Proving You Can Make Money and Do Good

Paul Steele is the executive chair and co-founder of The Difference Incubator (TDi ), Australia’s leading social enterprise incubator. He talks about why organisations shouldn’t have to choose between doing good and making money, in this month’s Evolving Chair.

According to Steele he was working in the social enterprise space before the term became common usage.

He has established businesses in a wide range of industries and has worked extensively in the philanthropic and social enterprise sectors in Australia and overseas.

He is also the CEO of Donkey Wheel Foundation, and serves on numerous boards, panels and advisory groups.

In this month’s Evolving Chair, Steele talks about changing people’s mindsets, blending values, how he has rarely found a social change piece that can’t be achieved with a commercial model and why board members need to spend time in their organisations.

What attracted you to TDi’s board?

I needed a board! What attracted me? I think governance can play a really important role, particularly in start up organisations, but it’s a completely different type of role than it is for an established organisation, and I think that is the thing that gets missed in terms of the chair role…

And so, for me, in some ways the reason I co-founded it and then stayed in, is I think there is a very unique way that a chair can operate in that startup phase of an organisation, that is quite different to a much more strict governance compliance role, that is important in the startup phase but isn’t the primary piece of the role I think in the beginning.

So for me I would almost like to see a really good process driven chair come in over the next couple of years, but right now the agility to be able to respond, the understanding of changing strategy, a strategy that in some ways often is evolving, you know what your goal is and you know what your intent is, but the strategic execution of that changes quite rapidly in the first few years. You need to have chair and board who can respond to questions about it, endorse it and not be too put off with lots of changes whereas a regular board may actually struggle with it.

What is the structure of your board?

Currently it is a four person board, which includes myself, Trevor Thomas, who is the independent if you like, he doesn’t really have anything to do on the day-to-day basis of the business of TDi.

Bessi Graham, who is the CEO and is also on the board, and as a second independent we also have Corinne Proske who is ex-NAB.

Corinne is representing more the commercial side, whereas Trevor really has a good understanding of where investors come from, and given that TDi’s goal is to create investable social enterprises, he makes perfect sense for his contribution, and then Corinne is also really good, giving us more the commercial banking side of what makes an enterprise bankable.

And I guess really Bessi and I come more from the social innovation and entrepreneurship side. So it is a good marrying off of the overall skills that TDi needs.

What are your board’s current priorities?

We’re probably in what I would almost refer to as stage two, or phase two, of evolution. So the first phase we probably got through successfully is lots of market testing, prototyping, working out how do you actually both respond to the need in the market and secondly get paid to do it.

Now we are in a more maturing phase, so I think we found the niche, which for us sits around business modelling and helping people understand their business model in a way that they can make changes in their business that actually helps them get to our goal of investability.

Investability from our perspective is not meaning you have to take on investment, you build an organisation that could take on investment and it’s highly likely to be a sustainable organisation to be able to carry on the mission whatever that may be. So we are at the point now where we actually understand how to do those kind of interventions, the diagnosis and the triage and then offer assistance to get you towards being investment ready.

So now it is more of a maturing, replicable method that we talk about, hence we’ve…quadrupled in size in just the last three or four months because we know what to do, we can actually scale that up. I think often the danger in these kinds of organisations, particularly in the innovation sector, is you take something and scale it up rapidly but it was the wrong thing to scale.

So we’ve taken a lot more time to prototype and test, that what we were going to scale up actually was the right approach and I think we’ve got something that at least at its core is right, it is going to need tweaking but we’re now in that phase of scaling and growing it and taking what we’ve learnt in the first two to three years and seeing if it works on a larger scale.

What has been the biggest challenge in your time as chair?

Strategy is really easy in some ways to do in the board room, but strategy that actually can be executed on a day to day basis is I think the big challenge from a board to a management team.

I do operate as an executive chair, so I do get the privilege of spending time within the business which I think is helpful, particularly in the early days of the business, so that when we are sitting in the boardroom you can often have an almost theoretical conversation about the strategic decision that needs to be made, how you charge, how you package that up, the temptation to give away free to try and get more market penetration, but because I have the ability to work in the business as well I think, in those early days when you are making more agile decisions and often with less information because you are trialling things, that has been really helpful in trying to deal with the high level strategic choices.

So the challenge has been in getting good high level strategic choices, do we charge more and do less, do we do more and charge less, do we engage at the top end of town in terms of more corporate type projects or do we deal with more grassroots, Not for Profit type projects, where is the sweet spot for our type of intervention, which is relatively expensive in some ways, or can be seen that way, but at the same time we know generates a lot of value.

So getting that value proposition right and testing it and retesting it and then making sure the customer, whoever that might be, is prepared to pay for it, I think that has been our biggest challenge to date. The challenge now is, how do you scale that and build a culture and organisation that can deliver that business value proposition over and over again.

You serve on numerous boards, what has been the highlight of your work with this particular board?

It’s the blended value approach. For me what TDi is on about is can you make money and do good. And fundamentally we believe it can, but proving that out, can be rather challenging. So from both a board perspective, and then from the organisation perspective, you can believe whatever you like but the proof is only in the pudding. And we really have had to work hard in the last two to three years, and in fact TDi has really been a project that has been going for five years, it has been taking an ideological, philosophical statement that you can make money and you can do good, and in fact not only you can but you probably should, can we prove that that actually is real in organisations on a day to day basis, and I think we are starting to see some of the evidence of that.

So being part of an organisation that is really trying to make a difference by blending two things that haven’t previously naturally gone together, I find quite invigorating and challenging but at the same time it’s the reason for being part of it.

What are the key sector issues that are being discussed at board level?

The key sector issues really sit in getting that blended value mindset, so I think one of our biggest challenges is getting people to be able to think commercially and think about social benefit all in the one thought, it is more challenging than I ever thought it would be.

So I think for the board members and for most of the staff, you start with the concept of believing that actually if you are doing good, then making money that’s a good thing, getting other people’s head around that, even if they run a commercial organisation, the doing good bit often sits in a CSR bit somewhere, rather than in the core of the business, or if they sit in a Not for Profit area, doing good is something they do and people really should just give them money because they are doing something good.

When you try and blend those two things, and say no you need to actually earn your money and do good at the same time, that mindset change is probably the biggest single challenge that we have. We see it even in the way we define organisations, we define them as either Not for Profit or for-profit, rather than ever saying well actually we could just be a for purpose business that happens to also make money, so I think if the board challenge is there, it is helping people understand that mindshift if we really want this to go to scale, and have large scale social change and positive social impact and large scale capital being applied to those challenges.

Does your board believe in collaboration with other organisations?

Absolutely. TDi fundamentally sits in an ecosystem of other organisations, obviously it was very strongly supported by Sidney Myer and NAB and Donkey Wheel in the first instances, we have a business called Benefit Capital that sits in alongside and partners with TDi around raising the capital once TDi has done the work to get them investment ready.

Ethical Property is another good example of a business that we work with around property provision and space, and how you actually use physical space, and I think we actually partner with most of the organisations that we work with. It is more than just a service provision to them about getting them investment ready, we become deeply embedded as partners in the business.

TDi is in a unique position that the CEO is also on the board, how important is the board’s relationship with the chief executive officer?

I think it is highly important that they are involved, they don’t necessarily have to be a director by any means, I report to two other boards as a senior executive and that works fine. I think it is understanding the role that you are playing…The Australian Institute of Company Directors does a great job of explaining board and management roles, the thing that I think they miss is the evolutionary nature of that, that it is quite different at the beginning of an organisation to when it is a mature ASX listed organisation but in either instance that relationship between, probably the chair and the CEO, but if not the board and the CEO is really critical as to making it happen because every decision you make at the board has to be executed through the CEO. If you don’t have a good relationship and a good ability to communicate with clarity, and a lot of boards don’t actually communicate very well with clarity, then the CEO just ends up in a fog of what they actually need to execute to.

Do you have any advice on building that relationship?

To be honest, there is only one remedy and that is time. You actually have to put the time into meeting with them and seeing how they work. And don’t assume that what happens in the boardroom is what happens in the CEOs office or in the organisational office, you do actually have to go and spend a bit of time in the organisation and I think any chair that has never been into the organisation when it is operating, is quite disconnected, any board member really needs to spend a bit of time in the organisation, which in a Not for Profit sense is tough work when you are dealing with volunteer directors, but I think it still comes down to being quite critical.

When I was at World Vision one of the delights I had was when a couple of the new board members would actually come in and sit in the call centre for the morning and I think them getting that connection about what really happens on the ground made a huge difference.

Do you have any advice on sustainable business models?

For us, one of the things that detracts from the sustainable business model is often people think a business plan is the way to go and so they end up with a 50 page well-detailed, well-researched document that still isn’t a thought through integration of their mission and their commercial model.

Hence why at TDi we use the business model canvas, we’ve extended it slightly, but essentially we use the canvas as a mechanism to look at the whole business, it’s a one page, nine boxes, that helps you evaluate your business, we use it for diagnosis and triage of where the business is at, but it is also a design tool, to design your business.

I think that the critical factor comes to, we either run into commercial businesses that know how to trade but don’t really know how to think about this area of change, what they are trying to achieve from a mission perspective, or they would like to do something good but they don’t actually know what, and to be honest that is probably the easiest one because when you have a functioning business with some profit, it gives you a little bit of lifeblood to start experimenting and playing and working out what is going to work well for that particular organisation from a social or environmental impact.

But the other end business model piece is the person with the fantastic idea to help homeless young people in Melbourne but they have got no idea from a business perspective, and that is a tougher model to start building a business model that can support and integrate some sort of social or environmental outcome, so for us it generally starts at one end of the spectrum or the other, every so often you find an entrepreneur that just has an amazing ability to integrate the two, but I guess it comes to back to that big challenge for us.

It is helping people see the need. When people come from a social or environmental perspective and want to make the world a better place, often they are not thinking about money. But money actually helps them achieve their mission and when you can get them to see that, the lights go on and all of a sudden, it is amazing, we have rarely found a social change piece that can’t be achieved with a commercial model, it may need a bigger scale, it might need more capital, it might need a rethink about how it gets executed but there is often a commercial model there.

And with pretty much every commercial model there is an element of some social or environmental good that they can do, if you can help them see it, get intentional about it and start measuring it. But it really does take that mindset change to get there.