Mark Daniels On An Untapped Social Procurement Treasure Chest That Could Create Enormous Social Impact

Mark Daniels has developed a deep understanding of social enterprise through roles in government, as a social enterprise manager and through his work with Social Traders where he has been heavily involved in the development of the Australian social enterprise sector.

A constant and emerging area of Mark's work has been social procurement as a tool for delivering goods and services as well as social impact. Mark is one of Australias leading thinkers in social procurement having been involved as a buyer, as a seller (via social enterprise) and over the last 8 years as an advocate and enabler for corporate and government buyers to socially procure from social enterprises.

Mark shares his experience and opportunities for social procurement, as well as providing strong insights into the future of the social enterprise sector and tips for social entrepreneurs.

Highlights from the interview (listen to the podcast for full details)

[Tom Allen] - Could you please share a bit about your background and what led you to working in the social enterprise sector?

[Mark Daniels] - It's a windy path, just like everyone's journey, I think, in this space. I used to run a public housing estate in Melbourne. If anyone has ever been to Fitzroy in Melbourne, it's on the corner of Brunswick Street and Gertrude Street; four high-rise towers. I was working there from about 2000 and it was a pretty tough place. We'd had a heroin epidemic in Melbourne and there was an estimate that the three high-rise estates in Fitzroy, Collingwood, and Richmond were generating about $300 million of heroin trade a year.

One of the consequences of that is that the estate was incredibly undesirable to live in. We were collecting 2000 syringes a month. We had 125 vacant properties, which is 15% of the community and there was a waiting list of 40,000 for public housing, so people would rather be homeless than living there. At 25% annual turnover, so the whole community left every four years, and we had 95% joblessness, which is pretty consistent with any public housing estate.

I guess what was really interesting for me was I was given a bit of license as a place manager to create change in that community, and there was a really strong political desire to make it a more desirable place to live, and part of that was due to... There was an exposé in the Herald Sun unfortunately, and we were on the front page for three days in a row. "High Rise Hell," "Towers of Terror" and eventually we got to page 16 by Friday. The government responded really rapidly and put 24/7 security in the base of every tower. They invested in upgrading the assets, so 800 flats got upgrades over the next 10 years. We invested in community development, but what was really interesting was that you could stabilise the problem, but you couldn't address it as long as the role models in that community were drug dealers, and they were.

Drug dealers were the ones with Mercedes and BMWs. 50% of this community was under 18, so when you're trying to figure out what you want to be in life, and you see guys with BMWs and Mercedes and everyone else walks, because they can't afford a car, or they've got a 35 year old car, whatever it is, and you can make 100 bucks running heroin very easily, that's where you tend to go.

We really wanted to change the profile of working people in this community so that it went from 5% working, to a higher level. We tried to do that by influencing other employers in the area, and it wasn't very successful. Most of the people who lived there had very bad CVs, and they weren't very appealing to employers.

I guess the epiphany, we had a moment one day where we realised we were the biggest spender in this community, and that we weren't creating jobs for local public housing tenants.

That was the point where you say, "How did I get into this sector?" That was the point where I got into this sector. It was about 2002, and we had a million dollar cleaning contract coming up, that was across Collingwood and Fitzroy high-rise estates.

We got permission from the Director of Housing to put in a clause that said 35% of the labor force must be public housing tenants of the Fitzroy and Collingwood high-rise estates.

Wow.

It was a point where I went, "Wow, just by playing with our procurement, we created 15 jobs for public housing tenants that wouldn't otherwise be working," and our joblessness rate moved from 95% to 92% in one fell swoop.

We just went, "Wow, this is cool." A year later, only one of those staff members had left, so the job retention rate was really high. The quality of the work was fantastic. It was a private company who employed them, but then that led us into looking at other contract opportunities. We looked at maintenance, and we brought in a requirement that a percentage of the maintenance labour force was to be public housing tenants, and then eventually we worked with the Brotherhood of St Laurence, who were a welfare organisation directly opposite the estate.

They said, "We're really interested in this social procurement stuff you're doing, but we'd like to set up a social enterprise, and we want to employ public housing tenants, and then, after they've gotten 12 months work history, we want to pathway them into the open labor market."

We looked at contract opportunities, and together agreed that the greatest opportunity was in security. We took the 8:00 a.m. to 4:00 p.m. security shift from Monday to Friday, and the Brotherhood went and developed a model. It was a concierge type model, rather than a security company, but they would have a restricted access system, they would do referral and information for people who lived in their building. They would know everyone who worked there, they would take a general interest, they'd do interpreting and translating where need be.

We started that in 2003-2004, and so that was the first social enterprise I actually was directly interacting with. It was so impressive that I eventually left the housing office at Fitzroy and I went to the Brotherhood of St Laurence to run that social enterprise, and a number of other social enterprises there. What we found that was really fascinating, was that we were creating 12 jobs (and now it's 20 jobs a year the Brotherhood generate out of this), and 80% of the people who started working who were all long term unemployed, went on to maintain jobs in the open labour market at the end of their time in that social enterprise.

Though, it was quite profound for me to realise that you could create a business that existed to employ disadvantaged people, and that it could cover its own costs, and deliver amazing community benefits. The Brotherhood; I ran a commercial cleaning company, that concierge service, we did street cleaning, we did landscaping, energy retrofitting. We had about 40-45 disadvantaged people working for us at any time, and that was a real learning.

I guess just to finish the story on the high-rise, I stopped working at the Brotherhood in 2008, so I exited that community in Fitzroy and what was really important, and powerful I guess, was that that estate had been transformed through a whole range of interventions, of which procurement and social enterprise were just one.

But we'd gone from 2000 syringes a month to 400 that we were collecting now, so it was much less desirable to buy heroin on that public housing estate. We'd gone from 25% annual turnover to 10% annual turnover. We'd gone from 125 vacant properties to a six year waiting list to get into that estate. Probably most tellingly from a social enterprise procurement perspective, we went from 95% joblessness to 81% joblessness.

There aren't that many people who can work in those communities, but we've moved the dial dramatically, and so there was a different vibe in the community, 'cause working was seen as more normal.

That's left an indelible mark on me, that you start to play with things like procurement and business and social enterprise, and you can actually generate incredible change that couldn't be achieved effectively through any amount of government money being thrown at a solution, for example.

It's certainly been a very rewarding experience for you, by the sounds of things, and obviously shaped the position, and what you're doing today with your work. As Executive Director then at Social Traders, can you please tell us more about the recent shift and the focus for this organisation and how it's supporting the social enterprise ecosystem?

The real shift at Social Traders is that we've gone from an organisation that was very broad, so we were created in 2009. We were looking at a whole lots of gaps in an ecosystem that was, well, there was no real ecosystem in Australia at the time. It was a fledgling ecosystem. We're not responsible for dramatically filling all gaps, but we started to identify that there were a few key gaps where we thought we could make significant impact.

We're largely based in Victoria, so some of that was very Victorian specific, and some of it was national, the work that we did. The first thing that we could see was a lack of support for startup social enterprises, so we developed an incubator, or an accelerator, and that was called The Crunch, and The Crunch worked with social enterprise, social entrepreneurs, to take their ideas to investment readiness.

What we realised at that point, was they needed finance, and there wasn't the right finance types in Australia at the time for them to access quite often. So, we started to also do investment, and so we had an investment fund and it was a mixture of debt and grant, and we would be one of the investors in many of the social enterprises that we felt were going to be viable businesses moving forward.

So that became a second part of the organisation, running a portfolio of investments. We also did sector development work, running conferences and awards, and doing some research and partnering with others. And then the fourth element really was around advocacy. A lot of that advocacy was around the development of a social enterprise strategy, around raising awareness of the needs of the sector. It was also around procurement, and procurement became a really interesting and I guess distinct element of our work.

It was really influenced by the massive opportunity that existed. I mean, procurement's most of what government and companies do in Australia, and if you can access that money, you can drive...

It's like opening up, in my experience, a $600 billion treasure chest to social impact, that's not been tapped into at this stage.

What we did over time is I continued to do bits and pieces around social procurement. It was like a quarter of my job. Eventually we tried with governments, and sometimes governments would be interested, but really there wasn't a strong driver at that point for any government to really do this. There probably wasn't sophistication in their procurement to allow this to occur. They didn't see it as a really strategic function.

At one point government closed down and in about 2013, we started to convene a corporate round table. We were working with a consulting firm called The Faculty, and they are blue chip consultants in procurement. They did something really interesting. They allowed us to access their customer base and speak to corporates every quarter, and we would educate the corporates on social enterprise.

Then, they were there because they were interested in delivering social impact through their spend, and by the end of 2014, or by the start of 2014, we'd done a report into corporate social procurement in Australia, and what became evident was that corporates were really interested in buying from social enterprise. It was actually on their list of priorities, but it was very low on their list of priorities.

Fundamentally they're there to save money and manage risk for an organisation, but what we started to see was, "But we also can see the benefit of delivering positive social and environmental externalities, but we need help to do this. We need an intermediary to support us to buy and find social enterprises, to meet other buyers, and identify what best practice looks like, to measure the impact," to do a whole range of things that they considered essential.

From our perspective, we really took that opportunity and said, "Well, we're going to build that service to respond to the opportunity." We got some funding from the Ian Potter Foundation, which was pivotal I guess, for us, in developing this. From mid 2015, and we actually launched in late 2015, we were running a marketplace. It was called Social Traders Connect initially, and it was really about linking buyers to social enterprise suppliers.

We developed a suite of services for buyers, and we slowly got buyers onboard, who would pay us an annual fee. By the end of 2016, we realised that this was a big opportunity. We probably had about seven or eight buyers onboard at that stage, probably about 40 or 50 social enterprise suppliers, so that was our marketplace, but we could see enormous scope. By the end of 2017, we did an evaluation with the Centre for Social Impact at Swinburne, and we'd enabled over 20 million in deals in FY '17.

What was really interesting was that would create in our estimate, about 300 jobs for disadvantaged people. We were at the beginning of our journey, and we could see that we could already potentially enable the creation of 300 jobs for disadvantaged people, so what happens when we hit scale in this marketplace?

We were really excited about that, but we were also noticing this big asymmetry in the marketplace, which is our buyers are very big. They buy billions of dollars of stuff. They are the biggest companies in Australia and government departments. There was a bit of a mismatch between what they'd buy and what our suppliers sold, and the scale they buy at, and the scale our suppliers look at.

We made a decision as an organisation, in about September last year, that we would stop doing all of the functions that Social Traders has traditionally done. The market has moved a little bit, so our incubator, The Crunch, was finding it hard to find the best talent coming through. We stopped running our portfolio. We decided that everything we did would be based around a marketplace and that instead of doing capacity building for startups, we would do it for our existing social enterprises that were certified, and were trying to win work from corporates.

That was our way of trying to address the asymmetry in the marketplace; was we would become a capacity builder, we would get real intelligence from our buyers to inform some of our suppliers about the opportunities that existed. We would run a really slick marketplace, where our suppliers were constantly being exposed to what buyers were looking for, and those introductions were occurring on a regular basis.

That was a huge strategic shift for us, driven by a massive opportunity from impact, as we can see it.

We've currently got 28 buyer members. A year ago, we had 15 buyer members. We think we'll have over 50 buyer members by the end of next financial year, and we'll have whole of governments engaging with us.

If you think about that, even if a buyer's only spending a million dollars with social enterprise, you're talking about in excess of 50 million in deals per year, through that sort of process. We can see it potentially involving hundreds of buyers over time, and we think the opportunity's enormous, and it's addressing a huge issue for social enterprises, which is how do you get in front of corporate and government buyers who wouldn't normally buy from you? That's the door that we're opening to these organisations.

Well, it sounds like it's been certainly a very rewarding journey as you work through all those different parts of support, and to end up where you are now. You spoke a little bit about how the sector has transformed over those past 9-10 years. Where do you see it heading in the coming 5 to 10 years?

It's a really good question. I mean, we see the world from our perspective, and our perspective has changed in the last 12 months. We're really driven by the deal, so the deal is what drives our behaviour and opportunities. I think other people are coming to the same realisation, that we've had investments in Australia, and so there are a range of forms of social investment. There are a range of capability programs, but probably the opportunity that's been laden for a long time is how you tap into the marketplace to deliver more impact. How do you open those markets up?

I think that's going to be a big growth area moving forward. I mean, if I think about the patterns that we're seeing now, I think a lot of these are going to multiply and become much more significant moving forward. My son's in year 10 at school, he's about to do a unit at school on social entrepreneurship for the second half of the year. Which I think's amazing, and it's not because I'm his father that he's doing a unit in social entrepreneurship. Every kid in year 10 at this school does a unit in social entrepreneurship.

Now, it blows my mind to think that in 10 years' time, most kids who have gone through high school will understand what social enterprise is, and will be aware of what it delivers.

That's going to be transformational. It won't be anymore just about, "My options are I can run a business or work in a business, or government." It'll be, "I can run a social enterprise as well." I think youth coming through, I hate the term youth, but nonetheless, younger people are going to revolutionise social enterprise, and it's an easy and obvious statement to make, but I don't think I'm speaking out of turn.

When everyone learns about this, they'll actually see the beauty of it, which is what we see every day. I just think the more people that hear about this, the greater exposure, the greater the market opportunities, the greater... These people are going to be buyers in organisations, they're going to be working in banks, they're going to be everywhere.

I think the awareness of social impact is going to go through the roof in the next 10 years.

I think what we're seeing is more daring. I'm seeing social enterprises doing things that were probably happening in the past, but I'm hearing about them more often now.

[inaudible 00:19:27] mainstream businesses, scaling, revolutionising sectors. A bit more audacious than we've seen before.

When I think about what Thankyou and Who Gives A Crap do, they actually are raising the profile of social enterprise in a way that we've never seen before. When I think about Resource Recovery Australia is doing, they're buying out commercial businesses. They've invented product stewardship around mattresses. They've created whole new business lines that weren't even industries before.

That's the audacious nature, I think, of what we're seeing.

I think that social enterprise support will become part of mainstream incubators as we move forward as well, and we're starting to see that already.

I think the social enterprise strategy in Victoria is really interesting, and the fact that we have one in Victoria gives us an opportunity to argue that we should be having it in other states as well. And the social procurement framework, likewise.

Then, my last point really is, I think we're seeing a growing sense of sector that we haven't seen before, and I think that's going to become more significant. I think initiatives like ours, Social Traders, really help with that. Because we actually bring 200 and hopefully over time, 600 social enterprises together, in a community, to sell to buyers. You're inevitability building community through those structures.

Things like QSEC (Queensland Social Enterprise Council) really build support within an infrastructure. I think we're going to see more and more of a stronger identity among social entrepreneurs in the future, as well.

Well it certainly paints a very promising picture, and that's great to hear. We'll certainly look forward to watching that evolve, and being part of that as well. What do you see then, Mark, as the most important traits of successful social entrepreneurs?

It's a really good question.

I was just reflecting on who wows me, and what are their qualities in this space? I think that two qualities that come to mind immediately are being tenacious and resilient.

I don't think that's going to be that different to anyone who runs an SME, at the end of the day. You have to be tenacious and resilient.

I do think in social enterprise, perhaps there's an added level of tenacity that you need in doing this stuff.

Maybe that's passion, because I think that's the other quality, but I would say you have to be passionate, but you also have to be empirical in the way that you do things. If you're just all passion and no substance, you're going to be found out very quickly in this space.

There is a unforgiving nature of business that no matter how lovely you are and how much you care about what you're trying to achieve, no one will buy it if you're not solving a problem for them.

The last quality, I think, is being skilled in solving business problems.

If you're not skilled in solving business problems, you won't be able to solve social problems, either. If you can't get the business right, you are not building a platform for social impact.

socialtraders-certified-social-enterprises

Are there any countries then, Mark, that you believe are really leading the charge when it comes to social innovation? If you do think so, what are they doing that you think Australia or other countries globally could adopt?

I think it's an interesting question, and my lens has got narrower and narrower, because we've become more specific about what we do over time. Years ago we were thinking about all the possibilities of social enterprise and social innovation. The last 6 to 12 months, I don't think about anything other than deals, basically, and that's what drives us, and how do you enable deals to occur?

I actually did, again, Ian Potter Foundation sponsored me to go to the UK last year, so I spent time in Scotland, with CEIS, who do a lot of work around the Social Enterprise World Forum, and also with SEUK. I guess what I thought was that we're not following the world at all in our work.

I actually think the support structures we have, the frameworks that are emerging now, our work on social procurement, are as good as, if not better, than any other country that I'm aware of. I don't feel like we're trailing, and it's not arrogance at all.

We're learning from organisations like Supply Nation, so for us, they're an organisation that's been working with Indigenous business to grow government and corporate spend with those businesses, in order to grow economic wealth in Indigenous communities, and Indigenous role models for younger kids as well, who are business owners.

Because only .1% of all businesses are owned by indigenous people, but they're 3% of the population. That inspires me, and the way they've gone about it, and the policies that have occurred at federal levels, and at state levels, as a result of their initiatives. I guess in answer, I think other industries are probably more interesting to me than the social enterprise space at the moment, in terms of learnings.

It would be interesting to reflect and discuss those points at this year's Social Enterprise World Forum in Scotland, as well, where obviously CEIS and SEUK will obviously be very present. In fact, CEIS are leading the charge of the organising. I'll look forward to seeing you there, as well.

Yeah. It's certainly not a slight on any work that anyone's doing. It's interesting, when I was in the UK, and I was down in London, they've got something similar to what we're doing here at Social Traders, but it's at the beginning point. They're early in their development, they've got about 12 corporates that they're working with, and their offers are emerging over time.

I think they've realised, they've had the same realisation that we've had. I know in Scotland, there's elements of what we do, but I don't think... I think we've followed other models, and I don't know if they're following us, but they've arrived at the same point, at around the same time, or they've taken longer to get to the same recognition, and same sorts of models.

Very interesting to hear your experience. Coming close to the end then, Mark, what advice would you give to corporate and government buyers, to incorporate social enterprises into their supply chains?

I would probably say there's a really important strategic decision that you need to make in your organisation.

There's no point in doing this if you're doing it half cocked. You really need to be committed to doing this sort of stuff, because effectively what you're doing is you're redefining value, and I think people have to get their heads around this.

It's not a, "Oh, we might do social procurement on the side." It's actually saying, "No, social procurement actually becomes part of the value that you capture. Social becomes part of the value that you capture when you're buying stuff." Procurement's traditionally driven by price and risk, risk management.

But I think what we're starting to see are buyers who are also saying, "Well, how can we also deliver social and environmental impact through our spend?" That's because there's other value that they can capture now.

This is a new value stream to corporate Australia, and that value, what does it look like in reality? It looks like one of the greatest stakeholder engagement pieces you can potentially do.

Because it's really appealing to staff when you start to buy from social enterprises, and your organisation can tell the story of how they've integrated social impact into their business. Staff attraction and retention constantly come up from us, from corporates and governments, about reasons why they do this.

The other factor that's really interesting, and is probably not something that I was even conscious of until about six months ago, was the role that investors are playing in this space. Investors, and I'm not talking about me as an investor, I'm talking about the biggest investment houses in the world, are now looking for social impact through their investments.

They are now starting to drive a different expectation and procurement is one of the methods through which these companies can deliver that, and then the last piece is around customers. This is a great way of driving brand equity, and demonstrating the values of your organisation to your customers as well, and we're seeing that all over the place.

We're starting to see corporates winning work from each other because they do really good social procurement. It's being asked for in the tender documentation. It's actually potentially competitive advantage in the marketplace.

Well you've certainly framed that in a very attractive light, that's for sure. So, to finish off then, Mark, what books would you recommend to our listeners?

It's funny. I'm reading Anne Frank's Diaries at the moment, and I'm really enjoying that. But it has nothing to do with what we've been discussing. I was reflecting on which books I've read and some of these books will be really common in the library of books that Impact Boom hears about all the time. Books like "The Tipping Point" for example. I will be surprised if nearly everyone doesn't mention that.

The two that really interest me, and have been pivotal to my journey, one was "The Walmart Effect," and that was interesting because it actually talks about the power of Walmart as a buyer, and as an economic force when it comes into a community, and it can be quite destructive, and it can be quite powerful. Depends on how they frame it, and how they engage their supply chains and staff and so forth.

The other one is a book called "To Sell Is Human." For me, I would never call myself a salesman, but I have spent a lot of time influencing and advocating, and I had to think about how to do sales because we sell a lot now. We've got 28 customers who are buyers, we've got a whole lot of suppliers who are customers, and we're going to have a lot more moving forward. For me, it was great to sit down and read a sales book that was actually written not for selling widgets, but for actually selling value, and so I found that a really good book to read.