expertise to get offendersaway from the revolving door of crime and prison.” Kenneth Clarke, Secretary of State for Justice(2010-2012)“While the same old approach has seen reoffending rates barely change in a decade, thesegroundbreaking through-the-gate pilots, with the voluntary, private and public sectors workingtogether, are getting results.” ChrisGrayling, Secretary of State for Justice“Our priorities are to punish offenders,protect the public and provide access tojustice. But we want to initiate a moreconstructive approach to rehabilitation andsentencing, and re-think whether puttingmore and more people into custody reallydoes make people safer. We want toactively involve individuals and voluntaryand community organisations - not just intackling crime and reoffending but inhelping to keep people out of the criminal justice system in the first place. This payment by resultspilot is both innovative and imaginative. I am delighted to be launching it at HMP Peterboroughtoday.” Crispin Blunt, Prisons Minister (2010-2012)What do investors have to say?“This is a project of significance not only to those directly affected by the work of the One* Servicebut a project with genuinely national implications it is essential we can all capture and build upon”Peter Wanless, previous CEO of Big Lottery Fund (The One Service, One Year On, 2011, p.11).What are the views of the people working at the prison?\"We are delighted to be working in partnership with Social Finance. Our work is dedicated topreventing future victims by delivering rehabilitative opportunities to prisoners through work skills,educational qualifications, behaviour programmes, substance misuse interventions, and assistancewith accommodation and employment. This project will complement our work by supporting ex-offenders through the difficult transition from prison to the community, and it will increase thechances of them avoiding further crime in the future\" Phil Andrew, Managing Director, Kalyx/Sodexo(Managers of Peterborough Prison).

SIB CritiquesSocial impact bonds will only be considered and commissioned ifthe desired outcome of an activity is measurable and clear. SIBcan prove to be inappropriate when the government is not willingto relocate financial risks. SIB implementers should be vigilant andcautious not to exaggerate the precision and accuracy of theirsuccess indicators. They need to be vibrant and transparent to theaudience about the types of objectives they are pursuing.Over here we will take a systems approach to understand theforemost flaw of the Social Impact Bond. Social Impact Bonds are majorly funded by the federalgovernment budget which comprises of taxpayer’s money. If the program is efficacious inaccomplishing its predefined measures, the government pays the private investor its profit (whoinvested in the program), using taxpayer’s money. Hence, it can be comprehended here thatTaxpayer money is explicitly going into private pocket by the use of the Social Impact Bond (Mariano,2011).While the purpose of the Social Impact Bond could possibly be of the value for the social side ofsustainability, ironically, in the long-term, it may not deliver economical or financial sustainability. DIB Critiques “Dibs are probably not the right way to fund projects in areas such as advocacy and research, because results take a long time and are often difficult to attribute to a single programme.” “The work of creating novel contracts, unusual financial arrangements, and a state-of- the-art social sector performance management system saddles pilots with costs that may appear unreasonable when compared to costs of existing non-Dibs projects.”One of the unavoidable costs of a DIB is that they are contractually complex, with Disley et al (2011,p.10) stating that they took 18 months to agree for the Peterborough SIB (Drew & Clist, 2015 –Development Impact Bond Report)Azemati et al (2013) report that with SIBs these costs have not fallen to the degree that theyexpected, and recommend $20 million as a ruleof-thumb minimum size for a SIB to justify theexpense SIB (Drew & Clist, 2015 – Development Impact Bond Report)

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