The business of change

Philanthropy has always been about making the world better and fairer, and has traditionally involved grants to charities and non-profit organisations. It is about people of good fortune giving to the chronically disadvantaged and those in acute need.

In a world where governments cannot and should not seek to ameliorate all social ills, charities and non-profit organisations are providing support for many marginalised and vulnerable people.

In recent years, there has been an evolution in philanthropy - the rise of the social enterprise. A social enterprise uses business principles to run organisations that generate not only socially and/or environmentally beneficial outcomes, but revenue.

Many social enterprises, though, are too small or inefficient to be financially sustainable, and so continue to need grants and donations to survive. They are not charities, but they are close cousins. They are, so far, organisations that cannot exist without philanthropic support or perpetual fund-raising campaigns.

There will always be a need for charities - some problems necessitate giving people direct assistance - but it is tantalising to think of how many people could be aided by commercially robust organisations with a social purpose.

Today's guest in The Zone is a woman with a background in serious business consulting who is trying to extend the evolution in philanthropy to an uncharted place.


Bessi Graham is a driving force in a new organisation called The Difference Incubator, which is seeking to create what she calls investable social enterprises. The full transcript of our interview, and a short video statement by Graham, is at

The main idea of The Difference Incubator is to help social enterprises become financially viable to the point at which they can access capital from investors and traditional financial institutions, rather than struggling to survive by continually fighting for the limited funds distributed by philanthropists and governments.

''The incubator is about providing an opportunity to tap into private capital for public good, and we can only do that if we have organisations in the social space that can deliver a social and financial return.''

The Difference Incubator grew out of Melbourne-based Donkey Wheel Charitable Trust, which, like other philanthropic organisations, invests a corpus (a pool of capital) in shares and other financial assets to generate income that is then distributed as grants to charities, non-profit outfits and social enterprises.

''The feeling of the trustees of Donkey Wheel was that that was a strange approach. If you are investing on the stockmarket, you're trying to get the best financial return you can, which means often you'll be investing in organisations that are either creating or at least exacerbating some of the social problems you are trying to solve through philanthropic granting.''

The trustees wanted to be able to invest in some of the organisations to which they were giving grants, so Graham and Donkey Wheel chief executive Paul Steele came up with The Difference Incubator.

''One of the things that tends to happen here in Australia is that social enterprise does still sit in that not-for-profit category of being predominantly grant-reliant. So there is some kind of trading activity, but often it's a small piece of, and almost a token aspect of, what they're doing and they are still grant-reliant in an ongoing way.''

Graham believes there are too many charities and non-profit organisations in Australia. ''Creating more and more individual small organisations is not the answer.''

There are more than 600,000 non-profit organisations, including charities, in Australia. That is one for every 38 citizens. The sector employs almost 15 per cent of the workforce and each year generates more than 5 per cent of national economic output. But the average funding of such organisations is only $800,000, about two-thirds of the turnover of a typical 7-Eleven store.

One of the problems is that each organisation has to divert scarce funds to running costs like accounting and human resources bureaucracy and legal compliance.

''One of the things that we are quite keen on doing within the incubator is finding ways to actually be more efficient and effective, particularly when you're dealing with grant money.

''It's a limited bucket of money, and when you have multiple organisations doing the same thing but all requiring administrative staff, back office and the like, the costs associated with operating as a separate entity mean that you drain funds that could be otherwise spent more effectively.

''Having some organisations focused on the same thing coming together would be fantastic. What we would love to see is organisations that are more effective at achieving their social outcomes.''

A lack of access to capital is one of the biggest impediments to the growth of social enterprises. It is a problem Graham believes The Difference Incubator can solve.

The Sidney Myer Fund has recently also backed The Difference Incubator, providing funding for a two-year experiment in helping social enterprises become financially viable without grants.

Previously, Graham and her colleagues would provide social enterprises with one-on-one assistance to develop their business. The Difference Incubator is leveraging that knowledge by running programs for many selected enterprises simultaneously.

''We couldn't keep doing hours and hours with each organisation to build their business model. So last year we began testing doing that with multiple organisations at once. The result is 10 times better for them and obviously much more effective for us.''

To attract capital from private investors, philanthropic funders and financial institutions, social enterprises need to offer an annual return of about 7 per cent. So, what sort of social enterprises have been selected?

One is STREAT, an organisation that trains homeless, chronically unemployed young people in catering and hospitality. Those young people are then given jobs in the cafes and coffee carts that STREAT owns.

STREAT is set to receive a second round of investment, and is on track to return around 7 per cent on the initial investment of $300,000.

Another is Streamlined, which is creating accounting, legal and administrative systems for non-profit organisations, charities and social enterprises. Graham believes this will not only save such organisations a lot of money, but also will generate a robust profit.

Melbourne's bustling Kinfolk Cafe, which is staffed by volunteers and directs 100 per cent of its profits to four development programs in Australia and offshore, has received guidance and support from The Difference Incubator.

So, too, has Green Collect, an organisation that recycles office material that would otherwise be dumped as landfill. Green Collect gives jobs to the long-term unemployed.

Another is WattElse, a Queensland-based solar energy company The Difference Incubator wants to help expand throughout Australia.

An indication of the potential of The Difference Incubator to help social enterprises attract capital is the partnership the organisation has developed with NAB. ''There is a great alignment between the work they are doing, particularly the teams focused on microfinance and bringing those in Australia that are not typically given assess to the banking and financial sector. The pipeline that we're building and our kind of strategy and approaches fit perfectly with theirs.''

The greatest form of social justice is a job. Business is the greatest generator of jobs. By helping social enterprises rigorously and professionally apply business principles, The Difference Incubator is helping forge the future of philanthropy - a fresh, innovative way to solve social and environmental problems, as well as creating work, much of it for people who otherwise would be forced to rely on charity alone.



Comment are now closed