Capital and failure in the social purpose sector: Rob Koczkar

Capital and failure – two words we don’t often hear together in the social purpose sector.

The price of failure.

When we as a sector are less than our effective best, when we fail, it’s not we who suffer most. It’s the 1.5 million Australians living in entrenched disadvantage that the recent CEDA report, Addressing Entrenched Disadvantage in Australia describes.

We must not fail, we must find better and more effective ways to work in the social purpose sector.

It’s time to break the mould of service delivery. We can achieve improved social outcomes if we better utilise capital investment for social purpose and apply some of the same disciplines used in business to increase the efficiency and effectiveness of the sector.

1. In business we see development follows a logical, sequential process:
   Innovate and test
2. Replicate
3. Expand to scale

Capital supports this process by funding innovation, fostering replication and later providing the financial resources required to expand to scale.

If this same process were applied more often in the social sector it would lead to the allocation of resources to programs that are achieving real, positive outcomes in the community. What is working would be funded and we could make informed choices on transitioning away from less effective programs.   

There are two critical enablers in supporting a business-like approach to the social sector:

1. Access to capital; and
2. Consistent with what CEDA has flagged, access to the right information and data.

Social Ventures Australia (SVA) is not seeing a shortage of capital in the emerging impact investing market. 

For example, Australia’s first Social Benefit Bond developed by SVA and UnitingCare Burnside in partnership with the New South Wales Government was heavily over-subscribed and closed a month early.

We continue to have conversations with superannuation funds and other institutional investors that are eager to allocate capital to impact investing.

In relation to information though, the situation is different.

Data enables commercial entrepreneurs to develop ideas and grow business.  Ready access to the right information helps shape business models, provides risk and return parameters and gives funders confidence in their investment. That type of information isn’t consistently and easily available in the social sector.

How can we shape program design, assess risks and social return, and give funders confidence in their community investment if we don’t have the right information?

Innovating and Testing

For entrepreneurs to innovate and test ideas in the social purpose sector, we need access to the sort of information available in the business world. 

In the social purpose sector there’s little data to allow us to compare alternative programs or their impact, and this limits our ability to develop effective solutions.

Overseas, there are examples of real innovation in data-sharing.

In the UK, the Government has created a unit cost database and publishes the cost of particular social outcomes.

A unit cost database or similar resource could change the evidence equation for social entrepreneurs like Rebecca Scott at STREAT in Melbourne. STREAT should have the capacity to access capital to replicate the real success they have creating employment pathways for young people who are homeless, or at risk of homelessness and long term unemployment. The positive impact on the lives of the young people STREAT serves is profound. But because those benefits cut across many parts of government we all struggle to understand the added value of the STREAT program compared to the current alternatives.

Access to linked government information and data from the sector is critical to understanding the drivers and the creation of better solutions, and the challenges disadvantaged people face across education, housing, mental health and many other social issues.

Replication

In all markets, there are early adopters who create the case for replication of new innovations.  In the social sector, government must act as the early adopter by contracting social purpose organisations to replicate tested programs on the basis of outcomes. 

UnitingCare Burnside is an exceptional organisation that was willing and able to grow the successful Newpin program through the New South Wales Government’s Social Benefit Bond pilot. Newpin was a tested model that had measurement and evaluation in place. The program was ready to grow and secured the capital needed to replicate. The New South Wales Government was able to contract for social outcomes in a way that delivered financial returns to private investors linked to those social objectives. 

If we are to see more replication of effective programs, then the market will need to rise to the challenge of accurately and consistently measuring outcomes.

It’s equally important that government supports the social purpose sector to create the capacity to undertake and be held accountable to more robust measurement and evaluation.

Expansion to scale

If the tried and tested business development process is allowed to develop in the sector, there is no reason why effective social programs won’t be successful on a larger scale.  

The challenge is how we direct funding to the most effective solutions and help them to scale, replacing well intended but unsuccessful programs that don’t work.

Every day at SVA we see organisations like AIME, the Australian Indigenous Mentoring Experience, which has a proven track record and the goal to work with 10,000 young Indigenous people by 2018, so that they finish high school at the same or better rate than all Australian students. As Jack Manning Bancroft, the CEO says, that’s not just working on the issue, that’s taking it off the table altogether. Yet AIME and many other successful program providers struggle to access the funding they need to take their proven solution to greater scale.

How do we support AIME, and other successful social purpose organisations to scale their operations?

Ensuring the business development cycle is applied to the social sector will result in capital investment flowing to effective and efficient programs that achieve measurable outcomes.

At SVA, we will be there helping outcomes focussed organisations to grow. We’ll be ensuring we learn from the good and the bad, so that the development model proven in the business world is applied in the social purpose sector.

Because the people who need the benefits capital investment can provide in the sector are the people who can least afford for us all to fail.

This is an edited version of a speech delivered by Social Ventures Australia CEO, Rob Koczkar at a CEDA event in Sydney.