Luke Terry On Getting Funded, Creating Change & Measuring Impact As A Social Entrepreneur

Luke Terry is the founder of several large scale employment focused social enterprise projects including Vanguard Laundry Services, Ability Enterprises and Work Restart. Luke is also the QUT resident social entrepreneur.

Luke has a founding belief that all business can be used as a tool for social good and community transformation.

Luke shares key insights from his journey founding some of Australia's leading social enterprises, provides strong tips for entrepreneurs & suggestions for government to improve support of the social sector.

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?

[Luke Terry] - I grew up in a quite conservative family in Western Sydney. I remember going to my careers advisor. I was doing a little bit of stuff, a little bit social and a little bit of business. I was the kid at school who was doing lots of business plans and also trying to volunteer and help out where I could at the same time. I remember going to my careers advisor and saying, "I want to do something a bit business and a bit social." This is 1996. The careers advisor said, "Bit business, bit social. Got it, funeral director." I'm a bit like, "No. This isn't the thing for me."

I left school. I studied business and marketing. I remember growing up, we were in a community house where for a bunch of reasons people would often turn up at our house for food, and especially when me and my sister were really young. I remember people banging on the door. They'd ask for money, for whatever reason. It was a church manse, so they thought that there might be opportunity to get some cash. Mum would say, "I don't have any money, but I can give you food." We weren't extremely well off.

I remember mum would always go back to the pantry, and she would always bring something back. Sometimes people would be at the door, but sometimes they weren't. I think for me seeing my mum give away all our food over the years and going shopping with my mum and always making sure, you know, she'd say sometimes, "I've got to make sure we got enough food in the fridge in case someone turns up, or food in the pantry, some tins of food."

The thing for me is, the pantry never refilled itself, and it frustrated me a bit. It's a bit like, "Well, who's going to keep paying for this?" I was the teenager, but wanted everything. "What about me?" I think moving on and doing the volunteering and seeing the difference that if we could do both... I left school, studied business and marketing, did a lot of entrepreneurship, bought and sold different businesses, some worked, some didn't, and was volunteering at a place called Wayside Chapel which many of your listeners will know, in Sydney.

Worked with another charity in the cross called Hope Street, and set up with my younger sister Rachel a social enterprise in the Glebe housing estate around creating opportunity. It was just a café. It was creating opportunities for people to buy coffee, but also better get trained up as baristas. Everyone knows that old-school café model. I hate social enterprise cafes these days. We can get to that later. Apologies to those foodpreneurs out there. We got lots of opportunities for people to be able to go and transition to other jobs. Then I saw the real difference that that made and the chance to be able to use that coffee market to be able to solve some complex social problems.

Then I ended up in London where I got my dream job as a social entrepreneur, funded by the European Union with a quarter of a million dollar a year budget to just go and build social enterprises, as many as I possibly could to create employment pathways for people with mental illness. That was amazing. I got to have a team. I got to go and do different things, and it was what we definitely don't do enough of in Australia. In a period of four, five years I think we built about eight businesses, some worked, some didn't. I was given the opportunity to fail and the opportunity to succeed.

When we talk about what is working and isn't working, I think it's how we give people the opportunity to fail and succeed.

I was given the opportunity to have some social enterprises that just really didn't work and some that did work, and the opportunity to get the mentorship around me to just give it a go.

I think that's a large reason as to why social enterprises are so successful in the UK at the moment, is because people have the opportunity to succeed.

I came back to Australia. Got a job. No social business jobs coming back to Australia in 2009, especially in Queensland. We're fixing that now. I got a job running a mental health charity, obviously wanting to... Employment is a really big thing, and a lot of people we worked with just said that they wanted to get back to work.

The government spends billions of dollars each year trying to get people back to work, but their success rate is getting 3% of that population back to work. When they do get someone a job, the success rate's 29% through to 52 weeks.

I knew in my heart from my time in the UK that social enterprise can make a real difference. Actually, statistically an 85% success rate for people in social enterprises making it, getting a job and making it through to 52 weeks. Amazing outcomes.

Politically you can't just cut a ribbon on them in 12 months, so it doesn't make sense in a three year election cycle, or a lot less in today's climate. What's happened is I went out into the community and had heard Mark Daniels from Social Traders talk about social procurement. I got it a little bit wrong.

We went through this journey where we went out into the community and said, "You heard about this social procurement thing. Can you give us a contract in anything, and let us build a business around it?" That's how we built Ability Enterprises; where we got given the contract to run the boom gates for 15 waste transfer stations, which employ 50 people. Then we did the similar thing for laundry. Then we got a contract for nine years to wash 10,000 kilograms of laundry each week. Now we're washing 25,000 kilos. That's my journey.

It's a really great journey. I think just being able to fail and to succeed as well has really led you to where you are now. As Managing Director of Vanguard Laundry Services, one of Australia's celebrated social enterprises, literally washing thousands of kilos of washing every week, what are some of the key challenges that you faced when building this social enterprise from scratch?

Vanguard Laundry has 72 different funding partners. It shouldn't. I often get asked a lot why we don't have large scale projects in Australia, why aren't there more Vanguards.

The pain we had to go through to get the startup capital for a project of that size was significant. We have an ecosystem that can provide $100,000 grants. We have an ecosystem that can provide impact investment for 9%, 10%, 11%, 12%, but a lot of those things won't work when you're building a $7 million laundry.

You've just got to chip away at it $100,000 at a time, one pro bono architect at a time and see where you end up.

I think for Vanguard the next projects will be quicker and easier because we've got some runs on the board. The joke about Vanguard, and I think that's why some people gave us money in the early days is that we'd never washed any laundry before, we'd never built anything that big before. I remember the day that I went home and announced to my wife that I'm building a laundry, and she said, "How big is that laundry?" I said we're going to wash 50 tonne of laundry a week, and she laughed and said, "Can you start here?"

I'd never washed any laundry before, and we had to prove to our investors and funders that we knew damn right how to run a laundry.

I think part of our role as social entrepreneurs and entrepreneurs in general is we're doing something we know nothing about, and we are going into a world where we are going to make sure that we have every reason stacked up to prove to you that we can pull this off.

Part of what you've done is very clearly measuring your impact, and you released your first-year impact report. That research was done with the Centre of Social Impact with Jo Barraket. That report really clearly mapped out the impact that you guys achieved since opening in 2017. What advice and tips would you give to other social entrepreneurs when it comes to mapping and measuring their impact?

Firstly, that research came out, out of the 72 partners, it came at about partner 14 when some of the partners that I was pitching to were saying, "We love what you're doing and we love your enthusiasm. We think it'll be great, but there's actually no evidence base to suggest that mental health and employment are linked and it can make a real difference. Actually $7 million to get 50 people jobs is quite expensive." And it is.

Whereas my sell was people with mental illness are dying in their 50s versus the 80s for the rest of us. I'm convinced that having a job, (and we've got some research overseas to suggest that having a job and well-being is critically linked), if we can have the laundry fund the career and development centre within, we can particularly target people with a lived experience of mental illness that haven't been employed for five years or more. If we can do these things, I think it makes a difference on smoking rates and all that sort of stuff.

All we measure in Australia at the moment around employment impacts is 'do they have a job after 13 weeks and 26 weeks?' We're starting to get to 52 weeks. I remember going to Jo Barraket from Swinburne and saying, "Can we measure all the other stuff? Can we measure contact with justice? Can we measure key life indicators?" Some stuff has come up as irrelevant, like it seems contact with justice actually hasn't changed at all, and people with mental illness are more likely to be a victim of crime as opposed to partaking in it. It depends on the sector and where they are and that sort of stuff.

It's been our experience, but we didn't expect to save our local hospital $200,000 in reduced mental health stays at the mental health ward. It's those sorts of things.

So measuring it has been critical, and now we have the evidence base.

It's funny, because the only partner we couldn't get onboard is the state government, because the state government at that time said to us, "Employment is a federal issue."

Now we're going, "Hey, well, if employment's a federal issue, then why is it making such a difference on our research to housing? Why is it making a difference? We save your local hospital $200,000?" My next dream in that is aligning that research to our customer sell, and saying, "For every kilo of laundry you wash with us, this is the impact that you're making in your community. How can we make a difference that way?" And it's a lot of fun.

It certainly is. It's been a really fascinating journey until now. I think it's just going to continue creating more and more impact as we move forward. Prime Minister Malcolm Turnbull did the soft launch of Vanguard Laundry.

He did the real launch. We did a soft launch and then he came back!

He came back as well! There you go.

I hope he's still Prime Minister when your viewers listen to this.

Well, with the current news we'll have to wait and watch that one. He described Vanguard as something that the Toowoomba community would be very proud of. In gathering the support not just from the Toowoomba community but these 72 different funding organisations, can you shed a little bit more light on how you best approach these partnerships and what you think the keys were to successful collaborations? You effectively said that you needed to make damn sure that they thought you were the right people to run a laundry. What are the ins and outs of that?

If we go in sequence, so the first partner for Vanguard Laundry was the St Vincent saying, "Yes, we'll give you a nine-year contract." The second partner was a wonderful guy called Alex Oppes from Social Ventures Australia who said, "If you can get that contract signed, I don't know how you will, but if you can get it signed I'll help you find the money." At that time living in Toowoomba, helped me, introduced me to networks in Sydney and Melbourne and all that sort of stuff.

Then the third partner was a guy that offered to give me a project manager to build this shed, because we'd never built anything that big before, and do due diligence on sites that we were looking at. Then when our land fell through, he ended up buying us this shed. We were at an auction, because we were looking at what things are going for and he starts bidding, and I'm like, "What are you doing?" He's like, "Shut up. I'm buying you a block of land."

It's about relationships with people. Change happens at the speed of trust, and for those people that are fundraising out there, I think the big learning for me is that you don't get money on the first meeting, you get money on meeting 18, 19, and 20.

In gathering the support not just from the Toowoomba community but these 72 different funding organisations, can you shed a little bit more light on how you best approach these partnerships and what you think the keys were to successful collaborations? You effectively said that you needed to make damn sure that they thought you were the right people to run a laundry. What are the ins and outs of that? [Continued]

When you go to ask for money, it's almost there and ready to come to you. They know that you're going to ask for it. They know that you need it and they're almost offering it to you.

My class tips are always, and everyone's heard this, is...

don't ask for money, ask for advice.

It's like, "Hey, any advice on where I could go for this 600? I've got this problem." I always present it as a... For those people listening now going, "Oh, if Luke's presenting me a problem." It's like, help me problem solve together.

My fifth partner in Vanguard Laundry was a guy that doesn't want to be named, but he runs an ASX listed company. He said to me, "I'm going to support you." It was that early stage cash, so we had a block of land in principle if we could get the diggers on site. It would be signed off to us once we get diggers on site. Then we didn't have a DA on that site, and funders wouldn't give us any money because we needed $250,000 to get DA approval.

It was an incredible journey, because we needed money for something that might not happen.

Normal entrepreneurs do this all the time, but why would you fund? This particular ASX listed CEO guy helps me out, and he's like, "I really want to get you some proper business coaching." Here walks in partner number six, it's my business coach, who consults ASX listed companies.

He says to me, "What's your biggest problem?" I'm like, "I don't know. I've got this meeting with this lady, and I don't know whether I ask her for $20,000 or $50,000." He says, "How much do you need?" I'm like, "I need $4 million." He's like, "Well, why don't you just ask for $4 million and say, 'Anything you could do to contribute towards that?'" That was my game changer day as well.

I guess what I'm saying is different people come on at different times and it's about the relationships you have, and you call on those networks. You don't go in and just ask for money.

Your aim in the game is people need to understand your mission and what you're getting at. My big pivot was stopping to ask for money and just saying, "I've got this opportunity. I know I'm crazy. What ideas do you have that could help me get to the four million?"

Then sometimes people will say, "Well, I've got XYZ in my family office money that I could contribute towards."

You end up on this 12-hour-a-day journey, which we shouldn't have to do, but we do.

Fascinating. Changing the subject to government. Last year we saw the Victorian Government launch Australia's first social enterprise strategy, and that was really about improving sector support. Looking at social enterprise from a policy perspective, what do you believe the key steps government need to take to help foster and support an innovative social sector?

They need to do three things. Firstly they need to fund the sector in whichever way they want to do that, but they need to fund people around startups. A traditional entrepreneur has the opportunity for a golden egg at the end. They bring in equity partners, and their equity part grows. They are able to go home and say to their partner, "If I can do these extra few hours I get to this." For a social entrepreneur, it's almost like, "If I can do this, I'll get extra redemption points in heaven."

You're doing this because you truly believe in something, but you're eating toast and that's it for a very long time. How do you support the sector to fund projects? Like I was funded in the UK back in the day, how do you fund people to fail a little bit, I think, is really important. The last time we had funding in Queensland was 2010 under a guy called Ivan Frkovic who's now the Queensland Mental Health Commissioner. He funded a fund to fund mental health non-profits to just go and build social enterprises.

We got Social Ventures Australia involved to do a bit of due diligence, some worked, some didn't. They were given the chance to give it a go. I think that's a real role. How governments buy and be bold. We haven't seen a lot of governments do bold things like give nine-year laundry contracts for someone that hasn't built a laundry before. Let's get serious if we want to make really big difference.

We've seen some cool stuff in Queensland where there's a guy called Tim Beasley, who's like a superhero because he kept on walking to a Transport and Main Roads office. He had a gardening business that did stuff on the side of the road. He said, "Let me build a road." He said that not every day, but every month for two years. One day they said, "All right, you're on. Build a road."

We need bold procurers to really do stuff.

The third thing we need from government, the third role they play is we need money that we will give back to you, but we need what I call community impact investment.

Impact investment, (I know I'm going to upset a lot of people), but impact investment for employment-focused social enterprise is really tricky.

For me when I hire people at Vanguard Laundry there's about a 25% efficiency gap between the people I hire and where they need to be to get jobs in other places. We then build them up at Vanguard Laundry and our other social enterprises to 100% or 110%, and then we move them onto another job. We sometimes give them to our competitors, and then we start again.

I remember the first time we went and offered one of our staff to a competitor, like, "Are you nuts? What are you doing?" That's what we do. That's our value add. If I've got a million dollar wages bill at Vanguard, and I've got a 25% clip on my wages bill because of that consistent transition, that's $250,000 a year. I've then got to hire three people at, say, $150,000 a year so I've then got another, that then goes to $400,000.

The only toggle I've got when I'm learning how to run a business that I don't know how to run, and innovate, and be competitive and meet the market, the only toggle I've got is my finance costs.

Paying impact investors 9%, 10%, 11%, 12% ain't going to cut the mustard. It's actually going to send me broke in the startup stages.

We really need governments [onboard]. They do these funds.

They've talked about giving an Adani mine a 1% loan. What if we could give good businesses, businesses that are there for community impact 1% loans?

Sometimes we've seen governments in Australia and beyond give sometimes the intermediaries funds, and they say, "You can charge your own interest rate there." To be able to pay the ex-banker to be able to charge their very nice salary piece in the middle. I think we should grant those organisations to be able to manage those funds, because often the cost of that intermediary management comes... It's taking from the business' opportunity to be able to grow and develop.

We've got to remember that businesses then come along and say, "You've got competitive finance rates." What we don't have often is old money as well. A lot of these businesses are built on old money. That's why I love the Yunus model of doing things. I love the idea of, and I love that Griffith have done this Yunus Social Business Centre, this idea of building businesses where there are no dividends back to those investors, where it's the finance costs are paid off and it's a modest finance cost. Then it's like, "Let's go run again."

For me if we can use those three principles for government, we get people that come out of prisons a job again, then that's going to make a really big difference. It's going to make our community safer. Let's invest in that. Then you can build less prisons and reduce your budget. We get people with mental health problems jobs, then they're staying out of a hospital and freeing up your costs around your hospital.

This stuff, these businesses can make your state and country a really kick-ass place.

It was fascinating to visit the prison a fortnight or so ago with you and see what's going on there. It is, it's really game changing work. It's great to see.

We have been working with businesses in our country and in our prison system that are focused on carving out a profit. We bring them into prisons. We offer them cheap labor. People don't have a choice about it, and then people leave prison and they still can't get a job and they still don't have a reference in that process. What we try to do at Borallon Prison, is to try and bring industry in, but the deal is that, yes, you can have some affordable labor. We're still going to charge you for it to try and help the individual and set up a social enterprise fund.

When that person leaves prison, they have to have a job offered to them from your sector. If it's building steel stud frames, it'll be linked to that. If they can't move back to the area where you're located because of parole reasons, then there's a reference for them. It might be that their new employer might not know that they were in prison. That will reduce the recidivism rate to 7% to 10%. We know the data. We've got it there. It's really exciting.

It's exciting stuff. To finish off, Luke, can you share a few books that you'd recommend to our audience?

I love reading. I have a tonne. I went through this drought when the laundry was being built where I didn't read for ages and it really killed me. I just didn't have any time.

My amazing wife, Gosia, (every good entrepreneur will have a wonderful partner, and that for me is Gosia), she got me into Audible. She's like, "You need to start reading again." I started driving places and listening to books. A book I really loved over Christmas even though we're far from that now is #GiveWork, which is around how there aren't many social problems that can't be solved without jobs. That's by the founder of Samasource, Leila Janah who's employed 2,000 people in Africa and set up a great brand called LXMI.

I'm completely in love with a book called Ice Cream Social, which I just finished about a month ago. I think we've been talking about that offline, about building social suppliers into your business. Ben & Jerry's is a business about making money. They're not a social enterprise, but they bought lots of social enterprises into their supply chain. It's a riveting book. Have you read it yet?

Not yet.

It's a riveting book. Please everyone, all listeners go and buy and read Ice Cream Social. It is most riveting, and how they sold to Unilever and the terms that they put into that. Then I got all like "I want to take over the world with social business," and I read an Elon Musk book. I finished that last week. I found it really hard, so I was levelling out. I'd read a chapter of Elon and a chapter of a book, have you heard of The Diamond Cutter?

Diamond Cutter.

Have you read it?

No. I haven't read it. I've heard of it.

Almost high five. Almost high five. It's the idea of a Buddhist monk that went out to, they sent him out into the world to build a business. He's like, "What business should I make?" Have you heard this? They say, "Oh, well, the oldest business is diamond cutting. You can only cut a diamond with another diamond." He goes and he uses his Buddhist principles. Makes this billion dollar business diamond cutting. It's all about just treating people with integrity and being good. I think we can all do that.

Even in social enterprise sometimes we don't always work with integrity. I think we need to keep ourselves honest all the time.

I think it's been really interesting in Vanguard and other social enterprises. You have sales teams go out and do stuff, and you'll have a sales guy come back in and say, "Oh we're going to smash them." I feel really uneasy. That's not what we were set out to do. That's very much sometimes an entrepreneurial mindset, and you have to do that, but I don't think we do. Ultimately, with our competitors (and we're going to rub up against them), how do we get to the point that we can go and have dinner with our competitors? The Diamond Cutter is a good read.