1. Blended Value Accounting & Social Enterprise Success John Anner, PhD SIERC Annual Conference Auckland, New Zealand 12 February, 2016

2. My Background Twenty consecutive years as an NGO Chief Executive Officer, now working for Dream Corps (Oakland, California). Founded or acquired five social enterprises. Extensive experience in Asia, India, West Africa and Central America. Research interests include social enterprise, exponential organizations, impact measurement, hybrid finance.

3. In Search of Blended Value Blended Value refers to the dual nature of a social enterprise. A social enterprise is a private business founded and managed in order to deliver positive social change. Blended value accounting (BVA) is a method of calculating both the financial and social returns delivered by social enterprises. There are dozens of BVA methods. The challenges are on the social accounting side (also called impact measurement), not the financial. Unlike for financial accounting, there is no universal, standardized method of calculating social impact.

4. Research Purpose The purpose of this quantitative research study was to ascertain if social enterprises are using blended value accounting methods, and if so whether the use of these methods is correlated with the success of the firm. I wanted to see if the use of BVA methods was a “critical success factor” for social enterprises (following research on SMEs).

5. Research Method Data were collected via online surveys. Data on the dependent variable (firm success) was obtained from Likert scales with five or more questions. Independent variables included country of legal registration, years in business, number of employees and sector of work. Multiple and logistic regression were used to analyze whether there was a positive correlation between the use of BVA methods and firm success.

6. Theory and Definitions (1) The definition of a social enterprise is contested. My definition is that a social enterprise is a for-profit company with fewer than 250 employees – it is a subset of the business category small and medium enterprise (SME). SMEs are often analyzed for critical success factors, particularly entrepreneurial orientation. A high entrepreneurial orientation is positively correlated with firm success.

7. Theory and Definitions (2) Entrepreneurial orientation is one dimension of a social enterprise. Another is the degree to which the managers are pro-social, or have a social orientation. A pro-social orientation may be positively correlated with social enterprise success (research is scant). But a social enterprise by definition is pro-social. Once a company stops being pro-social, it should no longer be considered a social enterprise. I define a social enterprise as an SME with high entrepreneurial orientation and social orientation. These can be measured.

8. Key Results Research Question There is no positive statistical correlation between the use of BVA methods and firm success, either social or financial. Biggest Insight SEs that use BVA methods are the ones that are already more successful. For Social Enterprise Managers Use BVA, but select a method that is inexpensive to implement, aligns with industry standards, and gives you management information.

9. Problem Statement Social enterprise is a major trend in social change. Social enterprises are often required to measure their social impact, either by impact investors or legal requirements. The effective use of BVA has been thought to be a critical success factor that enables social enterprises to be successful. As a field of study, social enterprise and especially the measurement of social impact in social enterprises lacks empirical and quantitative analysis. There is a substantial gap in knowledge about whether social enterprises are using BVA, what BVA methods they are using, and if the use of BVA is correlated with social enterprise success.

10. Results While most social enterprises do use BVA methods, I did not find a positive correlation between the use of BVA methods and social enterprise firm success. There were no statistically significant effects found using multivariate regression. There were no statistically significant effects found using logistic regression. 73.2% of social enterprises are using BVA methods The B-Impact Rating System is the most widely used BVA method, used by 58.8% of respondents using BVA methods.

11. An Interesting Finding Social enterprises that use any BVA method are more likely to be successful than ones that do not. This result is probably because social enterprises begin using BVA methods when they reach a certain stage of development, but not before. The social enterprises that do not use BVA methods generally understand the importance of measuring impact, but cannot afford to implement BVA methodologies due to constraints in finances and personnel.

12. Survey Responses I collected a list of 3,682 social enterprises from eight countries, and received 280 completed surveys. Of these 280 social enterprises, 69% were founded in the past ten years, while 97% have fewer than 250 employees. The social enterprises surveyed represented a large number of economic sectors, from agriculture to pet care, finance, health, consulting and many others – far more than expected. 65% were for-profit companies, 20% were nonprofits, and 15% were blended organizations, probably nonprofits with a for-profit subsidiary.

13. Conclusions and Recommendations

14. Conclusions The use of BVA methods does not predict the success of a social enterprise, but social enterprise managers should use BVA methods. The use of BVA methods sends a signal that the social enterprise is a serious, substantial company. Using BVA is often required by investors, customers, and statutory regulations. Implementing BVA is part of the maturation of the social enterprise, similar to upgrading accounting, HR management, and other operational systems.

15. Research Directions Analyze the differences between blended organizations, NPOs and social enterprises in BVA use. Map the diversity of the social enterprise population (in terms of economic sectors) to impact investor interest areas to evaluate the degree of overlap. Undertake a research project to find social enterprises that may be hidden in the larger population of SMEs by evaluating their social and entrepreneurial orientation scores. Analyze the costs and benefits of using various BVA methods. Examine under what conditions social enterprises implement BVA.

16. Recommendations for Managers Select the BVA method best suited to your stage of development, while making sure to adjust the use of BVA tools as your social enterprise grows and changes. Unless required to use another method, pick the BVA method that offers the best information for improving management practices. Use the B-Impact Rating System anyway, to align with industry standards. Unless required by investors, don’t invest in the most expensive BVA methods. The evidence from this research indicates that no method stands above any other method in terms of its impact on your firm’s success.

17. Recommendations for Agencies Use my definition of a social enterprise, please. Provide a full list of BVA tools to the public and researchers. Offer guidance for managers about the best tools to use for improving management. Offer guidance about which tools are suited for the stage of development of the social enterprise. Undertake an ROI analysis on BVA methods, so that social enterprise managers have the information they need to choose the best BVA tool. Create a global registry of social enterprises.

18. Final Thoughts ★ As a field of academic study, social enterprise is in its infancy. ★ As a method of social change, social enterprise is having a profound impact on the way business is being conducted. ★ Larger social change may be found less in new social enterprises, than in getting private companies to adopt social goals.