November 24, 2016

Social procurement success: what it takes

Toowoomba’s most recent social enterprise, Vanguard Laundry Services brought to life by social entrepreneur Luke Terry, exemplifies what is required to benefit from social procurement opportunities.

Social procurement – using business and government purchasing power to create social value – has tremendous potential for social impact. Procuring goods or services from social enterprises committed to employing and supporting marginalised groups, can create almost immediate change.

However, social procurement is only an opportunity. It needs to be leveraged by entrepreneurial capacity to create a social enterprise that is sustainable and capable of providing lasting social impact.

The story that Luke Terry is writing in Toowoomba – most recently with social enterprise, Vanguard Laundry Services – demonstrates the challenges of leveraging social procurement and how to overcome them.

This article tells that story and highlights four requirements to benefit from social procurement:

  • Entrepreneurial skill coupled with the motivation for social impact
  • Demand driven approach or winning a contract without a business
  • Capacity for business development
  • The commercial experience to be contract ready.

About the project

Vanguard Laundry Services
The aim is for the Laundry to employ some 100 people with a disability or mental health issue in the first two years.

Vanguard Laundry Services is the most recent social enterprise created by Luke Terry, the executive director of Toowoomba Clubhouse which supports adults with a lived experience of mental illness.

There is generally only a 30 per cent chance of returning to work after 70 days or more off for mental health reasons. So a large part of Terry’s focus with the Clubhouse has been to provide pathways for people to gain work experience and transition back into mainstream employ.

To achieve this, his primary strategy has been developing social enterprises which provide supported employment opportunities.

“Getting a person with a lived experience of mental illness into employment with traditional disability employment service is 14 per cent successful,” explains Terry. “However, with a social enterprise, the success rate of having people employed for 26 weeks is 75 per cent.”

Bounce Cafe
Bounce Cafe was the first social enterprise Terry started at the Toowoomba Clubhouse

The first social enterprise Terry started in Toowoomba was the Bounce Café. Then in 2012, Ability Enterprises was launched with a $2 million local council contract for waste management services.

Off the back of this result, Terry signed a deal at the end of 2014 with the local St Vincent’s private hospital to provide laundry services. The hospital which until now has had its own laundry was looking to outsource. Terry saw a good fit with the Clubhouse and its mission and negotiated a nine-year contract to supply these services.

The aim is to employ some 100 people with a disability or mental health issue in the first two years, 50 of these transitioning to other mainstream employment during that time.

“Our goal is to provide work experience, career assistance and support for people to transition through the business into long-term employment,” says Terry.

Social Ventures Australia (SVA) has worked with Terry from the start to help access pro bono commercial services and laundry expertise, build and test the business model as well as access finance. The laundry is now close to complete and due to open in December.

What’s needed to benefit from social procurement?

So how has Luke Terry managed to source and benefit from this social procurement opportunity and what does he advise for others wishing to leverage these kinds of possibilities?

Entrepreneurial skill coupled with the motivation for social impact

Luke Terry
Luke Terry has a strong combination of business skills and passion to achieve social outcomes.

The first thing anyone who has worked with Luke Terry tells you is that he is a fantastic entrepreneur. He has a strong combination of business skills and passion to achieve social outcomes.

Terry puts this down to a father who nurtured his entrepreneurial ventures and seeded a strong social conscience.

“My father was a community-based pastor,” says Terry. “I remember in Tasmania when unemployment was really high, he would go on TV and in the papers to raise awareness about the people looking for work. As soon as we got home at night, he’d check the answer machine for messages calling employers straight back. It was a real inspiration.”

“At the same time he was coaching me to be an entrepreneur, encouraging me to sell Christmas trees from our property at the side of the road, and later helping me renovate cars to sell for a profit.”

He had to believe in the project and know when to take a leap of faith.

After running small businesses in Sydney, life came together for Terry when he landed a job with mental health charity, MIND in the UK, as social enterprise development manager. It used his entrepreneurial experience to help people with a lived experience of mental illness find employment.

He has brought that same model to his work at the Toowoomba Clubhouse in regional Queensland since 2009 calling on his entrepreneurship experience and skills.

“He’s got the initiative and willingness to take risks that’s at the heart of entrepreneurship,” says Alex Oppes, Director of Impact Investing at SVA and one of the team who has worked with Terry on the project. “He had to believe in the project and know when to take a leap of faith. And he has taken some big jumps.”

We can all get nice opportunities but if you don’t run the business right and you’re not capable, you’ll be found out very quickly.

Mark Daniels, head of Market and Sector Development at social enterprise developer, Social Traders, has watched Terry’s success since 2012. “He’s a really good spruiker and a good executer,” says Daniels. “Having those two qualities is quite unusual.”

“We can all get nice opportunities but if you don’t run the business right and you’re not capable, you’ll be found out very quickly,” says Daniels.

“He also networks really well and – due to his position with the Clubhouse, he’s very convincing.”

To get such a large project off the ground, Terry has brought some 55 partner organisations and individuals along on the journey, whether as funders, investors, or providers of pro bono or in-kind services.

Demand driven approach or winning a contract without a business

With both Vanguard Laundry Services and Ability Enterprises, Terry won a contract before starting the social enterprise. This is what he advises for any social enterprise.

“It’s quite clear to me now: get a contract in place first,” says Terry. “If you want to set up a café, don’t do it unless you have a contract for 5000 sandwiches a month or something like that. Unless you’re in a business to business industry, it’s the only way we can build sustainable social enterprises.”

By starting large with a contract like this, it provides the breathing space to look for bigger things.

The idea comes from flipping the traditional employment approach to address employment exclusion on its head – using social enterprises around contract opportunities.

It’s an approach that Daniels at Social Traders has supported for years: “When you start a business with a contract, and have enough to cover your operating costs, you have security. It’s one less problem than most businesses and enables you to scale quickly.”

Oppes agrees: “By starting large with a contract like this, it provides the breathing space to look for bigger things.”

“So many subscale social enterprises don’t turn over enough to cover their overheads. It’s a catch 22: they can’t afford to hire enough experienced people to win new business. Luke has managed to start with the right team and break this cycle.”

As well as responding to buyer demand, Terry also ensures the enterprises meet the needs of the people he is supporting into employment. He has a clear understanding of the types of employment that can provide confidence, employment skills, and a job on the CV.

Winning a contract without a business

How to win a contract without a business

  • Track record with running a business
  • Access to the workforce needed
  • Capacity to support the workforce – when long-term unemployed
  • Access to industry expertise
  • Access to commercial expertise
  • Buyer(s) and investors primed about the benefits of social procurement
  • Commitment from the buyer
  • Business plan and financial model tested by industry experts

But how can you win a contract without a business to demonstrate your capacity?

“One of our investors says: ‘You’re only as good as your last game,’” says Terry.

Terry’s last game was Ability Enterprises which has successfully employed 120 people over the four years since its launch – 100 of these with a disability or mental health issue. It’s also repaid all its finance including the $167,000 Social Impact Fund loan with SVA. The business, which now operates 15 transfer sites, has had no ongoing government funding.

“You have to have a track record to provide credibility,” says Oppes.

“Luke also had some of the infrastructure around him and could demonstrate that – through the Clubhouse – he had access to, and support for, the workforce, as well as having access to the industry expertise needed through SVA.”

He also had strong support locally.

In part, Terry had created both the demand and support for procurement for social enterprises in Toowoomba through spruiking the benefits. Since 2012, he has actively promoted social procurement to local business and government through the social procurement action group (SPAG) that he helped to found.

St Vincent’s was one of the early participants in SPAG.

What got St Vincent’s over the line?

So what got St Vincent’s over the line?

Terry describes it as a shared value decision. “It’s not a purely business decision. It makes sense in that it will help a lot of people and St Vincent’s won’t have to send its laundry to Brisbane,” says Terry.

“But in another way it didn’t make sense because the Clubhouse has never run a laundry before and has never built anything this big before.”

According to Terry, winning the contract with St Vincent’s Toowoomba required the then CEO, Carl Yuile to champion it in the face of ‘internal risk processes and the legal teams’. But he won out with support from the top.

If we can help with their skills and self-confidence, these people won’t bounce back into the hospital system.

Paul Robertson AM, St Vincent’s Health Australia’s Chair, says that it is about the shared values.

“When social enterprises like Vanguard Laundry Services have similar goals to St Vincent’s, it becomes a straightforward decision. Once it was clear that they could meet our stringent laundry requirements, a values-based organisation changes from being a major supplier to becoming a partner in our mission.”

The new CEO at St Vincent’s Hospital in Toowoomba, Kathryn Mckeefry is totally on board. “Having an arrangement like this sits very comfortably with our mission and our values,” she says.

While the hospital doesn’t have any other social procurement contracts of this scale on its books, it is looking for more.

“We are particularly interested in being able to help people through the Clubhouse to get back into the workforce,” says Mckeefry. “If we can help with their skills and self-confidence, these people won’t bounce back into the hospital system. It’s closing the loop of hospital care.”

This level of commitment from St Vincent’s gave Terry the confidence to build the business backwards.

As Daniels says: “The buyer needs to be ready to go on the journey with the social enterprise. That St Vincent’s was so committed and prepared to put pen to paper to demonstrate that was really critical. The level of buyer commitment has been significant.”

Capacity for business development

One of the main challenges in getting social enterprises off the ground, and leveraging social procurement opportunities is having the time and money for business development.

 I’m not funded to do this stuff; I’m funded to do my day job.

“It’s been really tough”, says Terry. “As CEO of a mental health charity, I’m not funded to do this stuff; I’m funded to do my day job. As with other social entrepreneurs this means doing things after hours.”

Terry had been on the hunt for the next opportunity as soon as Ability Enterprises was up and running. Initial conversations with St Vincent’s and SVA took place in April 2014.

Some of the early research visits he funded the travel himself. “I remember, to visit the first laundry in Canberra, saying to my wife, I know it’s crazy but can we pay for it?”

Once the contract with St Vincent’s was signed in November 2014, raising the $6 million to deliver on the contract as well as seeking other customers took a further 18 months.

Terry worked all this business development alongside his day job running the Clubhouse.

In the final stages in April 2016, the Paul Ramsay Foundation provided back funding for Terry’s role at the Clubhouse so he could focus on the new enterprise (in addition to its $500,000 funding for the laundry itself).

More recently, the enterprise has received some funding from NAB in the form of its Impact Investment readiness grant to the value of $70,000 for business development.

Otherwise Terry has relied on the support of the Clubhouse board to give him some leeway as well as all the in-kind and pro bono support.

The commercial experience to be contract ready

Alex Oppes in front of VGS
SVA’s Alex Oppes says: Many social entrepreneurs aren’t in a position to be able to grasp these opportunities.

The final challenge in being able to benefit from social procurement opportunities is being contract ready, in other words having access to the commercial experience and skills to be able to make a professional tender and meet the contract requirements.

As Oppes says: “There is a growing trend and real interest in social procurement amongst corporates and government, but a lack of contract ready social enterprises out there.”

“Many social entrepreneurs aren’t in a position to be able to grasp these opportunities, in part because there’s a lot of work to get yourself into a position where you can successfully tender for these kinds of contracts.”

Oppes cites everything from basic financial modelling, appropriate legal structures to accounting processes, as well as having the finance in place.

“There’s not yet enough commercially minded or experienced social entrepreneurs who can put on a professional face and navigate their way through a procurement process,” says Oppes. “We’re keen to help develop more Luke Terrys.”

At each stage we brought in expertise.

To pull it off, Terry worked closely with a range of business specialists including SVA from the beginning.

Terry’s main concern in preparing for the St Vincent’s contract was getting the right price.

SVA helped find laundry specialists in the form of two ex-Spotless Laundry executives and Cabrini Linen Services which services the Victorian healthcare industry.

“Cabrini Linen Service made all the difference in helping us. They’ve been like a sister laundry – very generous,” says Terry. “Having them and the ex-Spotless staff advise on equipment and grilling our model was very lucky.”

When it looked like it would go ahead, they recruited the General Manager who had 25 years’ experience. “At each stage we brought in expertise,” says Terry.

There’s a real robustness to the process that’s been really critical.

Partnership with SVA

“SVA’s role was really important,” says Daniels, “because it demonstrated that the business stacked up. What Alex [Oppes] has been doing with Luke over years now is testing the thinking. There’s a real robustness to the process that’s been really critical.”

Oppes describes the partnership: “Luke’s the accelerator, and I’m a bit like the brake. He’s got that entrepreneurial flair, and can pull together a huge number of stakeholders and sell the project.”

“Our role at SVA has been to get into the detail, check that the numbers stack up and negotiate the details. It’s been a really successful partnership, because SVA has a different skill set.”

Nick Harrington, Manager of Impact Investing at SVA, as well as Oppes has worked on the project since 2014.

The challenge after signing the St Vincent’s contract was raising the $6 million of finance. For this more rigorous financial modelling was needed. This was ready in May 2015 but it took about a year to raise all the capital needed to start construction which began in June this year.

Local and international support

Terry had good local lawyers and a good local accountancy firm, however he didn’t have some of the legal experience needed.

With introductions from SVA, Minter Ellison and King & Wood Mallesons both provided pro bono assistance to help with the contract, the social enterprise’s legal structure and its relationship to the Clubhouse.

“We wanted the Laundry to have everything to do with the Clubhouse and nothing to do with the Clubhouse,” says Terry. “We set the company up as a company limited by guarantee with the Clubhouse being the sole member. It was a complicated structure.”

The extent of support both locally and nationally is impressive. Top level funders include: $1 million from the Federal Government thanks to the support of local MP Ian McFarlane, $730,000 from local philanthropist Ian Knox to buy the land, $600,000 from the Paul Ramsay Foundation, $300,000 from AMP, $100,000 from Westpac, $50,000 from Toowoomba-based businessman Clive Berghofer, and numerous donations of $20,000 and $10,000 from local and national supporters.

Local supporters included the Toowoomba Council and Mayor, local business people and businesses that have provided a mixture of monetary, mentoring and pro bono support.

Other in-kind support has come from a range of national organisations.

It’ll all come out in the wash

The success of the laundry will only be demonstrated once workers who’ve been out of employment for an extended period of time start to win and hold a job in mainstream employ.

We didn’t want a customer going somewhere else. So we’re getting on with it.

However, the outlook is positive with the laundry due to start the machines before the end of the year.

Recently Terry has brought on a new customer: Rootz lettuce farm near Toowoomba. To secure the contract, Terry arranged to use the facilities at St Vincent’s Hospital but using people that will staff Vanguard Laundry Services when it opens. “We didn’t want a customer going somewhere else. So we’re getting on with it,” says Terry.

It’s this quality of getting on with it that has seen Terry win a significant contract, and get the business contract ready and finance ready, as well as rally a huge range of supporters to raise the funds to make it happen. It’s the kind of entrepreneurship and commitment to the beneficiaries that is needed to make social procurement a success.