From Hanoi to Melbourne, eating to help the hungry

In the latest in our series on the Passion and Science of Giving, Rebecca chats to Tracee Hutchison about her life-changing moment happened over a plate of rice paper rolls at the KOTO (Know-One-Train-One) Restaurant in Hanoi.

Scott: I still remember the first meal I had. I ordered the rice paper rolls and tamarind sauce and while I was waiting for the dish to come out there was a little postcard on the table.

It talked about KOTO being a social enterprise and I’d never heard the term before, working with homeless young people.

I struck up a conversation with the young person who was serving me and it was just a light bulb moment, realising the meal I was about to eat was helping this young person.

It was such an epiphany to realise you could solve a social issue like homelessness through serving amazing food. I cried into my rice paper rolls. I sat there crying. And just knew on the spot that’s what I wanted to do.

KOTO was the inspiration for STREAT in many ways, our model is quite different in many ways, but it’s certainly where the seed of the idea came from. 

Hutchison: So how did the business model for STREAT come about?

RC: Right from the outset we wanted to build something scalable. So, one of the things which really struck me about KOTO is you can have one restaurant doing good for 40 kids a year, but can you have two restaurants helping 80 kids?

I came back to Australia really thinking about how to build scalable social enterprise models.

Initially, we wanted to have a number of food carts within the Melbourne CBD but because we wanted build something which scaled we needed a solid foundation. We couldn’t just keep doing these tiny incremental bits.

In the early years we were really expensive because we had one little food cart but you still had a psychologist and a youth worker. The social support built into the model was expensive.

So we knew we needed quite a heavy investment in the early years with all the capacity building built in, rather than adding it incrementally as the business grew.

TH: A great idea also requires start up capital – how did you go about attracting and attaching finance to the fledgling model for STREAT?

RS: Getting capital for building and expansion has always been the hardest part of building STREAT. It still today remains my biggest challenge.

In the early days it’s really hard because all you’ve got is an idea, you’ve got no proof it could work. You’ve just got bits of paper. And passion.

I was incredibly fortunate I had met some philanthropists during my time at KOTO. There was a Danish philanthropic called the TK Foundation who paid for us to do a feasibility study on the organisation and then when we produced something really solid and compelling they gave us our start up funds. 

We were also very fortunate to get some money through the Federal Government’s economic stimulus package, so between the Danish philanthropic and the government money it gave us a big chunk of money and headspace to start building flat out.

I think one of the very hard things is if you don’t get enough money at the start and start doing things along the way with a really small budget you never really get the headspace to just get on and build, you’re forever just chasing money.

TH: So the premise is to transform lives of young people through employment, training and social support through food – what is the sustainability model you operate under now at STREAT?

RS: So, just to give you a sense – we now run seven different businesses – five of them are cafes, one is a catering company and one is a coffee roastery – those businesses are both the workplace for those young people but it is also where we generate the revenue for those young people to enable us to do what we do.

We’re 70 per cent self-funded through our business revenue. That includes everything – the youth workers, the social workers all the social part of our business model. The other 30 per cent comes about as we continue to do more scaling.

We’re a little bit atypical in a way because what we’ve done is build a portfolio of different businesses. We haven’t built a franchise, they’re not all carbon copies of each other – we’ve built a portfolio of connected businesses where some of those businesses are part of our supply chain.

With our coffee roastery, we’re our own biggest supplier, but we also have external customers and some parts of the portfolio are more profitable than others. 

We couldn’t scale our organisation and get to self-sufficiency just by building cafes, because there’s just not enough profit in cafes. But our catering business and our coffee roastery are more profitable enterprises.

Next year when we start our artisan bakery it will be even more profitable and when you add the totality of all of those businesses together they collectively are profitable and doing a great amount of social good.

TH: You partnered with some key partners in the formative financial stages of STREAT. How important were those social enterprise support networks to STREAT in the start-up phase?

RS: We’ve had the support of numerous intermediaries, the first was Social Ventures Australia and they’ve been walking alongside us for six years now and have been really crucial to our development.

The other one has been what is now The Difference Incubator, at the Donkey Wheel House Foundation, has been with us for years and years now and both of those organisations really helped us get investment ready.

In the early stages Social Ventures Australia helped with actual funds and they also helped in preparing us for scaling so they helped us build capacity and then did a lot of the brokering of the deals to get impact investment to do model scaling. They have been absolutely critical for us to get us to where we are.

We’ve had so much support. PriceWaterhouseCoopers is a really good example, they helped us early on as a corporate partner with pro bono strategic advice but, years later, we now run their café and deliver thousands and thousands of coffees to their staff.

What often started as one-way help or philanthropy as we’ve grown and become stronger has become a stronger business relationship.

The same is true of property group GPT. What started as one little coffee cart in one of their shopping centres at Melbourne Central is now a far bigger, more mature relationship.

I think you need so many types of help in the early days and often it might not seem significant for those partners to be giving help because you’re such a small, small player – but I feel like we’ve had a group hug for the last seven years from every part of the system that’s helped us get to where we are.

TH: How crucial has philanthropic investment, grants and other sponsors been and what has been the percentage equation to build financially?

RS: The first year I think we had 2 per cent of our revenue coming from our businesses and the following year it was 7 per cent so it was slow, slow growth.

We’ve had seven years of high reliance on philanthropy and granting. It will have taken us 10 years be self-funded.

I still spend an enormous amount of my time writing grant applications to fill the 30 per cent gap so, yes, the percentage overall is smaller but we’re now a bigger organisation so the gap is still a large amount of money.

The good thing is as our businesses grow and do more of the heavy lifting we become more attractive from a philanthropic perspective, because we can now leverage that money.

If you give us a dollar philanthropically we can match that from earned revenue from our business and the ratio just keeps getting better and better.

We’ve got capital from 13 different sources. We’ve been so creative in where we’ve needed to get capital in order to keep on with our scaling –anywhere from crowdfunding through to fundraising activities through to some early pioneering work in impact investment, doing both equity and debt deals.

We’ve got a fairly strong handle on the different types of capital you need to be able to access. All of them behave differently, they’ve all got different levels flexibility, different ways you can leverage them and trying to find the right amounts at the right time has been challenging. But we’re still around seven years later.

TH: What do you see as the financial backbone for social enterprise in Australia?

RS: One of the biggest problems is always accessing capital, so we need to think about social enterprise as an ecosystem with lots of different players.

Obviously the enterprises themselves need to be doing well and vibrant, we need the intermediaries who are there to support and build capacity but we also need the impact investment to grow so there’s an appetite for funding this stuff.

And the fourth part is philanthropy which sees the value in social enterprise. So when you’ve got those four things coming together – of course it would be nice if you were also getting government support and a regulatory environment conducive to building social enterprises.

Then the other part of the ecosystem is corporates, business has a really big role to play in stimulating social enterprises through there own social procurement, so big corporates, or any business really, putting social enterprises in their supply chain is critical.

We only survive when our businesses survive, so start doing business with us. Don’t just give us charity and sponsorship – do business with us and make us viable.

Tracee Hutchison is an Australian arts and media executive, broadcaster, journalist, producer, director, film-maker and author.