Why Hard Times Create the Best Social Businesses

I’ve been thinking a lot about the 1980s lately. Not because I’m nostalgic for the fashion or the music, but because some of the largest and most successful social businesses operating in the UK today were founded during that decade — the toughest economic environment since the war. That’s not a coincidence. Hardship forces innovation. Scarcity breeds invention. And when the old ways of doing things stop working, people start looking for something new.

We’re at that moment again.

The public spending review is coming. Everyone knows it. The scale of the cuts required to close the deficit is terrifying — not just for the public sector itself, but for the thousands of charities and voluntary organisations that depend on government contracts and grants to deliver their services. The Centre for Social Justice has been warning that community and voluntary organisations could face a funding gap of over £4 billion in the coming years. I suspect the real figure may be worse.

But here’s the thing about moments like this: they don’t just destroy. They create.

The CIC structure was designed for an environment where traditional funding models are under pressure. A CIC can trade. It can generate earned income. It can contract with public sector bodies on a commercial basis. It can attract investment through share structures. It can do all of this while being locked into a social purpose by the asset lock and the community interest test. In other words, it has exactly the kind of flexibility and resilience that the coming environment is going to demand.

At the Cambridge event earlier this month, someone asked me whether it was responsible to encourage people to start a CIC when the economic outlook was so uncertain. My answer was honest: if you’re looking for a safe, stable, grant-funded existence, don’t start a CIC. But if you’re looking to build something that can survive and thrive in a tough environment — something that combines commercial discipline with social mission — then there’s never been a better time.

The old model of the third sector — grant-dependent, project-based, perpetually insecure — was already creaking before the recession. The coming cuts will break it for good. The organisations that survive and grow will be the ones that have the legal and financial flexibility to adapt. They’ll be the ones that can trade, that can invest, that can build sustainable business models around their social mission.

That’s what CICs offer. Not as a replacement for charities or cooperatives — we’re not here to compete with anyone — but as an additional tool for a world that needs every tool it can get.

Some of the best social businesses of the next twenty years will be founded in the next twelve months. Not because the environment is friendly, but because the need is urgent. CICs will be the vehicle for many of them.

The question isn’t whether the model can work. We already know it can. The question is whether we’ll have the collective will to build the support infrastructure these new social businesses are going to need.

John Mulkerrin is co-founder of the CIC Association and one of the earliest adopters of the CIC structure in the UK. He spoke at the CIC Association’s Cambridge event in November 2009.