Between 2001 and 2011 the charity sector’s income grew from £31bn to £41bn a year. Not through fundraising or grants, or legacies or investments, but through commercial trading. Public donations are fundamental to the sector, but over that decade, they fell from a third to a quarter of our income. Despite the public perception, the charity sector now makes over half its money by selling stuff.
For most charities, behind the social mission, charitable aims and armies of members and volunteers, there’s a business engine, operating in a competitive market, trying to make enough money to pursue its purpose and pay its people. It’s important to recognise it, because something quite dramatic is about to happen to those markets. Over the next five years, three big waves will crash together.
First: the new government has a mandate to cut spending by up to £12bn, some of which will come straight out of our markets. That will drive up competition and put pressure on prices, so if you’re struggling to break even with services already, it’s about to get a whole lot harder.
Second: they will open up more spending to the market, in areas like health, social care, justice and education. That will create big opportunities, but in practice it won’t be easy; it could mean signing up with, or going head to head against, some big corporate players.
Third: the people who will be spending that money will change. Budgets will devolve to regions and increasingly local groups, and in some cases, to the individual users. Selling a big contract to a national commissioner is a whole different ball-game to marketing a service to a hundred thousand members of the public.
The landscape that is providing us with 55% of our income, is about to fundamentally transform. There will be big, strategic decisions for CEOs and Boards to make, not just in terms of profit, but also of principle. There will be new areas where we can generate income and impact, new opportunities to bring in money that delivers our mission. But there will equally be pressures to join collaborations as the token charity, to fund gaps as the state retreats, to chase income that’s increasingly removed from our aims and capabilities.
These are complex issues to navigate, but here are two simple pieces of advice:
First: stop worrying about “diversifying income”. It’s great advice for investments; it’s terrible advice for business. You need to focus on those things that you can be the very best at, where you think you can make decent money, and that will help you deliver your mission. Then concentrate your energies on getting recognised, and valued, as world class at them.
Second: get clear in your own minds: what is your role in meeting the unmet needs of your beneficiaries in the landscape of other players? What is the social problem you’re solving? Are you there to make up the numbers, raise the bar or do something unique? Here’s what I mean:
Scope, was founded in 1952 as The National Spastics Society, by three parents and a social worker, who wanted disabled children to have equal rights to an education. Three years later, they opened a school, not because they wanted to compete with others doing it, but because nobody was doing it, and it needed to be done. Go back to the roots of almost every great charity and you’ll see the same pattern. Great charities are pioneers. They are at their very best, not when they’re competing to do things others can do, but when they’re finding ways to do things that no one else will.
Bottom Line: Work out how you can make money doing that, and you’ll never need to worry about the competition again.