The School for Social Entrepreneurs (SSE) has been a hotbed of talent and fresh thinking since its foundation by Michael Young in 1997. Its latest innovation, Match Trading®, draws on this experience and is attracting interest from across the social sector and within the corridors of government. Match Trading is brand new type of grants programme that matches pound-for-pound the year-on-year growth in trading income of participating organisations. Participants also benefit from a bespoke learning programme and a peer-to-peer support network, designed and delivered by the SSE’s network of regional schools across the UK. The results to date look extremely promising.
By rewarding sales growth in this way, Match Trading seeks to incentivise social enterprises to develop their trading base and reduce their dependence on grants. Of course, the very term “grant dependence” is source of contention for some. Treated as a term of abuse little better than drug dependence, they worry that the lure of free money will hook organisations into a downward spiral of disempowered reliance on benefactors who might walk away at a moment’s notice.
But this analysis over-simplifies. In some of the toughest parts of the country there is simply not enough free cash in circulation to support a trading model. Nor are all social causes naturally suited to income generation. There will always be a role for philanthropic grants and voluntary donations. Moreover, Match Trading is emphatically not about trading for trading’s sake. It is about power. Every pound of earned income is a pound of unrestricted income. It is a pound that the organisation can spend on its priorities, not on the whims of its funders or anyone else.
The Match Trading programme was developed with support from the Esmée Fairbairn Foundation and Rank Foundation. The programme is overseen by a Task Force, chaired by Carol Mack from the Association of Charitable Foundations, and made up of more than 20 other social-sector organisations including Barrow Cadbury, Power to Change, Social Enterprise UK, Social Investment Business, the Office for Civil Society and Access – the Foundation for Social Investment. As a member of this Task Force from the outset, I have been delighted to watch the programme grow.
It is notable that the first two funders to sign up to running Match Trading schemes, Lloyds Banking Group and Power to Change, are both non-traditional funders with a strong commercial outlook. (They have since been joined by the Rank Foundation, Guy’s and St Thomas’ Charity, Access and the Scottish Government.) As Director of the Power to Change Research Institute, I took a particular interest in the “Community Business Trade Up” (CBTU) scheme run by Power to Change and SSE. Unlike the Lloyds Banking Group scheme, which is supported by the National Lottery Community Fund and limited to a £4,000 match, CBTU offers participating organisations up to £10,000 in the form of an initial, unconditional grant of £2,000 followed by four quarterly payments of up to £2,000 matched to their trading performance.
Match Trading is emphatically not about
trading for trading’s sake. It is about power.
What really marks the CBTU scheme from the other currently-operating Match Trading schemes, however, was a decision made at the outset to create small “control cohorts” alongside the main “Match Trading cohorts”. Organisations in these control cohorts receive the same learning package and peer-to-peer support but their £10,000 grant is paid out in full without condition. In other words, they were excluded entirely from the assumed incentive effect of the grant.
This sort of experimental approach to grantmaking is sadly far too rare in the third sector. Setting aside a control cohort in this way allows funders to be more confident about the real difference their support makes, as opposed to changes that might have happened anyway – the so-called “counterfactual” problem. For example, a naive analysis of CBTU might conclude that participants who received matched grants saw their income from trading increase by a whopping £19,457 year-on-year. However, since those in the control group also saw their trading income increase, albeit by a more modest £6,453, the real increase is arguably closer to £13,000.
In fact, looking at raw trading income is probably not the best measure for a programme like Match Trading, which seeks to reduce grant dependence. A better metric is the organisation’s “trading ratio” (ie. the ratio of income from trading to total income). This is one of the factors that Power to Change considers, for example, when assessing applications to its main Community Business Fund. On that basis, the performance of the control cohort actually worsened year-on-year, whereas the Match Trading cohort improved, with the difference between the two at least 11 percentage points. So we now have substantial evidence that Match Trading does indeed appear to reduce grant dependence.
| Cohort | Average Trading Ratio Change | 95% Highest Density Interval | |||
|---|---|---|---|---|---|
| Mean | Median | Mode | Low | High | |
| Control | 7.3 | 7.27 | 7.45 | 2.04 | 12.76 |
| Match Trading | -4.71 | -4.65 | -4.76 | -13.85 | 4.4 |
| Difference | 12.01 | 11.91 | 11.47 | 1.47 | 22.83 |
| Effect size | 0.53 | 0.53 | 0.52 | 0.06 | 0.98 |
Effect size: 0.2 = small, 0.5 = medium, 0.8 = large
However, the advantages of adopting an experimental approach do not end there. With good data collection it becomes much easier to go beyond simple topline statements into a more nuanced evaluation of scheme effectiveness. For example, it is straightforward to explore the “leverage” of Match Trading grants (ie. the ratio of additional income from trading to total grant income) by the different locations of SSE’s schools.
| Cohort | Location | Cohort size | Mean leverage | Median leverage |
|---|---|---|---|---|
| Control | London | 20 | 1.28 | 0.98 |
| York | 10 | 1.77 | 0.58 | |
| Match Trading | Cornwall | 8 | 1.49 | 1.36 |
| Dartington | 8 | 3.47 | 2.43 | |
| East | 6 | 2.63 | 2.6 | |
| Hampshire | 8 | 1.27 | 1.11 | |
| Liverpool | 23 | 3.2 | 2.47 | |
| London | 18 | 3.76 | 2.38 | |
| Midlands | 8 | 2.33 | 1.66 | |
| York | 12 | 5.41 | 1.35 |
It is of course important not to over-egg the impact of Match Trading or to suggest that social organisations only respond to base financial incentives. As Alastair Wilson, CEO at SSE, notes:
“Match Trading grants work best when they form part of a learning programme. The supportive environment helps develop the entrepreneur’s skills, confidence and an entrepreneurial mind-set, whilst the Match Trading grant empowers and incentivises the organisation to upscale their trading potential. The Match Trading grant is not a magic bullet and should be viewed as one way of helping organisations become less grant dependent. Social enterprises need a range of income sources, from funding to trading, depending on their business model, stage of growth and sustainability plan.”
A particular risk for Match Trading is that the incentive to increase sales growth might come at the price of long-term sustainability. As they like to say on Dragon’s Den, “turnover is vanity; profit is sanity”. That is why the Power to Change Research Institute will continue to keep an eye on former CBTU participants and report back in its biennial Impact Reports.
SSE deserves to be roundly congratulated for Match Trading: for its innovation in developing a novel and highly successful grants programme, and for its courage in agreeing to an experimental approach that could have shown the programme was a failure. We need more of both in the third sector and we need more trusts and foundations willing to step up to the challenge.
| Note: All figures in this article are based on data from the Power to Change Community Business Trade Up scheme in 2017 and 2018. Data for 2019 is still being collected and the Research Institute expects to publish a revised analysis in its next Impact Report, due in summer. |
This article first appeared in Issue 121 of Trust & Foundation News (April 2020).