Friends Deliver a Feast of Merit

A group of friends – including a young entrepreneur with a high-profile social sector father – is successfully delivering enterprises and campaigns to fund programs in Africa and Asia, as journalist Nadia Boyce discovered in this week’s Spotlight on Social Enterprise.

Not for Profit YGAP runs creative fundraising campaigns and operates social enterprises – including its flagship Richmond restaurant, Feast of Merit – to raise money for its social impact programs empowering entrepreneurs in Asia and Africa.

I meet co-Founder Elliot Costello inside Feast of Merit, where he orders a hot chocolate and offers to turn the music down so we can chat.  

Mid-morning, the cosy restaurant is the picture of success – elegantly rustic and filled with the murmurs of customers.

Costello has social change in his DNA. His high-profile father, Tim, is the current CEO of World Vision Australia. With his team, he has built an organisation that is now more than any one person, and indeed, more than the ten friends who started it.

In 2008, Costello and those friends were looking to volunteer overseas, but were disenchanted with the “exorbitant fees” charged by many volunteer organisations and intermediaries.

Deciding to cut out the middleman, the group built two partnerships with organisations in Malawi and Ghana, and raised a staggering $134,000 in two and a half months. Soon, more friends, family and university colleagues wanted to get involved and the group created YGAP as an umbrella organisation for their efforts.

Today YGAP runs a suite of successful social enterprises and campaigns to fund programs in Bangladesh, Cambodia, Ghana, Malawi and Rwanda.  

Sitting in the restaurant that has funded his vision, Costello is passionate and engaging in sharing his thoughts – about the importance of embracing risk, the future of the charity model and his vision for Australia’s social enterprise sector.

Tweaking the Charity Model

A desire to be different (and some red tape difficulties along the way) was what initially led YGAP away from the traditional models of philanthropy and down the social enterprise path.

“I say with all honesty that traditional forms of fundraising work really well for most NFPs and we applaud obtaining Government funding. But for us, a young, agile Not for Profit, we didn’t want to be just another NGO out there with their hand out,” Costello says.

Obtaining DGR status for small Not for Profits working overseas was also expected to be a difficult process, involving the Department of Foreign Affairs and Trade, Costello says – and so, a path deviating from traditional philanthropy seemed the logical option.

Kinfolk, a now-independent cafe set up in May 2010 to fund YGAP’s work in Africa, was the organisation’s first experiment with social enterprise, inspired by Mohammed Yunus, who Costello describes as “the godfather of social business”.

“That began a journey as to how we could identify ourselves as different and build alternative revenue streams,” he says.

Today the organisation has two clear pillars of funding – its creative fundraising campaigns, including 5 Cent and Polished Man, and its social enterprises.

Each pillar does its part in contributing financially. Turnover is higher with the social enterprises but profit is higher with the creative fundraising campaigns.

The organisation’s social enterprise arm, including Feast of Merit, now accounts for roughly 70 per cent of fundraising, on a turnover basis.

“On a profit basis, it’s a lot more marginal…We work off about a 10-15 per cent profit margin, and thats quite good for hospitality,” Costello says. “But when you’re talking about a 15 per cent margin on a $3 million asset, the actual profit on our creative fundraising campaigns is a lot higher.”

“When you look at our creative fundraising campaigns, we stuck $20,000 into the campaign and made $233,000 dollars. Your margins are a lot stronger. That’s why we’ve got a dual focus, as we grow each we can have more impact with our campaigns, but we’re building sustainable businesses with those social enterprises.

“Hospitality is a strategic choice. It is a very marginal game, it is a very fickle game at times. You get things wrong and you’ve still got your fixed costs like your utilities and salaries. We’ve got a five year lease here, so it’s a significant risk. Every advisor told us not to take on Feast of Merit, but we did! ” Costello laughs aloud at the memory.

Costello says a key point of difference with Feast of Merit is the way it can engage people relative to traditional fundraising models.

“At the end of the day hospitality is so important because it builds communities. People can engage with us at a very different level,” he says, pointing to the Coles supermarket over the road, where he says he regularly observes Not for Profit representatives patrolling to get signups to donation programs.

“It’s a very different entrance point for customers, consumers, and donors, and it takes them on a very different journey with our philanthropy.”

Pivoting for Impact 

The past couple of years have been pivotal for YGAP, as it braced a major shift in the direction of its social programs – taking what Costello describes as “a major risk”.

Despite successful campaigns in the area of youth education, Costello and his team made the decision to attempt to innovate in the area of social change, building on the experimental philosophies the organisation had already developed around fundraising.

YGAP’s new focus is empowering prospective social entrepreneurs in the countries they are working in overseas, helping those entrepreneurs develop their own ideas around alleviating poverty.

“We were going overseas and building classrooms and running teacher training programs. But we probably weren’t the best in the world at it. We weren’t the best in the world at what we were doing in Africa and Asia,” Costello says. 

“And so for the past eighteen months, we’ve been really focused on impact entrepreneurship…how can we become world leaders at finding and enabling impact entrepreneurs in developing communities.

“Everything we achieved in first five years was remarkable…We just said ‘that’s finished, we’re pivoting this way’. That’s a huge risk. Our donors were happy giving us $20,000 here and there.”

All of YGAP’s work is underpinned by the fundamental belief that local people have the solutions to local problems and empowerment, rather than foreign intervention, is often the best path to change. The organisation is currently supporting 205 impact locally-driven impact entrepreneurs across world, not, as Costello puts it,  “an Australian who’s moved overseas to South Africa”.

“Post World War II, a lot of major international development methodologies have been based on a bit of a colonial view, where people with the best degrees from Oxford…have the right answer to alleviating poverty, and they come up with all sorts of tools and methodologies.

“It’s found impact but it has had significant consequences too. What we’re seeing now is a move away from foreign-imposed international development models and a real trend towards how we respect local views.”

Costello recounts the mantra of Italian social change advocate Ernesto Sirolli, whom he described as one of his “favourite thinkers”.

“[Sirolli] says the only way to really have an effective aid program is to shut up and listen,” Costello says.  

He says has sought to build a program that’s “built on a fundamental respect – respect of locals, respect for their ideas, and respect for their solutions. Every idea is locally-driven development”.

“We often say that YGAP is a facilitator of local solutions, we’re not an international aid provider.”

Growing the Sector

Costello says he sees some significant barriers to growing the social enterprise space in Australia, including the saturation of the social enterprise market with rogue organisations purporting to be socially-minded.

“I’m a bit concerned about the future,” he says. “Social entrepreneurship…what I’m worried about is that we could easily be consumed by large companies with good CSR policies. There are already a few out there sticking labels on their products and pretending they’re a social enterprise.

“All they’re doing is giving is a tiny percentage away. That’s a cause marketing thing that’s going to put [us] at risk, when we’re fully bleeding for an outcome. Big companies could use marketing tools to tell us they’re socially-minded.”

Confusion is increasingly created by the rising number of models for enterprises blending profit and purpose, Costello says. He refers to the B Corp movement, where enterprises adhere to particular benchmarks of ethical conduct but still operate for the purpose of profit-making, rather than social change, to make his point.

“There’s a good reason we’re not a B Corp. If Feast of Merit becomes a B Corp, who are we, what’s our identity? There’s about 20 other B Corps, that are for-profit. Their motive is to derive financial return for their investors, and how they achieve that is with a social lens. But they’re a for-profit company.

“If Feast of Merit joins that accreditation, all of a sudden this whole notion of being a social enterprise is just ‘hang on, you’re all making money’ – but we’re not making personal money here.

“That’s why I have a bit of skepticism about the space, there’s just no regulation.”

Costello would like to see a formal legal structure for social enterprise in Australia, or some tax concessions – at least.

“Feast of Merit is a proprietary limited so we’re burdened by the same tax structures as any other for-profit,” he says.  “What's the incentive for young people to start a social enterprise?…You might as well be a Not for Profit and have access to those exemptions, or be a for-profit and make money on the side.

“We’d love to see some good regulation around how we can be incentivised for systems change because we’re owned and operated by a Not for Profit. Can there be any tax concessions or exemptions? The ATO is black and white.

“I think the ACNC should play a good role in that. We finally have some form of a centralised umpire.”

Asked how the social enterprise sector in Australia can flourish, Costello frequently refers to Silicon Valley startups on the West Coast of the US, pointing to the value in its free-market, risk-swallowing approach.

“Of course there could be more Government funding. That leans towards the UK style approach where it’s more Government-driven. I think we should be leaning towards a US-style approach a little bit more where it’s more free-market driven,” he says.

“The main thing that will help drive the sector is changing Australia’s approach to innovation. We have this culture in business where we’re very risk averse. People say ‘Yeah, that’s a good idea, but we’re not going to back you…There’s no appetite to back entrepreneurs and get it wrong.”

Costello theorises Australia’s Tall Poppy Syndrome may even have a part to play in this.

“We live in a society where Tall Poppy Syndrome is very strong. So if you fail, you’ll know about it for the rest of your life. You look at the West Coast of America, the best entrepreneurs fail three or four times, and they applaud you for it, pat you on the back and say ‘go again!’

“We’re not encouraging more entrepreneurs to flow into the system. How do we create a culture where backing young entrepreneurs is acceptable?”

The Future of Charity?

Despite his organisation’s focus on new funding models, Costello is adamant that the classic model of charity is here to stay.

“Social entrepreneurship is not going to replace traditional charity, and this is coming from the leader of an NFP where 70 per cent is funded through our own social enterprises,” he says.  

“Just because we have a new asset class that everyone’s gearing towards, it doesn’t mean traditional philanthropy will die.

“It’s an exciting opportunity…in the last five to 10 years we’ve seen the proliferation of new social enterprises, impact funds, [Social Impact] Bonds in NSW, some really progressive free-market stuff happening in the US, and Government-led stuff in the UK.

“It’s an exciting opportunity for Not for Profits to think about how their funding models do work and I think what it’s causing is a real awakening in the sector…It’s providing an avenue for young NFPs to see there are new ways of doing philanthropy. You don’t have to be tapping shoulders with major foundations to get money anymore.”

Costello is clearly wary about social enterprise being hailed a saviour of the charity sector, however.

“I don’t want to see [people] get too carried away in thinking there’s a new solution to social problems,” he says.  

“Running a social enterprise is like running a small business. You have to have the resources, the capacity, the expertise – we have 38 staff here at Feast of Merit, so we’re managing a lot of things to derive a 15 per cent return on a weekly basis. A lot of work goes into getting that 15 per cent return.”

Costello has no regrets though.

“We could could have launched a monthly donation program and we’d be sitting here at the YGAP offices, talking about how we are a traditional Not for Profit growing at a steady rate,” he says.  

“In 2009 and 2010, we probably could have chased Government funding and gone after PAFs and foundations for money.

“That choice to be different was difficult because it involved missing out on potential funding.

“But now that we’ve gotten through the valley of death, it’s paying off.”