Why Australia’s start-up scene is getting social
The business world is littered with inspiring tales of entrepreneurs who, through their innovation and hard work, overcame humble beginnings to strike it rich.
The motivations for doing so are varied, from the desire to become comfortably well off to the sheer thrill of building a successful business from scratch that creates employment for others and satisfaction to customers.
Often, it’s a combination of things. But, increasingly, entrepreneurs are creating businesses driven by altruistic goals.
According to a recent report, rising prosperity has bred a generation of entrepreneurs who don’t class making money as the prime driver for going it alone.
The research, by Harvard economist Ignacio Mas and entrepreneur David del Ser, found that the global financial crisis has driven more people, especially in finance, to launch social enterprises – profit-making businesses with a social mission.
“As prosperity, money and happiness become more de-linked, and people search different avenues to give purpose to their talents and toil… Few now think that banking salaries, bonuses and investment returns correlate with socio-economic contribution in any meaningful way,” states the report.
“Many investors and finance professionals are therefore eager to bring back a sense of socio-economic contribution that is distinct to dollar-based measures of investment success.”
What is social entrepreneurship?
Social entrepreneurs come with fresh business ideas and innovative answers to social problems, producing business models that tackle everything from poverty to homelessness.
It’s a movement that has taken off around the world, from Melbourne to Mangalore.
One of the most famous examples is Muhammad Yunus, the Bangladeshi founder of microfinance bank Grameen, and winner of a Nobel peace prize.
But running a social enterprise is a challenge. It’s hard work and social enterprises typically don’t grow very quickly.
In the traditional business world, successful entrepreneurial firms build quickly with scalable management models and quality control systems.
They offer products and services that everyone wants. Social enterprises are on a tougher road.
Many are stuck in start-up mode. Social entrepreneurship has yet to produce an Apple or a Google.
How do social entrepreneurs reconcile the need to make a profit with their social mission? Which is more important?
Fundamentally, social enterprises have to be run as a business. They’re not charities. Otherwise, they won’t last.
Harsh business realities
Shane Thatcher, who owns Illumination Headquarters, says that having a worthy aim doesn’t shield a social enterprise from the harsh realities of running a business.
Illumination is a Melbourne-based social enterprise that sells cheap solar lights for people in Third World countries.
It has clients in Tanzania, Malawi, South Africa, Kenya, Uganda, Nigeria, Ghana, Senegal, Indonesia, Philippines, Pakistan, India and Cambodia.
The business was recently listed in the StartupSmart Awards top 50, with revenue of $372,000 last year, following its launch in 2010.
The business aims to provide people in these countries with an alternative to spending all their money on kerosene, which is expensive and often unaffordable.
“A lot of the mechanics of doing business are just the same as any other business,’’ Thatcher says.
“Once you get it rolling, it’s similar to any other business. A lot of those issues, like logistical issues, are just like what you get in a normal business.”
“Just because you have an altruistic goal, it doesn’t get rid of all the other junk that comes with it.”
On a mission
Thatcher, an economist, set up Illumination two years ago with Liz Aitken and Nick Barr.
He says the company board is committed to the program, which makes it easy to blend the social mission with the business purpose of selling solar lighting.
“To be honest, it’s so ingrained in the business that it’s not that difficult,’’ he says.
“We only bring products on that are actually going to help people.”
“So if someone came along and said you can go and make landmines and we’ll give you millions of dollars, none of the shareholders would approve it anyway and the board wouldn’t approve it.”
“Any product that we plan to bring on over the coming 12 months will have to have the same ethos. It has to be of economic benefit to people and it can’t be damaging to the environment.”
The big driver of the business is simply to make a difference.
“I have been back to where our first lights went out over two years ago and I went to meetings in a village where they got the lights and 50 people turned up to say thank you. They said things like, ‘I have had this cough for 10 years, now I don’t have one’.”
“Our shareholders aren’t in it to make money but to make sure people get our solar lights and to do environmental good as well, although we hope ultimately to make money.”
Normally, entrepreneurs are looking to drive up the value of their enterprise. That’s not always the aim of the social enterprise. Doesn’t that slow down their growth?
Thatcher says it actually works the other way, pointing out that most businesses operate in competitive markets that are flooded with their kind of products.
“There is not a lot of room in their market and they have to move somewhere else,’’ he says.
“But for us, there are still one-and-a-half billion people that use kerosene lights so our market is a long way from being flooded.”
“At some point, those pressures will come but it’s a long way off because the market is so untapped at the moment.”
Jesse Bridge, the hospitality service manager at Charcoal Lane, says balancing the mission of the business with the need to grow revenue is a challenge.
The restaurant – named after an Archie Roach song – is located in a 150-year-old bluestone building in the Melbourne suburb of Fitzroy. Run by Mission Australia, the restaurant sits 70 people.
It runs a training program for disadvantaged youth that gives them skills and helps them find jobs in the hospitality industry. All the profits go back to Mission Australia.
“At times, you want the business to be the focus because you want to generate income and you want to generate revenue so that the business can be more profitable and you can divert money into their programs,” Bridge says.
“But there are times when you need to swing that see-saw back the other way so that the focus is on trainees, because, realistically, without the trainees and the greater social purpose and social enterprise, we would be just another restaurant and that’s not what we are here for.”
Putting profits second
The primary driver of the business is to give young people who have few social and work skills the ability and know-how to make relationships for the first time in their lives and find a place in the workforce.
Making a profit is not what gets management up in the morning.
“None of us are here because we want to make money,’’ Bridge says. “If we were after that, we would go somewhere else.
“We are here of the greater purpose of working in a social enterprise business model for Mission Australian. It’s to empower those trainees, to give them the skills to move forward with their lives and careers.”
Other social enterprises target niche markets.
Brunswick Industries, which was started in 1972 by the Mount Royal Hospital and Brunswick Rotary, provides employment and training opportunities for the disabled.
While government funded, it operates two businesses, one producing wall lights and the other making lap top covers.
Brunswick Industries HR manager Lisa Ryding says: “We can’t compete with commercial operations. Our production is not as quick, but we have found a niche market with business just starting.”
“They want to give us work. These are businesses that only need small quantities. The big guys won’t touch them.”
Keeping good business principles
Some socially-led businesses need to expand quickly. One is Streat, which runs four cafes in the inner suburbs of Melbourne and a coffee roasting business.
Streat, which has been running since March 2010, takes in street kids, attends to their problems and provides training and qualifications in the hospitality industry.
Graduates from the six-month program have ended up working in restaurants and cafes.
Streat was set up by Rebecca Scott and psychologist Kate Barrelle.
Scott says the big driver for the business was exasperation with the growing levels of homelessness in a country as prosperous as Australia.
“It sounds bad being motivated by anger, but I was angry that in such a country like ours, where we are so prosperous, that we have tens and tens of thousands of young people sleeping on our streets every night,’’ Scott says.
“How can we live in a country like this where every census the numbers get bigger and bigger? We have had homeless people in this country since it started, but the numbers are going up.”
While the purpose of Streat is social change, it is primarily a business.
“Each individual café site has to be profitable in its own right. It has to run competently like any other business,’’ she says.
“It needs to be running as a good, well-managed business that is profitable and serving hundreds and hundreds of customers every day.”
The difference is that under the business model, the profit is put back into Streat programs.
“If you went into one of our café sites, it would be like any other café. But the difference is that 100% of the profits is being reinvested to make sure our young people get the opportunities they need,” she says.
“Naturally we have a whole bunch of overheads that any other business doesn’t have.”
“The café we are competing with right next door doesn’t have a clinical psychologist, it doesn’t have youth workers, it doesn’t have a whole bunch of homeless young people who need a high degree of support; so we need to be able to scale the enterprise to make sure there is enough profit that pays for all of those support costs.”
Race to scale
She says the business needs to expand to create the economies of scale that would pay for the services.
“We probably need about eight profitable sites before the sites are paying for those extra support costs,’’ Scott says.
“We have five great businesses at the moment and we are looking to expand that and looking for other café opportunities around inner Melbourne.”
She says some could be greenfields sites or, in other cases, Streat could take over from café owners looking to exit their business.
“We have taken over other people’s cafes that they have wanted to sell or get out of. We will assess those sites and say, ‘Yes, we think we can turn them into social enterprises’. We will either find new sites or do acquisitions where they work for us.”
Karen Mahlab, who runs Pro Bono Australia, says the big mistake social enterprises can make is to forget their social mission and start focusing just on making money. That defeats the purpose of the exercise, she says.
“Sometimes your driver to get the sustainability part can override your measurements around your social purpose,’’ Mahlab says.
“The mistake is when commercial viability in dollars gets more focus than the non-commercial deliverables, which is why you set it up in the first place.”
“I think the tail starts to wag the dog. You need to be financially successful. But with the aspects of financial success, the measurements around that are easier than the measurements around your social purpose.”
The social buzzword
Nonetheless, it has to be run as a business.
“There needs to be a robust value underneath for the product or service that the social enterprise is delivering, meaning people have to pay for it ultimately,’’ she says.
“The product you’re delivering has to be sustainable in the long term.”
“I think that social enterprise has become a great buzzword, but they’re micro businesses, whether they sit under the auspices of the not-for-profit organisation or they sit under their own power. They still have to be, in the end, financially self-sustaining.”
Pro Bono Australia, which has been running for 12 years, works as a hub for businesses wanting to engage in the non-profit sector. If a company wants to start a volunteering program, it will turn to Pro Bono Australia.
Mahlab says combining the business and social missions comes down to integrity.
“It’s been a fairly intuitive journey to be authentic around the products and services we deliver so that people see value in them in a tangible way,” she says.
Significantly, all the social enterprises here talked about growth. They are determined to move out of the start-up phase, just in a slightly different way to other businesses.
Three key social enterprise tips:
- Be clear about your social mission.
- Make sure you have feedback loops around both your social mission and your business drivers. Measure both.
- Avoid getting distracted by money or expecting rapid growth.