3. Background analysis
3.2 Owner characteristics
Human capital
Academic qualifications and business experience are examined under the heading of ‘human capital’. Whether an academic or vocational qualification, or indeed business experience, is a more relevant measure of the skills required to run a business will depend on the nature of the business. A PhD in a relevant field may be important for running a high technology business whilst a vocational qualification or experience may be sufficient in other cases.
Table A3.12 summarizes the highest academic qualifications of owner managers. This table indicates that:
• 23.6% of owners of social enterprises have a postgraduate qualification which is significantly higher than the corresponding 9.6% of owners of for profit enterprises.
• 21.7% of owners of social enterprises have an undergraduate qualification which is significantly higher than the corresponding 13.0% of owners of for profit enterprises.
• 2.5% of owners of social enterprises have no academic qualification which is significantly lower than the corresponding 14.9% of owners of for profit enterprises.
Figure 3.2.1: Highest academic qualification of owner-manager 2.5% 4.3% 5.3% 3.0% 5.4% 15.6% 21.7% 23.6% 1.5% 1.8% 15.0% 14.9% 14.1% 8.5% 6.1% 13.2% 13.3% 13.0% 9.6% 0.6% 0.4% 0.8% 3.6% 0.5% 0% 5% 10% 15% 20% 25% No A cad emic Qua lificat ion O-lev els A-lev els HN D/H NC City an d G uilds/ NVQ Prof ess ional Qual ificat ion Under grad uate Deg ree Post grad uate D egree Diplo ma/ Cer tifica te Teach ing Q ualif icati on Oth er Don’ t Kn ow Social Enterprises For Profit Enterprises
Bases: Social Enterprises All; n=14,952 For Profit Enterprises All; n=3,596,948
Business experience
In terms of business experience (Table A3.13):
• Owners of social enterprises have on average 16.1 years of business experience which is significantly less than owners of for profit enterprises (20.2 years).
• Across all businesses with one employee or more, owners of social enterprises have significantly less business experience than owners of for profit enterprises.
Figure 3.2.2: Average years of business experience 16.1 19.9 15.8 16.2 15.9 20.2 20.6 19.5 20.4 22.3 0 5 10 15 20 25 All 0 1--9 10--49 50--249 Social Enterprises For Profit Enterprises
Bases: Social Enterprises
All reporting business experience; n=13,867 0; n=501
1-9; n=6,451 10-49; n=5,340 50-249; n=1,575 For Profit Enterprises
All reporting business age; n=3,600,000 0; n=2,200,00
1-9; n=1,200,000 10-49; n=208,951 50-249; n=21,200
These results indicate there is a trade off between accumulating academic qualifications versus gaining business experience. In effect time spent in education is time not spent gaining business experience. To the extent that finance providers value practical business experience more than academic qualifications for profit enterprises may be more successful than social enterprises in accessing finance despite the high levels of human capital amongst social entrepreneurs.
Owner’s age
Age is related to business ownership since it takes time for individuals to accumulate the relevant skills and contacts (and possibly financial capital) required to run a business effectively (see Cressy, 1996). UKSMEF showed that a third of business owners were in the 46-55 age group and only about 14% were aged less than 40 (Fraser, 2005).
Since social enterprises are sometimes started by entrepreneurs with previous business experience (and sometimes funded from the proceeds of previous business success) it may be anticipated that social enterprise owners would be older on average than owners of mainstream businesses. However, in this regard, age comparisons reveal no significant differences in the ages of social enterprise and mainstream business owners respectively (both averaging just over 50 years of age).
Gender
Table A3.14 shows that:
• 49% of social enterprises are majority owned by females.
• This figure is significantly higher than the 25% of mainstream businesses which are female owned.
• Interestingly also, the percentage of female owned businesses increases with firm size amongst social enterprises but decreases with firm size amongst for profit enterprises.
• This suggests that females are most likely to own large social enterprises whereas the converse is true amongst mainstream businesses.
Figure 3.2.3: Percentage of majority female owned businesses 49.0% 37.1% 48.8% 49.5% 51.8% 25.0% 21.1% 32.4% 25.5% 15.0% 0% 10% 20% 30% 40% 50% 60% All 0 1--9 10--49 50--249 Social Enterprises For Profit Enterprises
Bases: Social Enterprises All; n=14,952 0; n=568 1-9; n=6,880 10-49; n=5,883 50-249; n=1,671 For Profit Enterprises All; n=3,596,948 0; n=2,198,039 1-9; n=1,168,758 10-49; n=208,951 50-249; n=21,200 Ethnicity
Table A3.15 indicates that:
• Just over 5% of businesses are ethnic minority owned regardless of business type.
Figure 3.2.4: Percentage of majority ethnic minority owned businesses 5.7% 7.2% 5.6% 6.8% 1.6% 5.6% 4.7% 7.4% 6.1% 3.6% 0% 1% 2% 3% 4% 5% 6% 7% 8% All 0 1--9 10--49 50--249 Social Enterprises For Profit Enterprises
Bases: Social Enterprises All; n=14,952 0; n=568 1-9; n=6,880 10-49; n=5,883 50-249; n=1,671 For Profit Enterprises All; n=3,596,948 0; n=2,198,039 1-9; n=1,168,758 10-49; n=208,951 50-249; n=21,200
Gender and ethnicity are often regarded as further obstacles to obtaining finance. In this context, the evidence in UKSMEF 2004 did not indicate that female owned businesses suffered significantly poorer access to finance than male owned businesses (Fraser, 2005). However there is evidence in the Ethnic Minority Finances Survey 2005 that some ethnic groups, such as Black and Bangladeshi owned businesses, experience higher financial barriers than Indian or White owned businesses (Fraser, 2006).8
8 Fraser (2006) also found that some of the differences in financial outcomes across ethnic minority businesses could
Social enterprises have the capacity to provide social and economic opportunities for disadvantaged individuals thereby helping them to become better integrated into society. In this context it would be expected that disadvantaged groups would be more highly represented amongst social enterprises than mainstream businesses. The analysis indicates that female owned businesses are more prevalent amongst social enterprises than mainstream businesses. This could also reflect traditional female ‘social work’ roles in, for example, care-work and education. However ethnic minority businesses are equally sparse in the respective populations of social and mainstream enterprises.
Summary
Analysis of business and owner risk characteristics in this survey indicates that social enterprises employ relatively more people than mainstream businesses. Also social enterprises are not significantly smaller than for profit enterprises in terms of turnover or business assets. Social enterprises are less profitable than for profit enterprises. However, there are relatively as many high growth businesses amongst social enterprises as there are in the mainstream business population. Regarding business age, social enterprises are older and hence less risky in this aspect than mainstream businesses. However in aggregate, and across size and sector comparisons, social enterprises tend to be situated in more deprived areas than mainstream businesses which may hinder their access to finance.
Looking at personal characteristics, owners of social enterprises have higher levels of academic qualifications than their mainstream counterparts. However mainstream business owners have more business experience than social enterprise owners. In this regard mainstream businesses may appear to be less risky than social enterprises. Almost one half of social enterprises are majority female owned, as against one quarter of for profit enterprises. This may reflect the role of social enterprises in helping with the social inclusion of disadvantaged groups or simply traditional tendencies amongst females to engage in ‘social work’ activities. In any case, female ownership should have no effect per se on credit assessments and previous evidence supports this argument.
Chapter Three: summary of key significant findings: Firm size
• Social enterprises have a significantly lower percentage of businesses with no employees than for profit enterprises (3.8% versus 61.1%). This is very likely to be due to the social enterprise consisting solely of incorporated businesses (CLGs and IPSs).
• However there are no significant differences in terms of either turnover or business assets. Profitability and growth
• The return on assets is significantly lower amongst social enterprises compared to for profit enterprises (70 pence and £2 per £1 of business assets respectively).
• However the percentage of high growth businesses is similar between social enterprises and mainstream businesses (13.6% versus 10.8% respectively).
Sector
• Social enterprises are most heavily concentrated in Health and Social Work (32.7%). This is significantly higher compared to for profit enterprises (4%).
• Social enterprises are also heavily concentrated in Other Community, Social and Personal Services (21.5%). Again this is significantly higher than the corresponding figure amongst for profit enterprises (8.1%).
• For profit enterprises are most heavily concentrated in Real Estate, Renting and Business Services (36.6%) which is significantly higher than amongst social enterprises (19.5%).
Business age
• Social enterprises are significantly older on average than for profit enterprises (27.2 years versus 18.5 years).
• The percentage of start-ups amongst social enterprises is significantly lower than amongst for profit enterprises (0.6% versus 6.8%).
Deprivation
• Social enterprises tend to be situated in areas which are more deprived (i.e., they have a significantly lower mean deprivation rank score) than the areas in which mainstream businesses are situated.
• Across size groups, small social enterprises (no employee and 1-9 employee size-bands) tend to be situated in significantly more deprived areas than small mainstream businesses.
• Across common sectors, social enterprises operating in business services and health and social work tend to be located in significantly more deprived areas than their mainstream counterparts.
Geographical distributions
• The region which is least densely populated with social enterprises is the East Midlands with a share of 3.2%. This is significantly lower than the percentage of mainstream businesses in the region which is 6.0%. • Yorkshire and Humberside also has a significantly lower share of social enterprises than mainstream
Human capital
• 23.6% of owners of social enterprises have a postgraduate qualification which is significantly higher than the corresponding 9.6% of owners of for profit enterprises.
• 21.7% of owners of social enterprises have an undergraduate qualification which is significantly higher than the corresponding 13.0% of owners of for profit enterprises.
• 2.5% of owners of social enterprises have no academic qualification which is significantly lower than the corresponding 14.9% of owners of for profit enterprises.
• However, owners of social enterprises have on average 16.1 years of business experience which is significantly less than owners of for profit enterprises (20.2 years).
Ownership
• 49% of social enterprises are owned by females.
• This figure is significantly higher than the 25% of mainstream businesses which are female owned.