Spin outs need investment to compete for contracts against organisations with more financial muscle. Photograph: Johannes Eisele/AFP/Getty ImagesSocial enterprises are playing a growing role in the health and social care sectors in the UK. Major growth is coming from spin-outs – organisations leaving the NHS to become independent social enterprises. Primarily as a result of the previous government's Right to Request programme and its successors, by the end of 2011 spin-outs were delivering £886m worth of health services and that figure is growing.
Social Enterprise UK (SEUK)'s 2013 State of Social Enterprise survey, The People's Business, reported both an increase in the percentage of social enterprises that have the public sector (in general) as their main source of income (23% compared to 18% in 2011) and that 15% of social enterprises trading for three years or less are operating in healthcare compared to 5% of older social enterprises.
Discussions at SEUK's Fit For the Future conference on social enterprise in health and social care in June illustrated there are at least two groups of social enterprises currently operating in health and social care.
One is spin-outs, many of whom are competing for large contracts worth tens or in some cases, hundreds of millions of pounds. Another is those social enterprises whose starting point is similar to traditional voluntary sector organisations and who are looking to win relatively small locally-based contracts.
Both groups face new challenges and opportunities as result of changes to the NHS following the implementation of the Health and Social Act 2012. Speaking at Fit for the Future, Andrew Burnell, chief executive of Hull-based spin out City Healthcare Partnership CIC noted that: "We've worked really hard to demonstrate our differentiation from the SERCOs. How are others in the sector doing that? We are, in part, open to being picked off."
Burnell's comments illustrate two of the key challenges currently facing spin-outs: to demonstrate why they're different and better to alternative providers from both private and public sectors and to ensure they can both keep existing contracts and win new ones in an increasingly competitive market place. Both of these points are partially addressed in Spin-Out, Step Out, a new SEUK report that looks at the challenges faced by spin outs in raising finance to develop and grow.
The report, which is based on a survey of 27 existing health spin-outs, said: "the respondents were not very strong in articulating their social impact. Some of the organisations surveyed are known to have produced relatively robust social impact reports but this did not come through in the survey for the spin-outs as a whole."
There is clearly a need for spin-outs to get better at explaining what it is they offer that's demonstrably better than what their competitors can provide, however the primary focus of Spin-Out, Step Out is on how spin outs can find the investment that will enable them to compete for contracts against organisations with more financial muscle.
The report quotes one spin out leader talking about the difficulty of bidding against private sector competitors: "I saw how they worked. There is absolutely no way my organisation can compete with them… They were prepared to invest to make sure they won the contract…We can compete with Serco [on delivery] but we just don't have the [bidding] resources."
It would be easier for spin-outs to compete with private sector, if they could attract investment for social investors. Unfortunately, despite spin-outs being relatively large businesses by social enterprises standards – with a median turnover of £2.9m compared, more than 15 times the median UK social enterprise turnover of £187,000 - only 1 of 27 spin-outs surveyed had done so.
The report claims this is partly because social investors are wary of investing in spin-out, based on the fact that: "these businesses are sometimes perceived negatively to have a limited track record as new entities, just one or two contracts, a lack of assets, to be operating in a highly unpredictable market environment with highly aggressive, professional and well capitalised competitors."
A video made at Fit for the Future conference by Pioneers Post suggests that social investors concerns may be based more on myth than reality.
Unfortunately, even if social investors were prepared to put their money into spin-outs, there is still a problem that the money they provide is too expensive and many spin outs have been surprised that the fact they deliver positive social outcomes, doesn't mean investors will offer them a better financial deal: "where social return is taken into account it does not necessarily influence the investment terms in a way that makes them any more generous than finance provided by purely financially motivated commercial investors. Yet the spin-outs, like many other social enterprises, interpret the rhetoric around social return and social investment to suggest that there could be a good generous offer on the table."
Beyond the world of large scale spin-outs and direct competition with SERCO, Virgin Care and others, smaller local social enterprises are trying to work out how to navigate the NHS landscape.
Earlier in the year SEUK and IVAR produced The Power of Partnerships, a resource to promote better working between new local health structures - Clinical Commissioning Groups (CCGs) and Health and Wellbeing Boards (HWBs) – and local charities and social enterprises based on work in four local areas in England.
At Fit for the Future, commissioners and social enterprise leaders involved in the project discussed ways that social enterprises can build relationships with commissioners in CCGs in local authorities.
A key message for social enterprises looking to engage with new NHS structures is that its important to find out what is going on in your area because every area will be different. As Dr Johnny Marshall, Policy Director at the NHS Confederation, told the conference: "There's already an old adage: when you've met one CCG, you've met one CCG."
David Floyd is managing director of Social Spider CIC. He writes the blog Beanbags and Bullsh!t.
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