Last updated 2 February 2023.
Businesses in the social economy can make a sustainable contribution to the wellbeing of local communities, their neighbourhoods and the nation, but the market needs ongoing support before it can realise its full potential. At Power to Change, we recognise the importance of local and regional government backing the social economy, offering strategic leadership to grow the sector at a regional scale and bringing people together to deliver this. We also understand the importance of being led by the needs of the sector and taking a flexible and adaptable approach that recognises the individual purpose of each social business.
The UK Shared Prosperity Fund (UKSPF) presents an opportunity for regional and local government to invest in the transformative local work of community businesses and the wider social economy. In fact, supporting the growing social economy and community businesses is explicitly referenced in the list of interventions proposed for the Fund.
This guide outlines key principles for local councils and combined authorities acting as lead authorities on how to support and grow the local social economy through UKSPF funding. These principles have a specific focus on tailoring business support for the social economy to meet its unique needs and demands. However, UKSPF funds could also be used in a range of ways to harness the talents of the local social economy sector, such as providing grant funding to social businesses to start up and scale up and commissioning social businesses to deliver services locally. Business support for social businesses is crucial to promoting the growth of the social economy and must take account of their social mission. It may include business planning, capacity building, financial management, peer support, professional skills (legal, HR, architectural), mentorship and leadership.
These principles are based on Power to Change’s experience of delivering funding, capacity strengthening and business support programmes for the social economy sector and emerging learning from our work with Liverpool City Region and North of Tyne Combined Authority.
Why does the social economy matter?
The social economy sector comprises community businesses, cooperatives, social enterprises and other socially trading organisations (referred to here collectively as ‘social businesses’) which exist to make a positive social impact. These organisations generate some or all of their income through trading activities and, in the case of community businesses, are rooted in place and accountable to their local community. Rather than extracting value from a place, they reinvest locally. Our research shows that 56p of every £1 spent by community-owned organisations remains in the local economy, compared with 40p for large private sector companies. Social businesses are at the forefront of tackling social and economic challenges locally and investing in the social economy can be a springboard for locally-led recovery. They work to bring communities together, providing spaces to build and strengthen mutual bonds and community cohesion, improve access to services, support health and wellbeing and improve the employability and skills of local people.
Principles for supporting the social economy through the UK Shared Prosperity Fund
1. Ensure bespoke social economy business support is available
Despite decades of high-profile government business support programmes, much of the entrepreneurial potential in our communities remains unrealised. Social businesses often have difficulties accessing business support which meets their specific needs. While traditional business support does not understand the centrality of social impact to their business model, VCSE infrastructure organisations tend not to be able to advise effectively on their business models. Key characteristics of social businesses such as their legal structure, social mission and mix of trading income with grants and donations make mainstream business support less appropriate. As such, business support offered to social businesses should be bespoke, taking account of the particular skills needed by the sector and the centrality of social purpose to their business model.
Social businesses prefer to be able to choose their own support providers, who have skills and experience most relevant to their current needs. Giving social businesses the autonomy to choose the type of support they want, from the provider they want, delivers better results than taking a prescriptive approach to developing a support offer. Research on community business support in Liverpool City Region found that community businesses express desire for choice and control over the business support they receive.
2. Target support to an organisation’s stage of growth
Support should be targeted to the different business stages and confidence levels of organisations in the social economy, from start-up to more established organisations. Like businesses in the private sector, social businesses require different types and levels of support at different stages of their development. However, these organisations often have difficulty navigating the available support and funding and knowing what support they need, from where and at what stages in their business’s development. In particular, a lack of support is frequently identified at the start-up stage, to help those with an idea to access the skills and funding needed to turn this into a viable social business.
We have found that support to social businesses is most effective when targeted at the organisation’s stage of growth. Research by Capacity in Liverpool City Region found that stage of development, rather than type of community business, was the most important factor in considering business support needs for the social economy. As such, relevant support should be available to social businesses at each of the different stages of development, and to help organisations to move between them.
3. Prioritise quality of engagements with social businesses over quantity
Lead authorities providing capacity and business support for social businesses should opt to provide deeper and more personalised support to fewer organisations, rather than offering a light-touch and generic approach with many. Social businesses value high-quality, flexible and individualised support which understands their unique purpose and development needs. One-to-one support, rather than one-to-many, is the best way of delivering appropriate assistance, and represents best value for money for the lead authority. Providing a combination of grant funding and business support has been found to be popular with social businesses, as it enables organisations to dedicate staff time to engaging with support and increases organisational capacity.
B-Inspired, a community anchor organisation in Leicester which worked as a ‘catalyst’ organisation on the Power to Change Empowering Places programme, chose to focus on providing intensive support for a small number of community businesses with a strong focus on financial sustainability. Through this approach, all five community businesses it supported are trading and have the potential to become self-sustaining. The staff have received training, guidance and financial support and developed new skills and confidence as part of this relationship.
4. Establishing trust is crucial
Trust is essential to building effective relationships with social businesses that enable lead authorities to deliver a strong offer for the social economy sector. Research from the Empowering Places programme has demonstrated that social businesses value the support of local organisations that they recognise and can trust. The programme has identified that a human centred, rather than transactional, approach to business support, such as the provision of coaching and peer support networks, is a key enabler for social economy businesses identified as being among the highest priority for support.
Social businesses value independent advisors to direct them towards the best support, rather than advisors with a vested interest (such as investment managers). The Powering Up programme from Power to Change employs Community Business Connectors with experience from the community business and social enterprise sector to work with participating community businesses to identify their support needs and connect them with the right support providers. By working with Community Business Connectors to identify their support needs, participating community businesses do not have to repeat their challenges to different support providers, and Connectors can ensure the support they receive is well tailored to their business development plans.
5. Build a community business ecosystem
UKSPF funding should support the building of a sustainable local social economy ecosystem. Lead authorities should support social businesses to build networks and relationships, so that they can exchange learning, provide peer support and motivate and empower one another. This helps to ensure that investment in capacity building and business planning is sustained in the long term, as knowledge and experience gained is shared by participating groups with other local organisations and partners in the social economy. While specialised support is essential to social businesses, this must be balanced with the risk of the social economy operating in a silo. Therefore, lead authorities should help to connect social businesses to a wide range of expertise, to each other and to wider partnerships such as with the public sector. Developing a social business ecosystem can also create more connections between businesses, charities and statutory agencies and a greater understanding of the benefits of the social economy.
While the Empowering Places programme provided establishing community businesses with access to technical support and expert services such as governance advice and marketing support, the majority of community business support was provided or facilitated by the catalyst organisations themselves and has demonstrated the value of facilitating peer support to social businesses. Kindred, an organisation designed to diversify and strengthen Liverpool City Region’s economy by growing its number of socially trading organisations, allocates resources in a way which encourages collaboration rather than competition. With Kindred, socially trading organisations in Liverpool City Region can decide on the combination of funding that meets their needs, and the collaborative investment process develops an ongoing relationship with and between local socially trading investees. Kindred uses trusted local social economy practitioners to deliver support, who keep knowledge circulating locally and promote the development of a mutually supportive social business ecosystem.
6. Tailor support to organisations led by and delivering for minoritised communities
Specific interventions are needed to support organisations led by and delivering for minoritised communities, and investment policies should reflect the importance of diversity, equity and inclusion, alongside financial performance and social impact. Research for Power to Change suggests that community organisations led by marginalised communities have lower levels of reserves, are more likely to depend on small teams or volunteers and have increased demand on services, making organisational sustainability and financial resilience pertinent challenges. These challenges are further compounded by a lack of access to tailored support programmes, including on fundraising and business development. Research into Power to Change’s support for minoritised ethnicity communities found that capacity building concerning business and financial management was a key barrier to accessing external financing and winning contracts for organisations led by people from minoritised ethnicity communities, as filling application forms and writing bids was considered complex, burdensome and time intensive.
This research has highlighted a range of ways lead authorities may improve their support for minoritised community-led and supporting organisations, including: improving their early engagement in programme design; using data to understand and mitigate barriers to their participation in funding and support programmes; simplifying application processes and changing language on applications to support broader self-identification (e.g. using language such as ‘minoritised ethnicity-led and supporting’ rather than ‘BAME’); and collecting more and better quality diversity, equity and inclusion data. Lead authorities should also ensure that they are working with a range of partnerships and networks that understand the needs of minoritised communities.
Get in touch
For questions on this guidance or our work with regional and local authorities, contact Danielle Cohen, Head of Local and Regional Engagement, at email@example.com.