Transcript: Lessons from Failure: A Funder's Perspective | Part 2

Music: Shake it Out - Florence & the Machine (instrumental)

• Facilitators: Kevin Robbie and Sofiah Mackay, Think Impact
• Panellists: Lisa Waldron (Westpac Foundation), Matt Knopp (DEInvestments), Stephen Torsi, Dr Alberto Furlan (Ian Potter Foundation), Anita Hopkins (Brian M Davis Charitable Foundation)
• Host: Athanasia Price, Social Enterprise Australia

Athanasia Price: Hi, everyone. Thank you for joining today's open learning session. I am not surprised that there are so many of us interested in the funder's perspective on lessons from failure.

I'm Athanasia from Social Enterprise Australia. We host these sessions as part of the Social Enterprise Development Initiative, funded by the Federal Department of Social Services. Our aim with these is to create a space for change makers and supporters right across the social enterprise community to share their knowledge and experiences to help strengthen all of our abilities to connect and collaborate across the sector.

So today's session is convened by Think Impact in collaboration with this stellar group of leaders in the funding space. It's a real pleasure to be in the Zoom Room today with Kevin Robbie and Sofiah Mackay, who'll be in conversation with Lisa Waldron, Matt Knopp, Stephen Torsi, Dr Alberto Furlan and Anita Hopkins. Thank you to all of you for your generosity and your time and your care in sharing your experience today.

Before I hand over to Kevin and Sofiah, I'd like to take the time to acknowledge the Traditional Custodians of the unceded lands that we're all joining from today. I am here on beautiful Quandamooka Country, which you can see behind me here. I'm super lucky to live and work here. I pay my respects to Elders past, present and emerging. I recognise a continuing connection to the waters, skies and lands that we all have the privilege of living and working on.

I was down here this morning and I was reminded of a story that I've seen shared by a Quandamooka Custodian. Her name is Alicia Kissick, and she shares how the Aboriginal and Torres Strait Islander people of all Countries across Australia take their cues from the bush and they work with animals. And so her story here, which I love, is about how once they see the hairy caterpillars moving on Minjerribah, which is that island behind me, they start walking to the beach and once they're there, they pay attention. They look up in the sky for the merrigimpa, which is the sea eagle, and pay attention to how wide the circumference is that they're flying, because that's signalling that the mullet are running and how big the group is. And then they will call to the dolphins, the Buangan, and the dolphins sort of herd the mullet in closer towards them. And only once the circumference reaches a certain width will they throw the net in, because that means they know that the leader fish have gone, thus protecting the species to continue. And then they share back some of the fish with the dolphin.

And I love that that very short story holds within it so much that we can learn from, and wisdom in the way that we run organisations and work with each other and with Country.

And so I recognise that any First Nations participants today, you also bring with you 65,000 plus years of knowledge and wisdom and relational care for people, place and planet. So thank you.

And with that, I'm going to move on to some tiny housekeeping. Today is being recorded and will be made available on Understorey. We absolutely welcome your comments, reflections and suggestions in the open chat function. We've allowed 75 minutes today to give time for some good conversation and questions. So please do use them.

And now it's a pleasure to hand over to you, Kevin and Sofiah.

Kevin Robbie: Thank you, Athanasia. Thank you for that introduction. Great to have you all joining us today for this session on Lessons From Failure: A Funder's Perspective.

As I said, my name is Kevin Robbie. I'm wearing two hats today. Up until recently I was the Managing Director of Think Impact, and that's when we commenced this piece of work looking at lessons from failure in the social enterprise perspective. But four weeks ago I started my new role as the Head of the Australian Philanthropic Services Foundation. So I'm now a funder technically, and I'm very, very interested in the lessons from failure that might emerge from today.

Think Impact, as some of you will know, is a Melbourne-based consultancy working across business, government, philanthropy and the not-for-profit sector, supporting organisations to manage for better impact. That is taking organisations through a process of helping them design their impact, measure their impact, communicate their impact more effectively, and ultimately how to actually improve that impact based on the understanding that you have. We offer a suite of services within that area.

And over the years I've been at the organisation, nearly nine years, I think Sofiah has been six, seven years? Seven.

We've done a lot of work in the social enterprise space, but our interest in social enterprise goes back beyond that. I actually started running social enterprises in the late 90s in Scotland. And my first journey into thinking about social enterprise failure came when I was sort of dobbed in to speak at a conference. The way this happened was I was sitting in one room, we had one of the peak bodies for social enterprise based in the room next to us, and their conference organiser came through and said to me: someone's asked for a lesson on failure session. And I thought there was no one better than you to talk about that, given the way your organisations run. And that was on the basis that we had set up at that point 11 social enterprises, but four of them hadn't worked. And so we had done a lot of reflection on what hadn't worked across those four social enterprises.

So it's always been a passion of mine to get people together to talk about failure, what we can learn from failure and how we can do things better in the future.

So what we're hoping from the panel today is that we hear honest stories from a funder's perspective about what failures they've experienced and how that has helped shape how they fund, understand how funders experience and interpret failure, because it can mean different things in different ways. And hopefully for you listening in, you take away practical lessons for engaging with funders, particularly around the issue of failure.

Also on the panel we have my colleague Sofiah. Sofiah, do you want to briefly introduce yourself and give a little bit of your background?

Sofiah Mackay: Sorry about that, I had my calendar pinging earlier so I went on mute.

Look, my start: I started in social enterprise back in my early twenties in South America. I worked in a social enterprise in Colombia before I knew what social enterprises were and before those two words were in common use. I then later in my career went on to work for the School for Social Entrepreneurs, so worked with social entrepreneurs around Australia in supporting them in their startup journeys. And I can see quite a few people online who I know from that time. So hello to you.

I think one of the key things I wanted to mention really up front is that people often have a bit of a fixed idea about failure. And so I want us to start this conversation thinking about failure as a spectrum. At one end of the spectrum you've got catastrophic failure that we all want to avoid, because it might be, you know, life and death type failure. But at the other end of the spectrum you've got failure that is absolutely critical to social innovation and to any kind of innovation. Lots of things in our daily lives have been the result of failures that led to great innovation. So a good frame for today's conversation is that there's not one type. It's really a whole spectrum, and we want to talk about where on that spectrum the failures sit.

That's probably enough for me. It'd be great to hear from the other speakers.

Kevin Robbie: Thank you. So in terms of how we're running the session today, it's going to be a conversation between us. You, everyone that's joined us, if you were on the last session, how we like you to do this is to flag up, put your hand up if you want to ask a question, put questions into the chat, put comments into the chat. Sofiah has the tough task of monitoring the chat and monitoring the questions while also trying to participate in the conversation, so she'll keep an eye on the chat.

I'm not going to do an introduction to each of the panel because I always hate being introduced. I always listen to someone reading my bio and go, why did I write that? So I much prefer people to introduce themselves on their own terms.

For each of you, to set the scene: tell us a bit about who you are, your role as a funder and how you came to work in this space with social enterprise. We'll start with you, Lisa, and then go around the screen.

Lisa Waldron: Well, thanks, Kevin, appreciate that. Lucky me, I get to go first.

Hi everybody. I'm Lisa Waldron, a Senior Advisor at Westpac Foundation. I'm really grateful to be joining you today from beautiful Gadigal Country, and I just wish to pay my respects to the Elders, past, present and emerging.

I'd briefly like to start by sharing our journey in funding social enterprises, which spans more than two decades. We've had a very deep focus on supporting social enterprises to create real jobs for people facing significant barriers to employment. We talk about WISEs, Work Integration Social Enterprises.

Westpac Foundation in 2018 set a long-term goal to help our grant partners create 10,000 jobs by 2030. And that goal was reached five years early. Since 2015, our social enterprise grant partners have created over 12,000 jobs. But what sat behind this was really our holistic long-term approach. We took multi-year funding, we created deep partnerships and we had a willingness to play roles beyond traditional grant making, as learners, conveners and catalysts. We created unrestricted grants and a pipeline of social enterprises to support at all different stages of development. And alongside this we supported initiatives to help strengthen financial sustainability, investment readiness, access to loan guarantees. Collaboration with other co-funders was a strong part of our approach. And we also invested in capability, resilience, leadership, governance, things like financial management and impact measurement. Being in a corporate, we were able to draw on the enthusiasm and passion of Westpac staff through an ambassador programme. And at a sector level we also led and engaged in research and broad collaborative initiatives to promote and advocate for the role of social enterprise in creating a more inclusive economy.

So over 20 years we learned a great deal about what it takes for WISEs to succeed, including the true cost of impact and the role that philanthropy can play to strengthen the sector.

And over the past month we've actually published two reports. One is "Shaping and Fuelling Change", a really great look back at the role and practices of philanthropy in the social enterprise ecosystem. And the second one, which launched this week, is called "Working Better Together", called a WISE Learn Book.

Today throughout this session I'm going to draw on lessons and case studies in both of those publications around failure. The learnings draw not only on the work of the Westpac Foundation, but insights from social enterprises, other funders and sector intermediaries.

So just a quick plug for the Learn Book. We hope that it helps make learnings visible and useful as Westpac Foundation moves into a new strategic direction. We've designed it to be practical and to support both funders and practitioners to continue to build a stronger, more resilient WISE sector. We hope that it lifts the lid on some of the complexity, the tensions and those really hard-earned insights that don't always make it into the glossy impact reports. And it's a starting point. We hope that it will become part of an ongoing conversation about how philanthropy can support access to decent and inclusive work.

Just quickly, it has three key elements. One is the core WISE insights, which is the main part of the report. The second is four in-depth case studies to bring some of those learnings to life. And the third part is a really practical Grant Making Guide especially for funders.

I'd just like to briefly thank the GoodWolf team for working with us to bring that to life, and I'm looking forward to having some conversations today around the insights in those reports around failure and opening up the conversation further.

Kevin Robbie: Thank you, Lisa. Matt, you're next on the screen.

Matt Knopp: Hi. Hello everybody. So I've been like you, Kevin. I think I worked my first social enterprise in the late 90s, partly by accident I think. But you know, here I am.

I've always worked in what I would say is the risk end of the marketplace. I've been an entrepreneur, field builder and now funder. I've worked with angel finance and VCs, where risk is very much part of the DNA. I then founded an impact innovation firm in the UK which is still going strong, and I left to come here. I've been here about eight, nine years.

So I've always been interested in innovating, always been interested in finding the mavericks and working with them and pushing the envelope a little bit. I did almost six years at Paul Ramsay Foundation, which again has a supportive culture of ambition and risk in what they do. So I was, I think, quite comfortable thinking about this theme of going into things and understanding that, and God knows along the last 30 years I've had a lot of my own things that haven't exactly gone well. So I'm sort of well used to that.

I don't have any reports to plug, unfortunately. But I'm definitely keen to read Lisa's work, sounds great.

Oh, I should say what I'm doing now.

Kevin Robbie: Yes, go. This is a big deal.

Matt Knopp: Yeah. So for the first six months now, I've been working for DEInvestments, which is a really interesting new funder, a philanthropic collective, and we're focused on disability employment. So the plug I would give is that I'm really interested to talk to any social enterprises interested in or working on disability employment, and noting that every social enterprise will have a percentage of their cohort who are managing a disability, whether it's noted or not. So I'm really interested in that and hopefully during this session I have a few things to say on what we're doing and how I'm thinking about funding now.

Kevin Robbie: Great, thank you. Anita, you're next on the screen for me.

Anita Hopkins: Thanks. And I have no reports to plug either.

So we're probably a relatively new kid on the block. Brian M Davis Charitable Foundation, only been around for five years, really only funding significantly in the last few years. Our focus is vulnerable children and young people, so youth employment is one of four key areas that we support. We have overarching themes which are a result of our founder's legacy, where we have a focus on good design, entrepreneurship and creativity. So social enterprise is a good fit under those themes.

To date most of our funding has been a range of core operating support, capacity building, some capital. We don't have hard and fast rules about the type of funding we support social enterprise with. It's really a conversation with them about what they most need.

We had some interesting learnings last year with a number of our social enterprises, which I'm going to talk about later. Unfortunately three of the 13 we were supporting at the time folded. So quite a lot of learning there.

Yeah, I might leave it there for now.

Kevin Robbie: Great, thanks. Alberto, you're next on the screen for me.

Dr Alberto Furlan: G'day everybody. Alberto Furlan from the Ian Potter Foundation, Senior Programme Manager here. I've been here for a while, let's leave it at that.

One of the key areas of the foundation's interest in grant making is around employment pathways for people who are excluded from the workforce for whatever reason. And we have seen and funded in the last 15 years a number of social enterprises because they exist, some of them, for the very purpose of providing employment for people who would otherwise be struggling to get employment in mainstream.

Funded pretty much everything from startups to scale-up expansions, and funded a fair bit also into the intermediaries and sector building organisations that we all know. Now continuing to fund in that social enterprise space, but thinking not at the space as a sector in itself but for what it does, which is essentially employment. That's recalibrated a bit of thinking, because thinking about the sector and sustainability has created some of the issues that we're probably going to discuss today. From my point of view.

Kevin Robbie: Thank you. Stephen.

Stephen Torsi: Hello everyone. My name's Stephen Torsi. I've worked in the social economy for about 20 years on both sides of the funding relationship. For the first 10 years I worked in traditional not-for-profits in a wide range of roles, including fundraising and voluntary board governance roles as well. I've worked on the philanthropy side for about 10 years, and that shift happened by accident really. I was doing a stint in local government and as part of my role was to reinvigorate a local community fund. So it was a really small grassroots introduction to funding local enterprise and social impact organisations.

And then I worked for the Greater Melbourne Foundation for seven years where the focus really was, for me, on social enterprise, particularly Work Integration Social Enterprises. And I would say that I funded most of the social enterprises in collaboration with all of my fellow panellists. It's safe to say that I learned most of what I know now about backing social enterprises from the peers on this call. It's been the most consistent learning experience for me in that journey.

And now I'm having a big holiday, and that's me. Thanks.

Kevin Robbie: In terms of the style of today, we're not going to go around. I want people to be chipping in, feel free to contradict each other. We want to try and make this a free flowing conversation.

But just to kick it off, there's an old joke in Scotland that sort of goes like this: funders are like mushrooms. You keep them in the dark and you feed them shit.

Now how fair do you think that is? Because it flowed from the perception in the sector that it was best not to mention failure. Funders didn't want to hear about it, they didn't want to know about it, so you just kept them away from anything that wasn't working. Is that a fair perception? And how do you actually view failure when you're funding or investing? Who wants to kick that one off?

Dr Alberto Furlan: I suppose the problem with keeping us in the dark is that we find out sooner or later. So we always very much encourage an open conversation and a sharing of issues. A, because we like to know what's happening, and B, because we learn from it. In the spirit of considering failure as a learning opportunity, if you keep us in the dark. And third, if we know, perhaps we can help.

Kevin Robbie: Yeah. Okay, good. Anita, and then Matt.

Anita Hopkins: No, I was just going to say we're starting to have this concept that came from organisational learning theory about intelligent failure. So that kind of well-designed experiment that generates useful knowledge that you can learn from. And particularly because we had a number of organisations struggle last year and not make it, the main thing is what can we learn from it? And if we're not communicated with, we can't, as Alberto said, help, but we also can't learn. And for us that's key.

Matt Knopp: Yeah. I think I'd slightly turn that question around and ask, well, why do people feel they need to keep funders in the dark? And that's a little bit on you as a funder, I would say.

What I always tried to do, and I guess it's part of my personality and how I am, is I really tried hard to make people feel safe. And I did that by usually talking about my own failures up front and creating a vulnerable space, because I think, and there'll be a however and a but here, I always tried really hard and was always so aware of the unspoken dynamic in the relationship.

I do think that funders can try and do that also by how they design their contracts and agreements and how they do their reporting. If you lay things out in a very transactional way, you're going to end up with a transactional relationship which doesn't necessarily lead to good transparency.

But I would say that even though I did all those things and tried really hard, it still doesn't take away some of the reality of that. And definitely if you don't have a platform to be really honest with funders about how things are going, that's partly on the funder number one. But secondly, as Alberto says, we will find out. And if we find things late, you've got so little time to try and work with something. I mean, I've had people say, oh, you know, we might go under next week. And it's like, well, we could have known that six months ago.

So yeah, I would ask everybody: please, please, please don't. But also to funders, please, please, please try your hardest to create a space where you're vulnerable as well and you show that, because I think that works best.

Kevin Robbie: What are the signals that funders are open for these types of conversations?

Lisa Waldron: Kevin, if I can just pick up on that. I think one thing that really did shift at the Social Enterprise Jobs Summit last year, with funders and social enterprises coming together, was the ability to have these more honest and open conversations. I think conversations about risk really often happen too late, and therefore, as Alberto said, it does limit the funder's ability to respond.

But one thing that Luke Terry set the scene with at that summit was talking about the analogy with the Titanic and the iceberg. And I think that's a really great analogy because in theory, in an ideal world, you might have organisations that ask philanthropy to be a bit of a lifeboat as they set sail from Ireland getting to New York safely. That is the direct linear path. But we all know that through that journey, organisations and social enterprises have to navigate around icebergs. And having conversations with us as they're approaching those icebergs is really, really important to help navigate that risk.

But what we have seen is some organisations that leave it too late and have hit the iceberg. And philanthropy, unfortunately, has not learned how to respond to organisations hitting the iceberg. It doesn't know how to respond to that and can't respond in a very fast way, because we all have these structures that we work within. So I just wanted to bring that up and discuss it in the context of the conversation.

Kevin Robbie: Stephen, you were wanting to come in, and then Sofiah.

Stephen Torsi: Yeah, I suppose I agree with everything that's been said. I think also for me, our perception as a sector has changed over time and the signals we give have changed over time.

There's kind of like BC and AC, Before COVID and After COVID. And before COVID there was a lot more certainty in the way that philanthropists communicated their intent and their aspirations in working with grant partners. And I think that tendency has evaporated because we're all a lot more uncertain now.

And it's a bit of a shame in a way, because when I was at Greater Melbourne Foundation, we really signalled that we were committed to venture and catalytic philanthropy. We were like: we will be the first funder, we will accept the risk, we will try and de-risk the risk, and hopefully that will give other funders confidence. So that was a particular posture that we took at Greater Melbourne Foundation, and I think other philanthropists took that as well. But I think that's evaporated quite a lot since COVID, which is a bit of a shame. I think that there does have to be a balance. But it would be good to see some of that return and for us to be a lot more open about philanthropy's role in de-risking or taking on some of that risk.

Sofiah Mackay: Just a great point from James from SVA online about one of the reasons that you might get that disconnect being unrealistic expectations. So you can be kind of open to failing, but if the expectations being set aren't quite right, that can be where the relationship between funder and social enterprise could trip up.

Kevin Robbie: And one of the questions I had was: from a funder perspective, what does failure actually look like? Is it about outcomes not being achieved, flawed assumptions, poor execution? Or is there something else? What do you think failure is, from a funder perspective?

Matt Knopp: I think one of the things that's really important when we're talking about social enterprise is this: if I think about being involved in investing in probably 30, 35 social enterprises, about $45 million, so a big portfolio, I can't think of anything in that portfolio where the failure was that the jobs weren't very good or the quality of the actual outcome wasn't good. It was always a business issue. I might be wrong in that, but I'm really thinking I can't think of anything that wasn't genuinely a business issue.

So what those failures then were, it's a combination. But the first thing has to be said is that social enterprises exist in spite of the system, not because of it. And probably, if I self-reflect, I certainly thought that I and the partner could beat the system. There were cracks but we could kind of get through them. But then when you have a number of things happen, there might be some capacity or capability issue, small, and I saw this more often on the finance side: just having that really strong finance capability for early warning.

But you know, apart from that, I would say it was very much more around some of the things that we just didn't see. Like, you know, it would be a combination of things. Say a procurement contract: if you're trying to scale, and we were putting quite serious money into something that was working and trying to scale it up, when you're funding jobs, it's not just scaling revenue, you're scaling overhead. And then suddenly a small downturn in the market, or a procurement contract, as gnarly as they often were, or a combination of all those things, can spin something around really fast. Those were the sorts of things that would come to mind on social enterprise.

Kevin Robbie: Anyone else want to jump in on that?

Anita Hopkins: Yeah, can I just add, in terms of Matt's point about the failure not being in the impact being achieved or in the quality of the work, because that certainly was our experience too. It was often a business issue. I think a failure on our side was that we'd seen organisations pivot so often, keep trying new business models and new ways of working. There was an expectation that they would be able to keep doing that without an acknowledgement of the sheer exhaustion involved in doing that, and what it takes to keep doing that for a long period of time. And I think that's a real learning for us as funders. And I think that also came out of Lisa's point about the Jobs Summit last year. That was really clear out of the Jobs Summit as well. So that's a real learning for us and perhaps a failure in not acknowledging that it's just exhausting to keep having to pivot.

Kevin Robbie: Now on the basis that 75% of statistics are made up on the spot, I'm going to make one up. One third of businesses fail, give or take. Somebody can come back on ChatGPT and go, this is the exact percentage. But there's a whole host of businesses that, when they start up, fail.

Why is there a perception that failure shouldn't happen to social enterprises? And do you think funders expect failure, or they don't want failure, or failure is something that can't happen?

Dr Alberto Furlan: Yeah, look, you know, we always say philanthropy should take risks, we're all open to failure, we know programmes that don't work and we learn from it. But there's a lot at stake, and when you employ vulnerable people, obviously there's even more at stake. So of course we don't want to see failure in terms of an organisation that holds these people.

But the problem, as Matt said, it was and still is the system. A profound realisation that happened not that long ago, unfortunately, is that unless the outcome costs are covered, most social enterprises will not be financially sustainable as a business in itself. A third of businesses fail when social enterprises employing vulnerable people need to generate 30 to 35% of on-cost to break even. That proportion is inevitably higher. And philanthropists try to mediate between that risk and the reality of things. But the real, ongoing support from government as an ongoing funding stream for organisations that provide employment where there would be none, hasn't happened yet.

So. And despite PBIs (Public Benevolent Institutions) and all the trials, that's where we are generally speaking. Then you have, of course, social enterprises that break even, those that make money. But that's the fundamental problem that philanthropy is, I think, realising completely and trying to address with advocacy to government.

Matt Knopp: Yeah, I think there's, you know, to your point Kevin, on businesses. I work in disability employment now and we're looking at that area. The IEA (Inclusive Employment Australia) contract is worth $1.8 billion. That's $1.8 billion the government spends to get people with some level of restrictive work disability into work. And it has a very, very low rate of success. And yet social enterprises are locked out of that $1.8 billion. And also from the Workforce Australia contract.

So if we just park that for a minute, because it's something we all know: that's the fundamental issue.

If we then focus on businesses, I think most people receiving funding will feel a sense of pressure to get certain outcomes out. Now I never, and I'll repeat this, I never ever in all the funding I've done have ever had an issue with somebody's integrity, or had an organisation not be what they said they were. So there's no issue at all with integrity and there's no issue at all with the desire to create outcomes for people. That's never ever been an issue. I've never had a failure in that area.

So if we take that as a solid piece of due diligence, then what we should be doing is really just focusing and enabling people and saying: make your business great. Just make your business great. Once you make a bit of profit, don't think you then need to employ somebody. If you can just focus on making great, solid businesses, you know, that can then build a bit of cash into their models, then the longer term of actually building out outcomes and proving it will work better.

The problem, of course, is that funding tends to be in two, three year cycles, and people want to see quantifiable outcomes from that point. And I think that in itself becomes the problem.

Stephen Torsi: I can't remember which point I'm addressing here. There's two points I wanted to make.

One was about what failure looks like and I did want to add an additional point about how we all have our own assumptions and biases, and I think they do get in the way. It's sometimes really hard to recognise those. You can try and mitigate as much as possible, both from a grant partner and a funder's perspective. But we tend to have a positivity bias, and I think when it comes to making decisions that can enhance risk and bring on failure. And just wanted to make that point.

And also internally in philanthropy I think there's sometimes a bit of an accountability gap where the tolerance for failure and risk is higher with staff than it is at a governance level. And so that can be a bit of a disconnect that philanthropy has to navigate as well. We might be able to say that we're all about risk and accepting failure. But when it comes to the brass tacks and the actual decision making at governance level, that can fall over.

Kevin Robbie: I mean it was one of the things I wanted to pick up. I think somebody alluded to that earlier around your personal appetite for failure versus organisational appetite for failure and how you as funders manage that within different organisations.

Lisa Waldron: Kevin, just making a quick point on that. One thing that did come out of the Learn Book quite strongly was a recommendation to actually plan for challenges, not just for success. So anticipating that positivity bias, if you like, and actually having those discussions really early. Anticipating that there will be ebbs and flows and ups and downs, and not just growth, and actually factoring that in. Actually saying and planning: what will happen, what will we be able to do to support as you're going through this?

And actually asking ourselves and recalibrating the expectation that those organisations will demonstrate year on year growth because we funded that growth and they said that's what was going to happen. Recalibrating that: that reliance on philanthropy will not necessarily decrease. In fact it will probably increase as they are growing, because their impact costs will grow. And so we've often pushed WISEs to create these amazing forecasts. Yeah, we want to be able to simplify that and not mask the financial risk, and actually just be walking alongside them and asking those organisations: what does this organisation need from us at this point in time? And that's a new way of working.

Kevin Robbie: Okay, great. Without naming names, it might be useful for people to talk about a memorable failure that you have been involved in. What happened? What did you personally learn from it? And if there's a good news story, how did you work with that organisation through it?

Lisa Waldron: In the WISE Learn Book, there are some great case studies that talk about failure. I think we've all worked through a few closures of social enterprises, sadly. But the message has come through that not all those failures are in impact or leadership, they're because of those structural issues.

For one organisation, I believe it was the true cost of employment and the impact costs that could not be covered by trade even in strong years. And what we learned was that philanthropy and the market really could never fully pay for what was actually being delivered by the social enterprise. And the system is not currently funding those impact costs. So that makes it quite challenging.

I think we also saw in another organisation, where we were funding the growth plans, that they were able to recognise really quickly that those growth plans were not going to achieve the forecast that they expected to achieve. But what we learned from that was around when we are funding growth, to actually have those conversations about risk early. Because what happened was that they actually didn't ring-fence the growth of the organisation in the new sites from the core organisation. So when the growth at the new sites was impacted, so was the whole of the core of the organisation.

So there are some learnings there. And that's also coming out in the case studies in the Learn Book, around keeping those new growth elements separated from the core business to be able to help buffer some of that risk. So just a couple of examples, there are more in the Learn Book from my perspective.

Matt Knopp: Well, one of my favourites would be an organisation that got a big social procurement contract. I say big: the legal agreement was like 250 pages. Anyone would have struggled looking at the complexity in this contract. And they thought they would do in terms of delivery quite a sizable amount of money, like half a million dollars. And they had somehow not quite delivered on a particular aspect of this which was buried in the contract, which they didn't have the resources to really understand. And they'd already put this into their net profit and that suddenly didn't materialise.

So what did that teach me? The devil's in the detail with social procurement. Don't look at the top line numbers and go, oh, it's all growing, everything's great. You need to go, hold on a minute, all the risk and the zero margins are getting passed to social enterprises from these contracts. That's what that taught me, because they really had no fault in it.

Another example: an organisation just grew incredibly fast. They went from around $3.5 million to $15 million in like three years. And it was wow. But then when we actually really dug into it, their margins and cash flow were just pushing them into more and more cash flow trouble. They just kept on taking on more business, kept on taking on more business, and by the time we were actually aware of this, they were a long way into trouble. The owner was trying to absorb the cost themselves. And like anyone else, we had systems and procedures in place. We didn't have the ability to just turn on a key and bail out. It would have taken, with the best will in the world, about six weeks. So we had quite a lot like that.

One of the things that was a red flag, I realised later, was when somebody calls you and says in a casual way, oh, is there any chance you could advance our second year grant? And at first I was like, yeah, sure. And then I realised that was a red flag that I needed to actually go do a lot more digging on. So that's something I now watch for.

Dr Alberto Furlan: Learning from failure is also for the organisations themselves. Because don't try to be what you're not. A lot of organisations try to expand into businesses or aspects of their businesses that they fundamentally are not able to deliver on, despite or in spite of the support of funders, and then almost inevitably come to a pretty nasty conclusion. It's partly the funder's fault but also the organisation itself needs to realise that it really can't or doesn't really want to do that aspect and admit it.

And this happens because organisations chase numbers of employment placements, often because funders measure success on those numbers rather than on the consolidation of the business itself and the longevity of it. So just be honest with yourself, and even don't go for that grant if the environment it produces in the long term is worse than the one where you don't have it. So that's one of the learnings.

Kevin Robbie: Stephen, Anita, any thoughts on this?

Anita Hopkins: Yeah, I was just thinking that social enterprises seem to have an extra barrier to leap over with funders. If you look at a charity that we support that's completely 100% relying on philanthropy, and then a social enterprise, it's an extra leap that social enterprises have to make. They also have to have a successful business.

And I think part of the issue we had last year was that organisations who were struggling because of the market and the system they're in, there wasn't an acknowledgement by the funding community that we would have to accept that there would be less impact for a short period of time, to give them a chance to get the business back on track.

So for us the learning from that has been to look at it from a portfolio approach, where some are more down the charity end, where some of their revenue will come from business but they're going to rely very heavily on philanthropy, and then the other end where we fund social enterprises where 90% of their revenue comes from business, a real commercial entity. So that kind of portfolio approach to risk, where some are at one end of the spectrum and some at the other and we just have a good mix, is also a good way to manage the trustees' expectations around supporting social enterprise.

Kevin Robbie: Now Alberto, when we were setting up this session you gave me a view that linked into what Anita was saying there. Do you want to share it?

Dr Alberto Furlan: Yeah. I've sort of come to not quite a conclusion, but another frame of mind around social enterprises. I prefer to consider them as charities that trade rather than businesses that do good. And that broader concept, of course I don't want to offend anybody by saying you're a charity when you see yourself as a business. That's not what I mean. But what I mean is that the same pressure that we've historically been putting on charities who are relying 100% on funders is doubled when we put it on social enterprises that trade for even 50% of that.

Instead we should be extremely happy that our charity only needs 50% of income because the other 50% is taken care of by business. But we've seen that as a failure. We've seen the 50% generated by trade as a failure of not being 100%. In broad terms, we just need to slightly reframe.

And to the point Matt was making earlier, we should all look at normal for-profit businesses if they are the avenue of creating employment at a broader scale for people with disabilities, for instance. So we often now fund programmes that support employers to have the tools and the capacity to employ people who are very diverse, via not-for-profit obviously, because we can only fund not-for-profits. But we need to look at the whole spectrum of stakeholders and the broader picture. What are the outcomes and what are the efforts and where should we direct them?

Stephen Torsi: Thanks, Kevin. I realise there's a bit of a theme running through my answers and it's quite existential.

I do have a really good example, from COVID, surprise, surprise. Right at the beginning of COVID we still had our regular funding rounds running. But we realised that we had to do something to introduce a COVID element to the funding. So we introduced that as well. So we suddenly had two things running that were not quite connected. They were kept siloed and separate and we weren't learning from both of them at the same time. The regular rounds kind of acknowledged what was happening, but it was still kind of business as usual, which I think just hindered the decision making at the time.

And I had this one project that had excellence written all over it, but the harsh reality of lockdowns meant that the work just couldn't happen and the project was kind of shelved after 12 months. And how do you anticipate that?

I think acknowledging that level of uncertainty is now the new norm. That we're constantly dealing with black swan events that can completely sidetrack us all has to be central to our decision making, and we're having to constantly learn and redesign how we're funding. And equally our grant partners have to be doing the same thing.

So the thing that I learned from that was particularly for a partner: can they demonstrate that they are actually focused on building resilient organisations and that they are acknowledging that this is the norm? And what does that mean in terms of how they're embracing agility and continuous learning?

Kevin Robbie: Anything coming up from the chat, Sofiah?

Sofiah Mackay: Yeah, look, a few things. In terms of what are we talking about when we're talking about failure, there was a good one: is the beneficiary left worse off than if nothing had been done? So for one person, that was really where failure lies. And the financial stuff is just the risk and the stuff to be managed.

People talking about not being a level playing field with normal business, that social enterprises are in that very awkward in-between space and are held to very high standards.

There's Caroline talking about funder burnout as also a risk of failing.

There's a couple of questions coming through. Someone's interested in how to think about failure in terms of different types of funding: grant versus loans or loan capital. Is there any nuance to how funders are thinking about failure based on the type of funding? And the role of boards was the other question coming through in this whole space.

Kevin Robbie: Anyone want to pick up on any of those themes?

Matt Knopp: Well, I mean, I've done loans and I've done grants, and with a loan it is a different conversation because there's a returnable aspect to it. On grants you can take a much more pure view, this is just about impact. A loan is a mechanism.

And what some of my colleagues at Ramsay would say, back when I was working there, was that some of the frustrations if the loan goes in, the view was: oh, it's coming from a philanthropic org, so I'm sure they'll be able to forgive it or something. And it's just not. We can be agile and we can react to situations and we can put things back, but we still want to behave like a loan fund.

I think you always want to ask: what is the right type of capital? You don't want to put a loan into something where there's not very clear evidence that it can create a repayment. And I would say a failure has been that I definitely, a long time ago, put a loan into somewhere where it should have been a grant. And that created a bit of a millstone on their balance sheet, which to this day I regret. It stopped them from growing because most social enterprises have vulnerable, shaky balance sheets half the time. If you put a million dollar loan in there, it does make progress sometimes harder.

Kevin Robbie: And picking up on that theme, and given we've gone through a whole period now, some of your organisations having been supporting social enterprise 15, 20 years, we've got this learning. Lisa, you've talked about the publications that are coming out, there's a whole set of other work coming out reflecting on this. What do you think the barriers are to greater collaboration across funders, between funders and impact investors, to actually get the right capital mix for social enterprises?

My caveat to that would be acknowledging that we know impact costs are a big factor, particularly for the WISE sector. And also that it can often take five years just for a mainstream business to break even, and lots of grant funders have three year or one year cycles. So with those caveats in there, what's the barrier to collaboration? Could we have more collaboration and what's stopping it on the funding and investment side?

Matt Knopp: I'll let someone else go first, but I've got a view.

Dr Alberto Furlan: Well, just structurally as a concept, we're putting a little too much emphasis on social enterprise as a sector, as if everything should be uniform and have one solution because it's a sector. You know, you wouldn't ask the same question you just asked, Kevin, if it was the business sector. What stops investors collaborating on funding a business? They're competing, they're not collaborating.

So why are we treating social enterprise in a different way? Because there's a not-for-profit element to it. Of course there is. So it's really complex because it's ultimately a mission-driven, welfare-driven, charitable-driven exercise. We want to squeeze it into a system that has got very little charitable ultimate end game involved in it.

So there are mechanisms that can help fix it, but the broader concept is a bit of a strange question.

Matt Knopp: I think it's really important to point out, because we've been talking about funders like it's this coherent group, but every funder is very different. Every funder has different levels of funding ability and a very different culture in their board and a whole set of different views and outcomes. And you know, as Alberto's talking about employment as a focus in his portfolio, as it is in mine, that's very different to social. What's good for social enterprise is a different focus from what's actually, what are we looking for in employment?

73% of people in this country are employed by a commercial business, 1.6% by a social enterprise. If I'm focused on employment, social enterprise has a lot of value in how it can demonstrate a good workplace, but it's not where the jobs are as well. So not everybody's going to be coherently aligned around this.

What I would also say is that if we all want to come together, what we need to do is come together and be dead-eye focused on trying to change some of the policies around the fact that the government gets a product from social enterprises they don't pay for. And they get a great product, actually, that they don't pay for, and that's a problem. And until that's solved, you're funding survival rather than getting something to bloom. So that would be my call out: everybody can kind of coalesce around the fact that some of the big work contracts out there need to involve social enterprise getting paid for them.

Sofiah Mackay: Caroline had a good point linked to this, saying that maybe the focus needs to be on inclusion and health and wellbeing benefits of social enterprises as well as employment, to reduce the expectation of 100% financial viability. And she's referred to the Trieste model, which is all in the chat. I'm not across that model, but Caroline, maybe you can share it through chat.

Kevin Robbie: We're in the last few minutes, so I want each of you to think about one final question. If you could go back to your earlier self, and you can make that as early as you want, and say one thing about failure to your earlier self that would have influenced your career in a different way or influenced a funding decision in a different way, what would it be?

Matt Knopp: Beware the myth of personality.

Kevin Robbie: Do you want to elaborate on that?

Matt Knopp: I think it's a natural thing because we're all human. Sometimes getting carried away with the sense of the hero entrepreneur and what they can achieve, and wanting to back them because we just think they're amazing, all of those things can be true. But sometimes being so taken by that, we take our eye off some of the harder things that we need to think about. And I think we've all, if we're honest, gone that way. Maybe not Alberto.

Dr Alberto Furlan: Guilty as charged.

And I think, to the point I was making before, look at the organisation itself, not as part of a social enterprise sector, because some of the pressure we put on those organisations is because we were expecting something from the sector: employ more people, break even, scale up, be 100% sustainable. We put pressure on organisations because of the concept we had of a sector, which in part we still have, without the fundamental funding from government you talked about, which is what makes it sustainable in other countries.

Lisa Waldron: Kevin, from my perspective, we saw at the same time a whole range of organisations undergoing governance disruption, funding uncertainty, cash flow pressures, all sort of converging within their organisations, but across multiple organisations at the same time.

And I guess we created a bit of a response to help those organisations strengthen their financial capability and focus on their recovery plan and really conservative financials. And we approached it with transparency. They approached it with transparency about where they were at, what needed to change and the role we could play to support them.

So what I'd like to see, looking back now, is to help make those learnings from failure more visible so that the next generation of social enterprises don't have to relearn that. And that there are ways that social enterprises and philanthropists and funders can actually navigate this work together, better.

Kevin Robbie: Anita, Stephen, what would you say to your earlier selves?

Stephen Torsi: I think my point is probably the same as what Matt and Alberto have said, but in a different way.

It's like just beware of overstating your own potential impact and the potential impact of everyone else that's working in the social economy. Because there are so many countervailing forces that it's almost impossible. And really when you look at the trajectory we're on, we're on a path towards catastrophic failure. So really, what are you doing? You might be kind of walking around with a dustpan and a brush at an earthquake site. So just be careful of that.

Kevin Robbie: So that's really depressing. Okay.

Stephen Torsi: Sorry.

Anita Hopkins: That's okay, Anita, you can do the uplifting.

Yeah, well, I was going to, because Stephen's dark view of the world, you know, and we're certainly heading in this direction. I think there needs to be more creativity, experimentation, support for collaboration across the sector. And there you go.

Kevin Robbie: Well, thank you, Lisa, Matt, Anita, Stephen, Alberto, for a fabulous conversation. I think we probably could have gone on for another hour. I had at least another 10 questions to ask you and there are a few more that have come in. But thanks for that, thanks for your honesty, thanks for the conversation. And I'll hand back to Athanasia now.

Athanasia Price: Thank you so much, Kevin, Sofiah, Lisa, Matt, Stephen, Alberto and Anita for sharing all of your thoughts today. I loved, Lisa, that you kind of brought us full circle with your point on transparency, back to the mushroom provocation from Kevin.

I got a whole page of scribbled notes. I love intelligent failure, Anita. I'm sitting, Alberto, with charities that trade versus businesses that do good, and how important that is as a question of narrative. Matt, recognising and labelling the power dynamic and ways to work around that. And I've scribbled so much. And Stephen, there were points from you as well but now I've scribbled them all and they all sit on top of each other and I can't find them, and it's time to wrap this up.

I appreciate it. And a shameless plug for the Social Enterprise National Strategy: a lot of the issues that you all brought up came up from the sector in that, and we will start hoping to convene and collaborate people around those issues.

So thank you to everyone. There was a really great active chat there as well. Audience, thank you for participating and turning up. We do want these learning opportunities to continue to be shaped by all of you. So before you jump off please take a minute to complete the survey that's going to pop up on your screen.

Huge thanks to the Department of Social Services for supporting all of these different conveners to share their own learnings. And to the Social Enterprise Australia crew who do the behind-the-scenes work here, you can check out Understorey for more upcoming open learning sessions from your peers across the sector. And we look forward to seeing you at further ones.

See you later.