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What determines success and what prevents the development of social entrepreneurship, why it is important for social entrepreneurs to be able to analyze the social impact of their work and what is the role of development institutions – the editors of Positive Changes journal cover these topics in a conversation with Natalia Zvereva, director of “Our Future” Foundation.

Natalia Zvereva

Natalia Gladkikh

PhD in Psychology, Leading Expert, Centre for Technological Innovations, Institute of Social and Economic Design at the Higher School of Economics

Yulia Vyatkina

Editor, Positive Changes Journal

THERE IS NO SUCH THING AS A UNIVERSAL MODEL FOR SOCIAL ENTREPRENEURSHIP

We know that the “Our Future” Foundation, together with the Higher School of Economics, has studied the experience of impact investment development in 17 countries around the world. Is there such a thing as a universal success strategy for the development of social entrepreneurship? Or are these always local stories whose success depends very much on the regional context?

We actually studied global best practices when launching major projects and programs for the development of social entrepreneurship in Russia. A universal model that would work worldwide has not been established – and cannot be established, because social entrepreneurship is based on the most urgent social problems that differ from country to country.

At the same time, there are some general principles that allow implementing a systematic approach to the development of social entrepreneurship. First, it is important to have cooperation between state institutions and big businesses. Effective development of social entrepreneurship requires investment and a solid regulatory framework, and this kind of symbiosis cannot be created single-handedly. Secondly, it is very important to develop information platforms. In this age of enormous information streams flowing in all directions, it is easy to get overwhelmed and never find the information you need. Moreover, prospective social entrepreneurs need to be able to see success stories, to know they are not alone. The third important aspect is an active position of big business itself: not only do we need investment, but also a willingness to share knowledge and teach small and medium-sized businesses. And finally, another vital factor contributing to the sustainability of social entrepreneurship in any country is the formation of permanent development institutions.

Would it be right to say there is a certain set of factors determining the success of social entrepreneurship in the country?

First of all, it is the overall economic climate. New challenges pave the way for social entrepreneurship for several reasons. For example, foreign manufacturers leaving. This opens up niches for import substitution, which small and medium-sized businesses can fill. In addition, the search for new economic models is often discussed as an alternative to the existing relations. The business needs to change its mindset: from the “sell fast and cheap” approach to the philosophy of meeting the needs of people, specific social groups, addressing specific social problems. People have become more active and courageous, the new generation is more empathic and more determined to change the world for the better. We have high hopes for them.

Second, cross-sector interaction is very important. The government is currently “probing” the field of social entrepreneurship at the legislative level. There is a potential for expanding the scope of the law on social entrepreneurship. Perhaps by increasing the groups it applies to. Or perhaps through unification and merging of different registries.

Thirdly, a rich information field, with high-tech services offered proactively, is of great importance as well. In simple terms, with the development of Big Data we need to identify potential social entrepreneurs and introduce them to the topics, possible models and ready measures of support. Our Foundation, for example, created an information portal for social entrepreneurs “New Business”, where you can find best practices, news, interviews and other useful information. This was done as much as 10 years ago. In addition, we are operating and regularly updating the Social Ideas Bank, where you can see how different business models work.

Social entrepreneurship is based on the most urgent social problems that differ from country to country.

“My Business” centers and the regional Social Innovation Centers have done a lot of work to identify and assist social entrepreneurs in Russia.

Are regional social entrepreneurship development strategies similar, for example, between the European countries or within the Asian region? Which one is closer to Russia’s way in the development of the institution of social entrepreneurship?

We have studied social entrepreneurship models in several developed countries. After studying various models, we borrowed the most from South Korea’s experience – which has a similar classification and key support measures for this category of business.

We also studied educational programs on social entrepreneurship abroad and concluded that they all focused on their respective national social agenda, education level and entrepreneurial culture of students, as well as generally on established educational practices and formats. In general, an academic approach to teaching social entrepreneurship is more prevalent in Europe, while a practice-oriented approach is more common in Asia.

THE STATE BENEFITS FROM THE EXISTENCE OF SUPPORT ORGANIZATIONS

What are the factors facilitating the development of social enterprises in Russia?

Social entrepreneurship in Russia has taken root and is developing gradually, but quite steadily. The main reason is that the existence of social enterprises benefits not only their owners and employees, but also the state and society. The society is interested in private enterprises intent on addressing social problems, in addition to the state and charitable organizations, as they offer extra options and additional opportunities for the people. The state benefits from support organizations that are self-financed and complement the government’s social infrastructure. Both the state and the society benefit from the existence of organizations that develop and test innovative methods of addressing social problems. They make the social system more flexible and allow the tried and tested solutions to be massively implemented in public practice.

New challenges pave the way for social entrepreneurship. The search for new economic models is often discussed.

Among other key factors for the success of social entrepreneurs in Russia, we should also mention inherently different level of social infrastructure development in various regions and municipalities, which has been established over the years and was stimulated by regional, not federal financing of the social sector. Therefore, in places where a shortage of individual elements of social infrastructure does not require major investment, social enterprises can quickly and flexibly compensate. In addition, we see that social entrepreneurship is more actively developing in those regions that are ready to systematically support it, to see and discuss its problems and achievements, to introduce effective practices and ways of solving social problems in the operation of state social structures. Building a regulatory and legal framework for social entrepreneurship, development, financing and recording the results of its activities through the register of social enterprises allows this phenomenon to reach a fundamentally new level.

What hinders the development of social entrepreneurship in our country?

There are several factors slowing down the development of social entrepreneurship in our country. First of all, many social enterprises operate on the basis of personal connections, and not all of them were able to adapt and survive the COVID-19 restrictions. And now, each time the epidemic situation worsens, there is more uncertainty in terms of business planning, so we have to make provisions for a significant drop in the number of clients and revenues.

Secondly, we should mention the fact that the growing sector of cooperation between social enterprises and the state in terms of outsourcing a number of social services under Federal Law 442-FZ, as well as in the pilot testing under 189-FZ, tariffs are often the same for state (or municipal) and non-state providers, or higher in favor of the former. This model is not economically fair because it does not take into account a number of items included in the cost of service for a non-state provider (such as rent and maintenance of buildings of state enterprises, or equipment costs), which is often critical for a non-state provider and is a barrier preventing the decision to take on such obligations. Thus, nongovernmental enterprises find themselves in an inherently losing situation.

Insufficient training, economic and legal literacy of entrepreneurs also have a significant impact on the development of social enterprises. Various organizations exist that try to mitigate this factor, such as, for example, the Social Entrepreneurship Laboratory, which conducts trainings for beginners and accelerators for existing social entrepreneurs. And perhaps the last and most objective obstacle is the refinancing rate and the high cost of credit, which hinders the development of enterprises that have low and medium profitability.

What other development strategies and tools that are used elsewhere in the world are not yet present in Russia?

In Russia, there is no special organizational and legal form for social enterprises, no national association of social enterprises, no common marketing platform and no e-commerce platform for goods made by social enterprises. The need for a separate legal form is arguable in our legislative field. Rather, what we lack is a mechanism and opportunity to recognize both commercial and non-profit organizations engaged in income-generating activities as social enterprises. Separate branding of the social enterprises’ products, and setting up special sections on existing online marketplaces to trade their goods is a matter of the future, when such products become more commonplace. The National Association is a thing of the future, too. Meanwhile, regional associations have been created in some parts of the country. The national association can be created “bottom-to-top”, once regional associations get stronger and decide they need to reach a new level, or “top-to-bottom” if one of the social enterprise development institutions takes on the role of “gatherer” and works hard to achieve the goal. Unfortunately, there isn’t a single place in the world with a clear-cut, objective and comprehensive methodology for evaluating the social performance of social enterprises. It should be created using the existing developments.

Besides, a unified mechanism for impact evaluation of social investments is being discussed in Russia but has not yet been developed. “Our Future” Foundation has been working on this problem for a long time; we have implemented an evaluation of those projects that we have helped with interest-free loans. The analysis carried out according to our methodology allows us to say that every ruble invested in the project of social entrepreneurs brings a social impact of 3–7 rubles.

WE WANT TO STAY ABREAST OF MAJOR TRENDS IN IMPACT INVESTING

Our Future” Foundation is one of the first Russian organizations that joined the Global Impact Investing Network, the Asian Venture Philanthropists Network, and the Euclid Network of Civil Society & Social Enterprise Leaders. What do these organizations do and how are they changing the landscape of social entrepreneurship development? What are the benefits of membership in such organizations?

Our Future” Foundation was the first Russian organization to become a GIIN member in 2013. GIIN and similar organizations accumulate information about the activities of their members, development and investment in social entrepreneurship around the world, analyze and organize this information, develop scientific and practical tools that can help create new organizations for impact investing, trying to organize communication between members at regular conferences. Sometimes it is possible to attract impact investment from other countries through such organizations, but this is not commonplace yet. For the most part, the Foundation uses membership in this organization to keep abreast of major trends and developments that are emerging in impact investing.

The Asian Venture Philanthropy Network (AVPN) is a Singapore-based social investor network aimed at building a community of social impact investment projects across Asia.

The Association’s main mission is to increase the flow of financial, human and intellectual capital into the social sector by uniting and empowering major shareholders. It uses such tools as capital pooling, community building, and organizing events to disseminate knowledge and best practices of the practicing network members.

AVPN has more than 600 members from 33 countries. “Our Future” Foundation was the second participating organization from Russia. Most participants are geographically located in Asia, but some come from North America and Europe.

Participation in AVPN provides the following opportunities: access to events organized by AVPN; opportunities to communicate with investors and make joint deals through the Deal Share platform; access to educational materials, case studies, and analytical materials.

The Euclid Network is a European network of leaders in social entrepreneurship and civil society that was founded in Paris in March 2007. It brings together organizations from 31 countries, including representatives of social organizations and associations of social enterprises, universities, non-governmental organizations, social enterprises, and social investors. “Our Future” Foundation became a member of the Euclid Network in 2019.

It is important for social entrepreneurs to be able to independently analyze social outcomes and ways to achieve them.

Membership allows access to members-only content, such as the Managing Positive Change webinar series, insider knowledge, advice and support on impact measurement and social innovation. The Euclid Network makes it possible to find partners for joint research, and to share experiences at joint events.

In one of your interviews, you said that when providing financial support to social entrepreneurs, the Foundation pays special attention to such an indicator as the degree of social impact. How do you measure it?

Here I would like to mention that the Foundation has many different programs of financial support, and each program includes an individual approach to developing the criteria for evaluating projects. But, of course, social impact is always at the top of the list. If we talk about return on investment in existing projects, we need the evidence base of the declared social effects of the project, for example, laboratory-confirmed environmental friendliness of the products, scientific evidence of the usefulness of the applied methods of preschool development, the presence of reliable positive feedback on the work of the project, etc. We further analyze a number of the largest projects using the SROI (Social Return on Investment) methodology. If we talk about supporting projects at the startup stage, we rely on the predicted values of the effects, comparing them with the available results base from other projects in the same field.

At the same time, Russia still lacks a unified system of indicators and methodology for measuring positive social impact. What do you see as the solution to this issue?

It is important for social entrepreneurs to be able to independently analyze social outcomes and ways to achieve them. “Our Future” Foundation uses complementary methods: assessing results per ruble of invested funds when comparing alternative investment projects in the same area, as well as a method for evaluating the social return on investment and a method for rating social enterprises after they receive funding.

The Social Return on Investment (SROI) method is well-suited for analyzing the entrepreneurial and social components. It takes into account the social results of the enterprise in monetary terms, includes a comparison of invested resources and results obtained. For a SROI of 3:1, every ruble invested in the project results in three rubles’ worth of social impact. Money, in this case, acts as a universal means of expressing value, so that a complete picture of impact can be presented. We do a forecast calculation for large investments, and then after the funding period is over, we summarize the results by comparing them to the forecast data.

The application of SROI makes it possible to visualize and analyze changes. At all stages, SROI serves as a tool for communicating with our customers, employees, communities, and the government. This kind of feedback helps manage risks, improve products and processes, and find new lines of business.

The Foundation uses a rating system for interaction with social enterprises after the funding has been provided. The projects are rated based on the promptness and completeness of the social impact plan, repayment our loans, readiness to cooperate on research and promotion of social entrepreneurship.

The regulation of social entrepreneurship varies from country to country. Some places have laws defining the status of a social enterprise, others don’t. In Russia now, social entrepreneurs also have a special status, but it does not yet include, for example, NGOs. What is your view of the development of the social entrepreneurship model in our country in terms of legislation?

An important step is the expansion of the target groups specified in the law. Currently, the State Duma has passed a bill in the first reading, extending the list of social entrepreneurs to people with disabilities. Further adjustments may be possible in the future, it is important here to constantly analyze and interact across sectors in order to promptly identify the groups that may be added to the registry.

In addition, we continue working with social contractors, who, in fact, are also social entrepreneurs, but are part of a different registry. Combining these registries seems like a good idea, but so far it seems hard to implement.

How does “Our Future” Foundation assess its impact on the development of social entrepreneurship over the years of its work?

We have not conducted a full-scale assessment of the social impact of the Fund as a whole; rather, we evaluated the contribution of its educational unit – the Social Entrepreneurship Laboratory. The study found that for every ruble invested by stakeholders, the Laboratory generates 7.62 rubles of social value.

Globally speaking, almost 900 projects all over Russia have received our help and support in various formats (financing, implementation of the project “More Than a Purchase”, franchising, educational loans, accelerators, etc.). The law on social entrepreneurship and the registry to count the number of businesses have appeared with our participation. Educational programs have started to appear in universities with the support of the Foundation, such as professional retraining courses at the Higher School of Economics. Thanks to the Social Entrepreneurship Laboratory’s Training of Trainers program, 68 certified teachers are currently working in the regions, conducting their own Social Entrepreneurship Schools, which have already produced more than 1,500 graduates. We recently reformatted the course for university teachers, focusing on methodology, and posted it for public access on the Stepik platform. Thanks to “Growth Formula” accelerators (with more than 100 graduates), communities of ambassadors have been established in the regions. These active and successful social entrepreneurs are now joining into local associations (for example, in Astrakhan, Kaliningrad, Yugra). That is also an important part of social impact development.