Round table debate: funding challenges

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KnowHow and Unity Trust Bank round table debate

The April round table debate, sponsored by Unity Trust Bank, brought 10 experts around the table to discuss the funding challenges that lie ahead for the sector. We've grouped the main arguments raised during the debate into four areas:

• the role of social enterprise
• the impact of recession
• working with philanthropists
• collaboration and partnership

These are covered in detail below. You can also listen to the views of some of the participants by following this link:

Should the third sector be more businesslike?

The role of social enterprise

Yesterday’s last big idea?

“In these last five years there’s been so much talk around social enterprise being a panacea. Of course it’s not! It’s very nearly yesterday’s last big idea.” - Gordon D’Silva, Chief Executive, Training for Life

As a successful social entrepreneur, you’d expect Gordon D’Silva to champion the social enterprise model. He is however reluctant to give it his full endorsement.

He says it is a mistake to think of social enterprise as some kind of ‘cure all’ for the voluntary sector. Often heavily subsidised by government, social enterprises may struggle as much as conventional charities as funding is gradually withdrawn. He wonders how viable the traditional social enterprise model will be in the future, and predicts that without an updated approach, social enterprises really could become “yesterday’s last big idea”.

Questioning consultancy

He firmly believes that good business practice will determine the success of social enterprise, but is sceptical about relying on the consultancy industry for this advice. He is critical of consultants “telling people how to do business, rather than practitioners coming together and working things out themselves”.

Undermining charity?

Gordon is also concerned that an obsession with social enterprise could undermine the important role traditional charities play in providing services that rely on constant donations. “There are so many organisations out there doing an absolutely splendid job that will always need the support and the kindness of others,” he says.

‘Charity 2.0’

In a similar vein, Jonathan Jenkins of UnLtd, worries that people view social enterprise as ‘charity 2.0’, the new way to do charity. “Social enterprise is the way a person works,” he says, “not the institution around them.” He feels that we should focus more on developing social entrepreneurs within existing organisations, rather than creating new structures.

Hung up on definitions

“We can get too tied up in definitions rather than what we are actually trying to achieve.” - Kelly Essery, Head of Operations and Resources, Bassac

As head of operations at the frontline of Bassac, Kelly Essery is all too aware how hung up people get on definitions. She points out that for many of their members, social enterprise and charity are one and the same – both models apply as organisations diversify looking for new income streams, and there is little to be gained in arguing over terms.

Know your customer

“Who’s your customer? At homeless charities they say – the homeless. But how can they be your customer? They’ve got no money.” -  Michael Chuter, Head of Finance and Enterprise, The Foyer Foundation

On the other hand, Michael Chuter, Head of Finance and Enterprise at the Foyer Foundation, feels that there is one valuable lesson that charities can learn from social enterprises: ‘know your customer’.

While charities may get confused about whom they are serving, and to whom they are answerable, there is no such confusion for social enterprises. Their customers pay for a service and their satisfaction determines whether the business sinks or swims.

Michael says that successful organisations should ask themselves ‘who have we got to please first?’ "Please them," he says, "and the rest will follow."

The impact of recession

However grim the looming funding cuts appear to be, there seemed to be a brutal consensus around the table that recessions can have a positive impact.

I’m quite looking forward to a bit of market contraction. I think it’s been too easy to set up a social enterprise. I think there’s been too much money and too much replication.” - Jonathan Jenkins, Director of Ventures, UnLtd

A self-confessed champion of capitalism, Jonathan suggests that the current tough financial climate may be good for the sector. A few hard lessons might be what people need to get together and sort out where they’ve been going wrong. He admits it’s not the most popular view to hold.

Michael was quick to back him up: “A recession periodically is good for all sectors,” he says. “We all get fat, lazy and complacent in the good times.” He adds that bad times take out the weakest links and allow the good organisations to thrive.

Kate Sayer, a partner at Sayer and Vincent, followed on, advocating a free market approach in the voluntary sector: “It’s harsh, but if the market doesn’t provide the subsidy for a social enterprise, then you have to stop doing it. The market will push people to do things that are expedient or sensible and the ones that aren’t very good will fail.”

Working with philanthropists

Understanding and engaging the rich

Carlos Miranda of TIS Consultancy feels that the individual giving arena here in the UK is not as well developed as it is in America: “I used to work at the New York Public Library, where the lowest annual donation was $25,000 a year,” he explains.

It does not appear as though we lack the existence of these big givers. According to Professor Palmer’s statistics, during the Blairite years, Britain was producing somewhere between 8 and 10,000 millionaires every year.

But as Paul Mitchell, Director of the global financial services group UBS points out, the profile of the wealthy has changed. A new breed of donor seems to have emerged, who Kate refers to as 'venture philanthropists'. These are dynamic, business-minded high earners; entrepreneurs or investment bankers in their late twenties and early thirties.  

To make the most of these potential philanthropists, Carlos and Kate both stress the need to connect with them and to speak their language.  

The new business mindset

Carlos points out that what the new philanthropists know is innovation, as this is often how they themselves achieved success. Charitable organisations therefore need to engage them in innovative ways.

"There is a new breed of donors who really are seriously wealthy people. They talk about business models. The charity sector never used to talk about business models. They understand risk-taking.” - Kate Sayer, Partner, Sayer Vincent 

Kate explains that most of these new wealthy individuals made their money in the new business world and they really want to understand and be involved in the ‘business model’ of the organisations they support. They bring with them a much better understanding of risk-taking and how this should be balanced with reward. She feels the introduction of this to the charity world is a fascinating prospect.

“What are the outcomes we are getting for the amount of money we’re putting in,” she asks, “and would we have a better ratio of risk and reward if we did this in a different way? If you’ve got a different risk profile at different stages in a project, then different forms of funding are appropriate at each stage.”

Good vs bad philanthropy

“People think there are no bad ways to give, but there are,” explains Carlos.

“A lot of individuals who genuinely want to invest in the third sector tend to go for the same things. They are thinking: ‘my money, my legacy, my charitable foundation’. I wonder how much they’re being made aware that setting up yet another foundation may not be the cleverest use of their money.” - Gerald Oppenheim, Director of Policy and Partnership, Big Lottery Fund

Gerald Oppenheim is the first to observe that “people are tending to use their money for the same things.” For example, they’ll set up a foundation, without considering how many similar foundations already exist. “It’s difficult ground,” he admits. “After all, who should dictate where a person gifts their own money?” His point is that individual giving could perhaps be better informed. “Think about the less obvious areas of need,” he says. “A bit of investment, a bit of thinking outside the traditional box wouldn’t half help!”

In the same way, Michael says philanthropists need to support the organisation’s needs and not the other way around. “You have to make them want what you’ve got,” he explains, “not give them what they want.” In other words educate them as to what their money is needed for. “After all,” he says, “how does a wealthy individual know what a homeless person needs?” It is a matter of aligning their goals with the organisation’s goals.

Pushing back on philanthropists

“As philanthropic advisors, we do a great disservice to our clients because we tend to give donors what’s safe. We don’t ever push back against philanthropists.” - Carlos Miranda, Managing Director, TSI Consultancy

Carlos is one of many voices suggesting that charities become more assertive in asking funders for what they need, rather than playing it safe. By ‘safe’ he means, for example, establishing a foundation. “Of course, establishing a foundation is a great thing to do,” he clarifies, “but charities don’t ever push back and say: ‘Look - there are other more innovative ways of achieving what you want to achieve.”

People today become richer, younger. It’s a different dynamic and the culture of these people is that they want things done now. It’s all right trying to mend it today but will it reoccur?” - Paul Mitchell, Director, UBS

Paul adds another good example. This new breed of young philanthropists belong to the ‘now’ generation, and they want their donation, like everything else, to have an immediate impact. But this disregard for the long term and lack of understanding of the need for sustainability can be damaging. “You can’t just fix today,” he says, “you need to think about tomorrow.”

He gives the example of a hospice that was offered several million pounds to create four new beds. They turned the offer down. They couldn’t afford to sustain the extra places beyond the immediate donation and so, despite the good intentions, the gift would have been of little value.

Collaboration and partnership

“There’s this whole idea of innovation, partnership, collaborative working that we’re kind of missing.” - Mark Salway, Finance Director, CARE International

Mark Salway, Finance Director of CARE International feels non profit organisations may be “missing a trick” by not seeking out partnerships and stoking up private sector engagement.

CARE International is one of the five largest NGOs in the world. In terms of income it’s bigger than Oxfam. But, in contrast, 80 per cent of its funding comes from institutional and statutory funding. Having less unrestricted income, they’ve had to be innovative in achieving their objectives. He feels the voluntary sector is missing a trick by not seeking out partnerships and stoking up private sector engagement.

Mark gives the example of CARE’s recent work alongside the insurance company Allianz. Allianz wanted to open up their market to reach a client base at the ‘bottom of the pyramid’, where they felt their services were needed. CARE wanted to protect those in countries hit by the tsunami from suffering more devastating losses in the future.

As a result, they partnered to deliver ‘micro insurance’ to communities in Southeast Asia - where 140,000 people have just received payouts following damage caused by the recent cyclones. This is an example where the private sector and the third sector can collaborate on a win-win basis. However, exploring this alignment of interests takes both time and honesty.

He also believes this is the time for greater partnership between likeminded organisations on sharing back office functions – and also ensuring that strategically likeminded organisations are not fighting over the same territory if they don’t need to.

Kelly points out that forced partnerships can do more harm than good and collaborative relationships do not form overnight, but she agrees with Mark that collaboration can be a powerful tool.

In conclusion

Gordon D’Silva kindly summed up the conclusions of the afternoon’s debate with the ‘5 Cs’:

Challenge

Challenge what you are doing. What’s good today may not be right for tomorrow.

Clarity...

...in what you are trying to do. Clarity will make your objectives clear to the banks, funders, governments and philanthropists.

Customers

What are their needs and are you always meeting them?

Communicate...

...and connect with your funders; invest time in them. Communicate the impact you are having as best you can. Finally, communicate with others and share experience with them.

Costs

Be more businesslike, more disciplined. Form partnerships and think collaboratively to be more efficient. Make use of organisations like Bassac and KnowHow NonProfit, who provide all kinds of valuable information and services.