From funding to income:  How White Box Enterprises is supporting social enterprises to start and grow in Australia, while also generating revenue 

Welcome to the first issue of Sustainable success: Social enterprise case studies – a series spotlighting social enterprise innovations and approaches, showcasing the transformative change they bring to communities and the movement. Join us as we delve into these impactful stories of resilience, creativity and purpose-driven entrepreneurship, paving the way for sustainable social change.  

In the dynamic landscape of social enterprises, innovative revenue models are crucial for sustainability and growth. One pioneering approach is the royalty-based model, which aligns financial success with social impact. This transformative model takes centre stage in this insightful interview with Mark Daniels, Chief Operating Officer of White Box Enterprises. Mark discusses White Box’s evolution from a majorly philanthropy-funded organisation to generating revenue from royalties and service fees, ensuring long-term sustainability while pursuing their mission to create meaningful employment opportunities.  

Could you tell us about White Box Enterprises, its mission, work and how it has evolved since its inception?    

White Box Enterprises is a team of bold entrepreneurs on a mission to mainstream jobs-focused social enterprise so that anyone who wants a job has access to meaningful and inclusive employment. We build large-scale, jobs-focused social enterprises, lead innovative systems change initiatives and offer expert advisory, financial and property services to help existing social enterprises scale and grow.   

In our first five years, we have co-hosted the Social Enterprise World Forum in 2022 in Brisbane and created four new social enterprises. We are leading two initiatives; Australia’s first Payment By Outcomes (PBO) trial for jobs-focused social enterprise and a Sustainable Employment Loan Fund (SELF), a $5 million patient capital fund, designed to bridge the gap between social enterprises and impact investors.   

As we approach our fifth birthday this year, our mission remains unchanged, but we’ve sharpened our focus on systems change. It is central to our work and the social enterprises we build.   

What percentage of your revenue comes from the provision of services?   

A defining strategy is to diversify revenue sources to ensure our long-term sustainability. We started off being 100% philanthropic and government-funded, but over the past few years, we have been growing other revenue streams. Currently, around 50% of our income is from philanthropy, with a growing proportion coming from royalties and service fees from the social enterprises we have built. Our vision is to eventually fund all core activities through royalties and service fees.   

What is a royalty-based model and what are the key benefits for White Box Enterprises? What was the motivation?   

In very simple terms, the social enterprises we build pay a royalty fee back to White Box based on hitting revenue or profit milestones. This is a revenue stream for White Box that allows us to do what we do – build social enterprises, lead systems change initiatives and support other social enterprises to scale.   

From the outset, we wanted to create a sustainable model for White Box. We knew that philanthropy and government wouldn’t support us forever. We also wanted a business model that aligned with our mission – one that would allow us to cover our operating costs and achieve our mission at the same time.    

Our CEO, Luke Terry, did a lot of exploration into the royalty model. He drew inspiration from a US model employed by Village Capital (which he discovered after reading The Innovation Blind Spot, a book by entrepreneur and venture capitalist Ross Baird). In some ways, the royalty-based model can be likened to venture capital. But the key thing is royalties only kick in when the social enterprise is profitable and can afford to pay them. The system has been designed so that it won’t be an imposition on the organisation. We also have the option to waive payments or reduce the royalty if the social enterprise experiences a downturn in revenue and/or profitability.   

We want the social enterprise to succeed. We want to change people’s lives. When our social enterprises succeed, so do we.  

Could you describe the process of setting up social enterprises under the royalty-based model?   

White Box establishes mission-aligned subsidiaries (branch companies) as companies limited by guarantee. We put a lot of time, energy and effort into the start-up of these social enterprises, providing various types of support including start-up capital, fundraising support, attracting customers, strategic advice and ongoing governance support. Once they become profitable or hit milestone revenue targets, they pay a monthly royalty to White Box, based on revenue only (excluding philanthropic contributions). The targets and royalties are set at a level whereby the royalty starts off very small and grows over time to a maximum of 4% of revenue as the social enterprise grows and has the capacity to pay. The royalty doesn’t include grant revenue, over time we expect the social enterprises we start to be sustainable without philanthropic support.   

For us, royalty is a way of recognising those initial contributions, but it is also a sustainability contribution to assist us in furthering our mission by building new social enterprises and supporting other White Box systems change initiatives. Ultimately, it is about paying it forward.  

How has the royalty income model contributed to the financial stability and sustainability of White Box Enterprises?   

Between the fiscal years of 2024 and 2026, we expect our royalty revenue to increase from about 15% to around 35% of our income. When including service fees (for shared services such as finance, HR, fundraising and communications), that brings us to a point where 60% of income is through royalty and service fees and 40% is from philanthropy.    

Our goal is to fund all core activities through royalties and service fees. We will do this by supporting our existing social enterprises to succeed and by starting new ones. Our operational plan is to start or replicate one new entity a year.   

Could you share any specific success stories from partner organisations that you have helped set up?   

A shining example is Australian Spatial Analytics (ASA). It is one of Australia’s largest and fastest-growing jobs-focused social enterprises. It provides professional data services and geospatial and digital engineering careers for young neurodivergent adults. ASA also helps solve Australia’s skills shortages and data sovereignty concerns by accessing an untapped pool of talented and motivated people who perform essential work that otherwise occurs offshore. It is an amazing story of what is possible when you align business with a clear social purpose. ASA has 130 staff, 80% of whom are neurodiverse.   

White Box founded ASA in 2020, but our involvement has reduced over time as the organisation has become more independent in terms of management and governance. In its first two years of operations, ASA didn’t pay any royalties, but the organisation is now commercially viable.    

Another great example is Beacon Laundry, a social enterprise commercial laundry founded in Bangalow, New South Wales (NSW). Less than one year in, we’ve created more than 70 jobs. 80% of these jobs are for people who have previously been unable to access work. The social enterprise is in an earlier stage than ASA. It is not yet paying royalties, but it is tracking well and moving toward break-even. White Box continues to be heavily involved.   

What are some of the challenges you have experienced in adopting the royalty-based model? 

Just because you have a royalty agreement doesn’t mean you are going to get any royalties. For this model to work, you must have successful social enterprises. For us, that means being financially sustainable without being grant-dependent. The challenge is finding the gap in the market to deliver a service or product that’s in demand. ASA and Beacon have succeeded because of this, but it’s not always the case. We’ve had a couple of failed attempts too. This model requires an upfront investment with no guaranteed return and where there is a return there can be a long lead time. This is where philanthropy can play a role as the capital risk bearer.   

You also need to make sure you have buy-in from the board and executive. The concept of paying a royalty is not something the not-for-profit or social enterprise sector is used to. It is crucial for the board and the executive to understand royalty commitment from the beginning and recognise the substantial benefits it can bring to the incubated social enterprise and to the social enterprise field.   

How do you track the social impact achieved by the enterprises you have supported to set up?   

At White Box, we use job count as an impact measure. How many jobs did we create or enable through our work? For us, a job is when someone has worked for over three months. We can enable that through the PBO, through social enterprises we operate or through the property we have purchased over time. For example, ASA and Beacon track their impact and share their job outcomes with us. We consider their impact as something we helped enable.   

What advice would you give to others considering a shift to a royalty-based income model?   

Don’t do it unless you have a board and a CEO who embrace the risk attached to start-ups.  

At White Box, having an entrepreneurial CEO is our superpower. For anyone to replicate our model they would need an entrepreneurial spirit to enable it. I also think applying a strong commercial lens is critical. While jobs-focused social enterprises exist to create jobs for people with complex barriers, we believe it is critical that the social enterprise being built is commercially viable and able to scale.    

I think anyone who sets up an intermediary should think about life beyond philanthropy and government. I would encourage organisations to be open to entrepreneurship and understanding how this could assist them in delivering on their mission.   

How can social enterprises balance the need for financial sustainability with their social mission when adopting new business models?   

That’s the magic of social enterprise.  

We see a lot of social enterprises that are philanthropically dependent. But it’s not replicable. Replicability is when you balance financial sustainability with the social mission. That’s the goal.  

You need to seize the right business opportunity. We always look for contract opportunities through commercial or government partners that are suited to the workforce and have good margins. Our approach is to start with an anchor contract. You also need enough capital to provide the runway so that the social enterprise has time to become profitable.  

If your background is social work, make sure you’re aligned with an entrepreneur or someone with strong business skills, to run the social enterprise with you. Our advice would be to put a CEO in place who knows that industry deeply and can run a business successfully in that industry, even if they don’t have a social enterprise background.  

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Is there anything else you think is important for practitioners to know about White Box Enterprises’ approach and experiences with the royalty-based model?   

There is a beautiful synchronicity in our model as an intermediary in that we can generate revenue by achieving our mission. The best way we can further the impact of White Box is to have more of these social enterprises, delivering more impact and having greater turnover. In turn, this will give us the capacity to lift our gaze and think more holistically about the systems that surround these businesses and how we might apply our learnings to drive more systemic change. It’s a virtuous loop.   

Having a revenue stream that aligns with our mission has also created more opportunities for us to advocate for jobs-focused social enterprises. We actively engage in the areas we advocate for, operating within the very systems we aim to change.   

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As White Box Enterprises continues to create new pathways in the social enterprise landscape, their commitment to sustainable impact through innovative business models remains unwavering. Through the royalty-based model, they not only sustain their operations but also amplify their societal contributions.   

Stay tuned for more inspiring stories and insights as we follow their journey towards redefining success in the realm of social entrepreneurship.