Social enterprise – entrepreneurship that combines business nous with ethical aims – is on the rise. But is it anything more than a placebo effect that makes consumers momentarily feel good? Victoria Crockford finds if you want to remain relevant in 2017, you need to show your social credentials.

“Be Here Now” encourages the worthy wooden sign as you drive into The Sherwood, Queenstown’s most popular destination for discerning global nomads, and a well-known spot for local freelance nomads like myself. A self-described “community hotel”, The Sherwood offers a garden-to-table menu, large-scale waste reduction initiatives, free yoga classes, and a solar-powered electric vehicle charger. While the whiff of hipster hangs quite heavily in the air, it’s most definitely an enterprise with the local community at its heart.

As I grab a corner table and contemplate the lake view, it occurs to me that this, according to those waving the flag of social enterprise, could be the future of business in New Zealand: a world where every single part of a community has a responsibility to it; where every enterprise is a social enterprise.

The rise of #SocEnt 

The Ākina Foundation – an incubator and consultation entity that has been in New Zealand’s social enterprise vanguard – defines a social enterprise as an organisation that trades to deliver a social or environmental purpose.

Such enterprises are proliferating both here and internationally, with Scotland leading the charge. A recent census conducted by Social Value Lab for the Scottish Government documented 5,600 social enterprises, employing 81,357 people, with 64% of founders women, and generating an estimated £2bn for the Scottish economy. New Zealand is no slouch either. In the 2016/17 financial year, Ākina alone provided business development support to more than 700 organisations engaged in social enterprise activity at various stages of development.

Also on the rise are investment funds that exist to provide capital to social enterprises. Internationally, there are huge players like Bezos Expeditions, the sprawling venture capital vehicle for Amazon founder Jeff Bezos. Here, Aera VC – the investment arm of social entrepreneur and B Team co-founder Derek Handley’s Aera Foundation – has a well-established presence, and the recently-launched Impact Enterprise Fund and Soul Capital both have an explicitly domestic focus.

Surely this marked acceleration of businesses driven by purpose as well as profit is excellent news?

For many critics of the rise of social enterprise, the answer is no. They are concerned we are getting a trend confused with a movement for change, particularly when it comes to retail solutions. They point out that at the customer end, the feel good factor only lasts as long as your recent purchase, and that these one-off acts of consumerism obscure the need for collaborative efforts to solve problems. This critique has become more pronounced with the entry of ‘big money’ into social enterprise. Some have gone so far as to call impact investment funds a “neoliberal takeover” of the sector.

There is also an argument to be made that social enterprises are plugging gaps that the government should, or at least has traditionally, filled. This leads to what some see as the perverse outcome of people profiting from poverty, particularly with the ‘buy-one-give-one’ model, which is a very clear have and have not scenario. With this sort of power differential at play, the question must be begged: is social enterprise solving problems, or is it reinforcing the dynamics that cause issues in the first place?

‘Every business will become a social enterprise’

Rob Wise, the Melbourne-based founder of Be Collective, is an open and friendly interviewee, and with 12 businesses and a charitable foundation under his belt, he is also incisive in his observations of social enterprise. He is quick to point out that social enterprise is part of his commercial DNA: his father, Graeme, brought The Body Shop – a business at the forefront of the concept – to Australasia in the early 1980s. Ergo, Rob sees the idea that business should think about community as “a no brainer”.

With Be Collective, Wise wants to mobilise a generation to identify their passionate values and make a positive social impact. To that end, the company uses software to create the social infrastructure for community interaction, with a focus on facilitating volunteering opportunities. The outcome? A verified social record for each customer. As Wise notes, a curated social CV has a lot of power in an era where the “soft skills” are the ones that will keep us one step ahead of the robots in terms of employability.

He is enthusiastic about the social enterprise landscape here in New Zealand, where he has recently appointed a country manager. He reminisces fondly about Be Collective’s recent roll out in Otorohanga, and is sincere when he says that he felt “a real alignment of spirit” in New Zealand. He thinks that we have a strength that is missing, or perhaps obscured, in Australia: the way in which our national philosophy of values is influenced by tikanga Māori. He believes that a sense of community therefore comes more naturally to us than Australians, and – if the enthusiasm in Otorohanga is anything to go by – there is a tangible hunger for innovative solutions in small town New Zealand that bypass the stifling obligations of government grants.

He understands the critiques of the sector, particularly the entrance of the investment funds, and observes that there is an element of tokenism, or ‘social washing’, by people keen for a legacy project. However, he is clear that this doesn’t diminish the power of social entrepreneurship as a concept, or a practice. He believes that it’s all part of the inevitable teething problems with a fundamental transformation of how we understand business.

The end point of that transformation? “Every business will become a social enterprise.”

‘People should just be building good businesses’

Sean Barnes cuts a spritely figure. He has barely contained energy during his presentation to what he describes as “a coalition of the willing” in Queenstown. As an Ākina Foundation Venture Manager for the South Island, his contact book is full and growing. His slide deck showcases successful social enterprises across sectors – body care, resource management, the trades – and he makes a strong case for the use of social enterprise as a tool in the tangle of Queenstown’s growth issues.

Success notwithstanding, Barnes has firsthand experience of the model’s current problems in New Zealand. From an operational perspective, the issues with getting social enterprise embedded in our economy are still lurking, and significantly restrict the ability of new enterprises, and the sector more generally, to scale.

A key factor in this is the lack of a legal form for social enterprise. As it currently stands, a social enterprise is often an uncomfortable mash up of a charitable trust and a company, with most enterprises in New Zealand starting out as charities. Having the regulatory onus of a charity acts like a brake on the ability of many enterprises to pivot or accelerate growth. On that point, he agrees with Wise: the government grant set-up can be a hindrance.

Underdeveloped capital markets have also been an issue. The placement of social enterprises in the ‘charity’ box has meant that venture capital has been disinterested or ignorant, depending on who you are talking to, and pools of funding have been largely limited to crowdfunding and philanthropy. As Barnes notes: “There needs to be a greater general understanding of how social enterprise works to avoid misconceptions.”

This misconception is something that Aera VC founder Derek Handley has spent a lot of time trying to change. He believes that the “waters have been muddied” when it comes to social enterprise here, with the mentality of local entrepreneurs playing a role.

“People should just be building good businesses,” Handley says. However, more often than not he thinks that in New Zealand the term “instantly conjures up ideas of very small businesses that… have little hope of disrupting an entire industry or problem.” This has led to a near non-existent angel network and disinterest from venture funds.

Despite these frustrations, he highlights some shifting ground — he has recently been joined as an investor in food-for-schools start-up Eat My Lunch by Foodstuffs, which has bought a 26% stake and will assist the enterprise with supply chains and logistics. Such a partnership by a such high profile traditional company is unprecedented in New Zealand, and is a clear strategic move by Foodstuffs: if you want to remain relevant in 2017, you better be able to show your social credentials.

‘We want to create a wider impact’

A solid value proposition is something that also underpins Roy Thompson’s approach to the social enterprise sector. Thompson heads up New Ground Capital, an investment fund that has recently partnered with Ākina to set up the Impact Enterprise Fund.

A former head of Private Wealth Management at Westpac who divides his time between Auckland and Queenstown, Thompson is in the midst of working on one of the most pressing issues in Queenstown, and one that is ripe for disruption: housing. He has teamed up with another local developer to get large-scale affordable, healthy accommodation for the town’s numerous hospitality and tourism workers off the ground. So, with one foot already in the camp of social enterprise, perhaps the Ākina venture was a natural fit?

“The Ākina relationship is critical,” Thompson says. He believes that Ākina brings a sector knowledge that lends credibility and will help the fund select the best opportunities and says New Ground Capital and Ākina have a set of shared values in terms of the impact that they want to create.

“There’s currently no real driver to establish yourself as a social enterprise in New Zealand”, he says, citing a lack of tax incentives as an example. He hopes that the Impact Enterprise Fund will assist with changing this. The same refrain as Wise then, just more qualified — every enterprise could be a social enterprise.

While the Impact Enterprise Fund is ambitious in its ultimate goals, Thompson’s natural restraint plays out in plans to start with a ‘softly, softly’ approach. “We will be keeping it small. Otherwise the whole sector could die before it’s even born.”

What about the perception that he is ‘big bad money’? Thompson’s responds with a wry smile and a clear statement: “We aren’t forcing money on anyone.” As he sees it, the entrance of big investors is a win-win: “They [the social enterprises] desperately need capital…and we want to create a wider impact.”

Scale is once again the magic word in the formula. Enterprises will be selected based on an assessment process that vets both their purpose and their ability to scale their impact. Like Handley, Thompson is ultimately in the business of disruptive – and profitable – problem solving.

‘It’s just looking after each other at the end of the day’

“Have you seen the stats on Scotland?!”, enthuses Scottish native Richard Docherty of Queenstown social enterprise start-up Munchly nearly the moment I sit down to chat with him at his thriving health food eatery Rehab.

As fellow Queenstowners, our conversation inevitably veers to housing prices, traffic congestion, tourism infrastructure and the local council’s record on all of the above. It’s clear that Docherty is a social enterprise believer: “A start-up business can do in six months what a council can do in ten years”. Docherty is also positive about the entrance of venture funds into the sector: “I want to have a strong impact and I need to have money to do that”. Of the critique that government should be stepping into the social gaps that exist, not business, Docherty is emphatic: “A solution is a solution”.

With Munchly, Docherty is proposing an ambitious one: “We’re trying to feed and educate families and kids.” After talking with local teachers, he was shocked to learn that “even in Queenstown” kids are going to school hungry, whether through the sheer hectic pace of family life or because of poverty. He was also concerned by the difficulties that many of the schools face when fundraising. Under the decile system, most of Queenstown’s schools are 9 or 10, earning them relatively little in the way of government funding, and current fundraising initiatives just don’t raise enough to bridge the gap sustainably.

Munchly aims to address the two pressure points — food and fundraising — by selling fairly-priced and healthy school lunches to parents, with a portion of the profits going to the schools as a fundraising tool. The healthy part is integral to Docherty’s vision. At Rehab he aims for as much local and fresh as possible, and he is preoccupied with waste management. He wants both Rehab and Munchly to be interactive food experiences, where kids can participate in the ‘garden-to-table’ philosophy.

His impact metric? A globally disruptive model for food education and school fundraising. Here is one social entrepreneur who has heeded the call for scale, then.

Watching the steady stream of customers coming in and out of Rehab, I wonder: what is his motivation for entering into the world of social problems when he has a perfectly successful business already? “It’s just looking after each other at the end of the day,” Docherty replies.

And that right there is the heart of the thing. Social enterprise and impact investment, with all of their difficulties of definition and vulnerabilities to ‘tokenism’, are fundamentally about just giving a damn. The mash up of profit and purpose still has some sharp edges in practice. How is it measured? Where does the balance between profit and social good lie? What role does government have to play, if any?

But, “just looking after each other” seems like a good place to start.

This content is part of an ongoing social enterprise series in collaboration with Kiwibank and the Social Enterprise World Forum.

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