‘I can’t say it was the easiest journey for me but I’m sure it wasn’t easy for them either.’
June O’Sullivan, CEO of leading childcare social enterprise, London Early Years Foundation
(LEYF), reflects on her initial attempts to modernise the organisation.
When O’Sullivan arrived in 1996, LEYF was Westminster Children’s Society, a charity formed in 1903, running nine small nurseries supported by block grant from a local authority.
As operations manager, O’Sullivan was originally appointed to modernise the organisation and prepare it for the new era heralded by OFSTED inspections but – on becoming chief executive in 2005 – she was determined to take on the far bigger challenge of turning LEYF into an independent, sustainable trading business.
She comes across as an unusual combination of hard-as-nails business strategist and socially-focused head of a large, happy family committed to delivering the best possible start in life for thousands of children – particularly those living in the most deprived areas.
The shift to social enterprise
‘I was determined to move us away from the charitable model. I really didn’t like it at all. I didn’t want to ruin the ethos and the fantastic history the organisation had but I didn’t feel that if we were to rely on our charitable status we would survive.’
O’Sullivan saw that the funding being pumped in the childcare sector by the then New Labour government couldn’t carry on forever and she was determined that her organisation would be able to continue to deliver without relying on subsidies:
‘To me the method of doing business was also a means of solving the problem. If I could reconfigure this organisation in a way that would allow us to support more children from poorer areas in a sustainable way – by creating the right fee structure and a community focus – we could shape a new way of doing business in the childcare sector which could have a bigger and better social impact.’
The organisation was heavily dependent on a regular grant from London Borough of Westminster. For O’Sullivan this presented several problems:
‘Firstly, it’s a grant from a local authority and therefore it’s not guaranteed. Secondly, it positions us in one local authority so all our eggs are in one basket – you can’t have a business model based on that. At the time were we earning 40% – at the maximum – through parents paying. That means we were dependent on grants for 60% of our income. That was too scary.’
The big challenge was to make the organisation a sustainable business while continuing to provide an affordable service, with free places for parents who couldn’t afford to pay anything:
‘If I was going to make the business successful, I had to grow it. I had to create economies of scale. We had to have a more powerful position in the childcare market.
Our business model is quite simple: increase occupancy; increase revenue; reduce costs. That’s it. It’s what you have to do.’
That’s one thing in theory but another in practice: ‘You might think that sounds very easy but you’re talking a whole cultural shift there– because our staff were completely worried that this would mean that we wouldn’t be able to help the poor and we wouldn’t be able to support people in disadvantaged areas.
‘What I had to explain to them is that we had to balance the business model so that you had a level of cash cow and a level of mixed-market – which is our majority – and that way we would actually be producing enough profit to give many more children a free offer. We now provide one third of children with some level of (financial) support.’
This process took place over several years, complemented by re-branding of the charity Westminster Children’s Society into the social enterprise, London Early Years Foundation (although the organisation retains its charitable status).
For O’Sullivan, the gradual process was important, both in terms of reassuring staff about change but also to make sure that the changes being made were the right ones. As she explains: ‘I’m a bit of a researcher. I like to do a lot of digging, exploration and thinking before I do something. Maybe that means that you slow the process down but I think preparation is more likely to bring you luck than luck just presenting itself to you.
‘When I reflect on it, we had to do the first thing first. We had to reshape the business, think through our business model and test a few iterations of it while we were small enough to do that without causing distress.’
The next stage of growth
LEYF now generates 100% of its income from trading. It has 23 nurseries in five London boroughs and moves into a sixth in September. Its annual turnover has increased from around £2m when O’Sullivan arrived to £8.5m now.
After several years of growing organically, LEYF is now looking to enter a phase of planned growth – and has been receiving support from the social investment charity The Social Business Trust (SBT). O’Sullivan sees this as another opportunity for the organisation to lead the way:
‘There’s quite a lot of talk in the sector about social investment but it hasn’t translated into a lot of money flowing into the sector to allow the growth and repeatability that I’d like to see. I’m hoping that LEYF will be able to lead on some of that stuff,’ she says.
‘The work with SBT has been very helpful for us. How they do it is that, to begin with, they’ve given you in-kind support by giving us a company – in our case Bain – to work with us on our growth strategy – to stretch it, pull it apart, unpack it, debate it and reassemble it with us.’
O’Sullivan aims to see LEYF running 50 nurseries in up to 15 London boroughs, with a turnover approaching £50m. As with the initial shift from a charity to a social enterprise model, delivering further growth is a process that needs to be carefully managed:
‘We have 350 staff and to make sure that every single one of them gets it, you have to use as many creative methods of communication as is possible – and that takes time and effort.
‘I think with my staff the fear is that we lose the family feel – the warm, friendly connection – as we grow. So what we’re having to do is make sure that we’re growing in a way that confirms and solidifies that family in a repeatable way.’
Who gives a damn about social enterprise?
O’Sullivan is convinced that there’s a growing space for social enterprise in the childcare market and although she doesn’t see LEYF expanding beyond London, she would like to see similar organisations in other cities in the UK, and elsewhere in Europe:
‘I always believe that if you get it right in London it’s very replicable and it’s very repeatable across the country because London is such a microcosm of every aspect. We want to be the leading social enterprise in childcare but I don’t want to lead on my own. I want to lead and then find that other people want to follow.’
This is part of the reason why O’Sullivan is frustrated at what she sees as the failure of the social enterprise movement to make an impact on the public consciousness. She explains: ‘I can tell you now that not one of my 2,000 parents who comes in here every day even notices, cares or gives a damn about social enterprise. They’re surprised when we tell them that we do good stuff but they choose our nursery because it’s a good nursery.
‘What we have do is get the public to understand, like the Fairtrade argument, that if you choose a nursery that’s provided by a social enterprise, that you’ll get the best childcare, you’ll get all the services you get in the private sector and more, but that also your fees are helping to improve things somewhere else. That’s the message that we as a sector need to get out there. We are absolutely failing to do that.’
I suppose Peter Holbrook (CEO of Social Enterprise UK) would be saying, ‘You know, June, we’re out there trying to do it’ and of course he is – but I do feel that those of us who are so-called ‘big’ could be used more effectively, with a coherence to argue and to promote our own businesses but also the way we do business.’
O’Sullivan is confident that the current economic and social climate is a good one for social enterprise: ‘Many of my younger staff coming to join us now are much more interested in doing good. I think they’re exhausted by the puerile nature of celebrity culture and the destructive forces of pure capitalism – which is doing them absolutely no good whatsoever.
‘So I think there is an appetite – and it’s time to capture it.’
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