Mission driven takeover?
An excellent recent piece by Jon Huggett in NPG looks at an unusual experiment in social investment: the takeover of a large commercial childcare chain and its transformation into a successful non-profit.
So far the experiment seems to be working and is instructive for others balancing different organisational models in fields involving care.
ABC was a very big and very visible player in Australian childcare. It committed to rapid growth; raised a lot of capital; and talked a good talk. But its business model depended on continued growth and higher margins.
Instead, because care doesn't bring many economies of scale of the kind you find in retail (most of the costs consist of low wages already at minimal levels, and property) the profits didn't materialise. Like so many businesses it accumulated excessive debts and drowned in its inability to generate enough cash to pay these off.
A group of social investors and philanthropists then put together a consortium and plan to take the chain over.
ABC became Goodstart which described its work as providing early learning rather than just day care. Social goals took precedence over commercial growth.
Goodstart benefited from some detailed advantages, for example, employment taxes are lower for non-profits than for-profits in Australia. It also had some generic advantages: crucially, it was easier to ask for help and volunteering as a non-profit, and parents probably found it easier to trust.
Importance of Not-For-Profits
I've written before (and in my latest book) on:
a) how often relational and care businesses don't have economies of scale comparable to commodity production,
b) how many social organisations are better at generating commitment and trust than commercial ones, and
c) how they avoid the exploitation endemic in asymmetric relationships, such as those between doctors and patients.
As a result, genuinely open markets in fields like health and care don't turn out to favour for-profits as much as expected (unless they are primarily selling to a not-for-profit intermediary like a school or hospital). If they do grow for a period selling direct to customers, scandals often ensue (for example, as a result of overselling in health, or degrading qualifications in education).
The other message of the Goodstart experience is that there may be significant opportunities for non-profits to buy out failing commercial businesses.
There's been a fair amount of discussion of this over the last few years, but not enough capital or management experience to make it happen.
The recent Co-op failure to buy a chain of high street banks hasn't helped, and the market isn't really mature enough. But watch this space: we should expect to be surprised. After a long period when both mutual and public organisations moved into the private sector, the dynamics are now a lot more complex, and interesting.