A conversation with John Montague
John Montague is the CEO of The TREES Group (Training, Regeneration, Education, Employment, Sustainability Services), which has traded successfully and sustainably since it started in 1994.
In October 2010 John was interviewed by Mark Daniels, Learning and Development Manager at Social Traders, on the following topics:
- Whether and how social enterprises can be profitable based on the experience of The TREES Group
- Employment creation through social enterprise
- Examples of raising finance for social enterprise investment
- Social procurement
Excerpts from this interview are included below. The full interview can be obtained by contacting Nina Howard – nina.howard@socialtraders.com.au
More information on the social enterprises mentioned in this interview can be found here:
http://www.thetreesgroup.org.uk
http://www.newlifefitnesscentre.com
John: We had a construction company called New Life which is the largest member of the group. In 2007/2008, probably turning around £7 million with about 130 employees. We work on the basis that about 50 per cent of those employees are people entering the employment market.
We have a gas servicing company which wasn’t really about education training per se, it was about making money. For 10 years it very successfully made money. In a sense, that is the money being created in that company gift aided to the charity above that made the world go round.
We had a conference and training centre. That was created really as a bit of a statement of saying, look there is a concept of social enterprise that actually is a bit open toe, sandals, carpet slippers, you know. It doesn’t necessarily mean quality.
It was a real statement of - nobody who used that centre knows it’s a social enterprise. That’s its success, because it is about delivering a quality product and saying that just because it’s a social enterprise, doesn’t mean it’s second rate.
We then had a landscaping company which again is slightly different on its mission. It’s not particularly profitable. In fact it’s not profitable, but actually we accept that within the group. It gets supported by other members because it has the ability to engage and employ people who maybe in their life are never going to become a rocket scientist or brain surgeon. Actually they’ve got really valuable roles to play, just cutting grass. Being the Forrest Gumps of the world.
They can get value and let’s accept that. They are happy. It’s changed their lives. They’re employed. They feel they’ve got a position in there. Not everybody in the world has to become a leader.
So we run a small company of that, very much community based in a community that has had some real issues around lack of employment, crime statistics et cetera. We actually put the head office of that company right in the centre of that community eight years ago now. It’s never been broken into because the community regard it as part of them. I think that’s really important.
What we tried to develop is companies that aren’t seen as this sort of megalomaniac, egotistical, to take over the world. They retain their identity, they work within a group, but they have that identity to that community.
Even in construction, we have an office in Leicester and we have an office in Warsop in the old coal mining towns. As far as people in the coal mining and that office, Leicester doesn’t really exist. It’s their company in Warsop. That’s really important to us that there is that ownership from within the communities within which we are working.
We’ve got a fish and chips shop. They’re in the sense - what we realised a number of years ago is actually we have another bit of responsibility which is about not becoming the biggest and taking over the world, but actually becoming supportive. It was a community run fish and chips shop that was in real trouble because they didn’t actually understand business. They were getting into problems with the tax man, the VAT man.
The fact that all the overheads and the finances happen behind the scenes, no-one needs to know. The fact that the community are cooking fish and chips for themselves, that’s the important matter.
We tried not to become egotistical. It’s very easy to, but try and keep our feet on the group. We drifted out of it for a bit in the sense that what we found we were drifting, our vision and mission statement is very clear. Social justice through enterprise.
The last years have been pretty tough in the UK. You know, you moaned about your economy here. You haven’t seen nothing yet. You ought to come over to where we are.
Certainly on the gas servicing, it’s been a very successful business. We spent probably two years as the market changed battling to keep it going and fighting it. It wasn’t till we sat down and said actually, we were very clear what the vision mission of that company was within the group. It was to make money. It hasn’t made money for two years.
It cost us nearly £300,000 within the group, but actually two years on it was the best thing we ever did. We’d forgotten. We’d got it wrong. We had to over the last two years to 2010, calm down the construction industry. We’ve actually had to make people redundant.
That has been a real personal issue for me is the trying to get this balance of sustainability of your business. Actually laying people off, who for the last two years you have battled to train and get them back into employment, raise their aspiration. Then you have to say, sorry you haven’t got a job anymore. Honestly there’s been tearful nights from our staff and everything.
If we didn’t do it, we wouldn’t be here today. I think that’s another real tension we are finding within running a social business where you have these competing models. You want to help the world, but actually if you’re not careful you will kill your social enterprise in doing that.
In 2010 we sit with three trading companies with The TREES Group. I think one of the things that we have learnt over the years that actually the success of those companies in delivering their sort of vision of engaging communities actually has been their size.
Actually when Newlife grew up to nearly £8 million one year, we were losing. Yes, we were making money, but actually we were so busy we had forgotten what we were about. We’ve shrunk back down. I think the lesson we learnt which in a sense has resulted in some of the other things that we have done in the group, is that actually size is important. Scaling up and becoming massive is not necessarily the right way to do it.
Maybe actually scaling out and creating a number of smaller businesses within a group to deliver the vision and social justice may be the better way to do it.
There is a lot of conversation in the UK that we’ve got to have mega social enterprises. I’m not convinced that actually will end up delivering the original mission. [I think] [unclear] was a very big social enterprise in the UK. It’s now a PLC because actually they got so big, [they did] so much, they lost their original ethos. I thought that was very sad.
I think it’s a conversation that we’re having now is size matters in the nicest possible way, but actually small can still be effective.
Facilitator: In Australia at the moment we are seeing a real increase in interest in employment based social enterprises. The government last year spent somewhere between $80 and $100 million through the stimulus package investing directly in employment generating social enterprises. We are seeing other levels of government taking a real interest in social enterprise at the moment. They’ve seen social enterprise as a tool for achieving social inclusion outcomes.
John: I think the thing that employment generating social enterprise is an interesting one. I think there a number of enterprises that are creating employment. Whether it is sustainable employment or project based employment I think is a big difference.
One of the things that we are very clear on, this wasn’t - there had been a number of intermediate labour market packages that gone around in the UK which created 26 weeks of employment. Actually that’s all they created. Week 27 there is no employment anymore.
We were very conscious that what we wanted, you know the word sustainability at the end was critical to us. We would rather create low growing numbers, than going for this aren’t we fantastic we created 100 jobs this month. Then when we look back in a year’s time, every one of those 100 jobs doesn’t exist anymore.
It’s a new 100 jobs, but it’s not progression for people. It’s lifting them up, giving them a job for six months and then putting them back where we started.
We were a very slow build. We work on the principle actually if we have more than 50 per cent of our workforce coming in a sense in the engagement structure and still building their work capacity, we will fail. We are very clear that we keep the levels created.
We also very much decided what is the business sector, even within construction, that can provide employment opportunities. I think one of the things that I had noticed on some of the other bits is because in a sense that employment opportunity was being funded, then that employee was not necessarily valued. If they did absolutely bugger all and diddly squat one day, somebody still got paid.
It was really important that we build a value based model within our staff. We didn’t take funny money. We were paying the employees out of our revenue stream. They were a cost centre. They were a cost centre to the supervisors. Unless their supervisors actually engaged and got value out of those people, they would get a hell of a kicking from us because they weren’t making money.
We tried to build it very much on a value basis because there is so many things I have seen where because labour is cheap and not costing, then it doesn’t become valued. If you are not valuing the person you are trying to bring forward, they’re not valuing what you’re doing.
To me it’s really important to build this value change across the organisation. Exactly the same as any business would do.
Facilitator: How does social mission in your case impact on the profitability of the business?
John: I’ll tell you someone I met - I was down at a meeting the other day with a number of other construction companies. Amazingly enough this year we are declaring in construction a positive result, whereas most people in the UK are declaring a negative result.
In the construction arm this year we will have turned over about £4.5/£5 million. We will have made about £100,000 on that. People in business would go what the bloody hell are you messing around at with a half one per cent margin?
It is a fine balance, but we’ve got to make some money or we don’t do anything. If I went and made £250,000, I’d get kicked by the board. They would be saying, hang on, you didn’t need to make that much money. Why didn’t you spend the extra £100,000 on trying to create greater employment opportunities?
What we set within the business plan and it is a guess because you don’t know what work you’re going to win that year. We actually have on the financial bit, we set within say Newlife is - you need to get your shareholder’s funds round about the quarter million mark. Anything other than that, we need some in TREES to run the charity, but other than that, bloody spend it.
It’s that financial balance there. Yes, we set targets. We set a target for Newlife this year was to make sure that within its workforce it had 40 individuals who were on their progression from ex-offenders or off estates, unemployed for longer than 12 months, that we were holding those in employment within the company.
They are at the beginning of the year you are doing a bit of guesswork, but we’re trying to set those balances. At least put a line in the sand of how we achieve them.
Facilitator: Do you have to put anything else in place when you are working with someone who has been out of work for 12 months, an ex-offender or whatever it is, do you need to invest extra money in support? Do they integrate straight into the existing structures that you have got which are typical business structures?
John: One of our statements is you come through the door and you leave your label behind. It’s up to you. If you want to recreate that label once you’re in the door, your choice. When you walk in the door you’re label is left behind.
I think what we are very conscious of is we are not social workers. We’re not support workers. The majority of the people that come and work with us actually there’s a statutory state duty out there for some organisations to be helping to do this. Whether it be to support them on housing. Whether it be probation coming out of ex-offenders to support them through the transition et cetera.
What we do, is rather than try and do it, we badger them to death. We found in the first few years of operation we were working very heavily with ex-offenders and you would have the probation servicer at a statutory duty for a year to try and guide and support these individuals back into life. They had literally driven past the front door, opened the door, kicked them out, get away. Well, we’ve got rid of that one. They’d get the shock of their life a year later.
We learnt actually if they do that before they go back to the office, we had the phone call saying get your ass down here we want to know how you’re going to do this. We work very hard. Rather than taking the responsibility away from the state, you make them bloody do what they’re paid to do.
In a sense, we are probably more eloquent maybe, we may not seem it, than that individual or the people. We’re trying to more act on their behalf and say, that isn’t right, we will badger them to death.
I think the one thing we found we messed up early days is we didn’t understand financial inclusion. We didn’t understand because we thought we were really good and aren’t we a nice suit because we’re going to take this person on and we’re going to pay them every Friday. We’re going to give them a nice wage packet so their life will change. They get a nice wage packet for the last years of their life.
Rent, what’s that? It just happens because we were either on housing estate benefit which is paid direct to the landlord and we were finding that within six weeks we were getting people actually kicked out of their homes. That was the first lesson.
We were actually at one point caught in more chaos than we were creating. We very carefully and the main bit we do with individuals joining us now is actually about ensuring that we don’t mess up their tenancy and create issues around home.
We pay; I think there is 30 people. We in a sense pay the landlord the rent direct out of the wages. They are very happy for that because then when they get the $100 or whatever it is in their wage packet, they know that it’s theirs. We still have people and these are people that have been with us seven years, who every Friday after they have been to the cash point to check their wages are there, they will come in with a white envelope with an amount of money there. The instruction is we don’t get it back until next Wednesday. If I have it now I know it won’t be there after the weekend. I’ll either go down the bookies.
It’s also trying to create some self awareness and saying, we’re not expecting everyone to become, but we can assist. As long as you’ve got the process in place, it will work. We still have, in a sense, more than weekly wage. With some people we’re actually dealing with twice weekly.
Facilitator: I think it’s really interesting too how much support you try and surround people with in a job where the job itself is actually the support that they need. That the focus of the work, the activity, the supervisors who are supposed to supervise, that’s their job.
My experience quite often is that is what people actually need. The job is what they really need and they need to be valued in their job.
This is the last question in the section before we go to the audience. It was probably just picking up on the point you were making about job creating social enterprises. I think this is a discussion Australia is probably starting to have at the moment. I’m sure the UK has had it, but I don’t think it’s been resolved which is what is the role of social enterprises as part of an integrated employment system?
Should they just be like any employer? Should they just be seen as another employer that the job service agency can place people with? Or should they be melded into the system so that they are almost an option for a punter who is in the employment services system? You can go into a social enterprise and take it however you want, but do social enterprises have more of a role in employment and job creation?
John: I think some social enterprises have been created purely on the basis, this sounds terrible, of free labour which I think really stinks. There are those that exist.
What is the role of - I regard our role as a social enterprise on the employment front as being that gateway employer. Yes, we’ve got people who have been with us a long time, but our target is actually 18 months to two years to keep an employee. We want to get rid of them after that.
In a sense the analogy we use is the basement up to the first floor. It’s not our duty and it’s not our role, we’re not good at it, to get people actually from the basement up to the ground floor. There is lots of organisation stepping stones that can provide them with that. Whether that be probation service. Maybe some of the charities are doing that role.
Our role is then to give them that gateway employment position between the ground floor and the half landing. To get them to a point where they’ve got a CV, they’ve turned up. They’re beginning to develop some real skills. They are creating value within that organisation and then support them to get out into the bigger, wider world who then take them up to the top landing.
We’ve tried being everything and it doesn’t work. We’ve said that’s our bit because of the nature of the people employed within the businesses is running businesses.
I think the danger is that people fall into this trap of we can help the world and we can take them all the way from there to there. Actually, you’ve got to be bloody good to do that. I think there is roles in each step. I think you as an organisation have got to decide where you are slotting into that. If you try to slot in all the way - we did it once.
We decided we could take on the world and we did a project in Loughborough. It was ‘around the self build of six flats’. The target audience was homeless people between the ages of 18 to 24 in that community [unclear]. We can do this because we know about young people et cetera.
We might have well have put a big sign on the side of the sight saying if you want any drugs, come here because we’ve got six of the best dealers in town and we’ve put them in one place. It was a mess. We had a Methadone fridge on site. We were just out of our depth.
There’s certain experiences you think, yes, yes, come on. What are you good at? We tried to be the answer to all and what a mess. There’s plenty of this in life that you think you can deal with, but not - I don’t know whether that answers the question or not
Facilitator: I’m going to ask you about probably four or five different areas. I really want to get a sense from you in terms of what the role of government is and other organisations, whether it’s a corporate or an NGO in terms of how they support social enterprise.
What is your thought on procurement for example in this instance? Procurement, social procurement in particular. So if you can just respond at each of the areas and I’ll just sort of give you a new area and you can tell me what your thoughts are on that. So the role of government corporates and not for profits in terms of social procurements from social enterprise.
John: I think the problem with social procurement is, going back in the conversation, is unless it produces value and that’s measurable value, then it’s just another big trendy word.
Until that, I think unless the product and service is right, it doesn’t matter however you wrap it up. It won’t continue.
I think for corporates there is a role in a sense to actually - let’s manipulate them. If they want to buy something and put it in their CSR report in a glossy magazine and say, aren’t we wonderful because we bought all our biscuits this year from and I won’t say a bakery, from somebody else. That’s great. I have no qualms in manipulating that position.
Actually what that won’t do is create sustainable social procurement. It will create one off social procurement to go tick the box, we’ve done it. What shall we do next year? Actually we’re into mango chutney, let’s go and find someone to make mango chutney for us.
I think there’s a danger that people hang up too much on the answer is social procurement. The answer is a decent product. If you can then justify maybe paying a bit more for that product through social procurement.
I think social procurement is giving people, if they have the opportunity, to put a value on that gap difference. The product is still fantastic, it may be delivered a bit later because of the way it is being delivered, but it’s creating extra value.
Lets take a housing estate which is falling apart has constant issues with vandalism on the fencing in that estate. You’ve got a choice; you can go and get the cheapest price. The white vans come in, put the fencing in and three days later the fencing is knocked to seven bells with crap.
Or do you actually procure that saying what our real target is, yes we’d like some new fencing, but our real social - what we’d like to do is try to see if we can make sure that fencing is still standing in five years. That to me is social procurement.
The way we’re going to deliver that is we’re going to engage the youth and train the youth and that to put the fencing up and feel they’ve got a part of that fencing so actually they’re not going to go and kick seven bells out of it. If their friend tries they’ll wallop him first because they put that bit up.
I think it’s trying to make sure you understand what you are trying to achieve through social procurement.
Facilitator: Next area is tailored investment for social enterprises.
John: I don’t think social enterprises totally understand the word investment. They understand the word grant because grant doesn’t have any risk and this, that and the other.
What’s interesting in the UK is everyone going there’s not enough money for social enterprises. If it’s a decent business there’s loads of money. There’s so many social investments, you know Big Issue Invest has got a big fund now. They’re actually struggling to lend it because people will say, can’t you give us a grant? Won’t you give us a grant instead?
I think there is a growing up to happen. It’s a new world. The grant is gone, investment. I think there is two stages of investment. I think there is a role for government philanthropic trust or whatever to actually do that [seed call] investment to actually get it going.
Most businesses would start because of some mad bugger who is going to put his money on the line because he believes something can be created. I think there is a role to do that.
After that there is a role for proper investment within a business model. The number of times I see - we run Sparks and you see the business plan come through and we want $200,000 and $150,000 of that is to buy a piece of equipment. Go and lease it. You don’t need to buy it. To buy the offices, you don’t need the offices.
It’s trying to change the mindset that actually a, assets can actually be liabilities and b, owning assets isn’t the be all and end all. That’s something that you use to deliver. You can lease it, you can higher purchase it. It doesn’t matter, but there’s that if we own it we’re safe. Not necessarily.
Facilitator: How about tailored legal forms?
John: In the UK they’ve created CICs Community Interest Companies. Who is making the most money out of Community Interest Companies? It’s probably the lawyers.
My personal thing, we set up from very traditional. Probably 100 year old legal status that existed, everybody understood. I think there is room, but even within existing structures, it’s really about lock ins I think.
I’ve seen some legal structures created that look fantastic, but actually the gaps in them for somebody to actually rip them out. To me it’s more about the governments and the shareholder values. Big Issue, it’s a charity is it? No it’s not. It’s a private limited company owned by three people. John Bird, Gordon Roddick and Nigel Kershaw.
It’s just the share [unclear] that they’ve put and the restrictions on what they can do with those shares et cetera that gives it its mission. There can be no personal gain out of them. They cannot sell them. They can’t pass them on. It’s the essence of that company that is important.
I think legal structures come into place when you’re trying to make the most efficient use of taxes, any other business would do.
Facilitator: The next one in intermediaries. What are your thoughts on that?
John: I think there is a role for intermediaries. I think they should be enablers. What they shouldn’t be is just talking shops. I think the danger; there is a whole market in the UK that has grown up around the intermediary market. Actually they are just sign posters. They’re lacking in the doing.
I’ll give you some credit [unclear]. You’re actually doing as distinct from just saying, right well you go and talk to them. There is a whole intermediary market in the UK which is about sign posting.
Facilitator: My last question is, I was going to ask you before but I didn’t get to it and I think it relates to intermediaries a little bit, or your view of what an intermediary might be. So TREES has taken a different approach in its second decade?
John: We are an intermediary at the moment.
Facilitator: More about TREES though. So Spark and Responsible Futures, two new initiatives for your organisation in I believe the last five years. They are very different approaches to the development and growth of new businesses as opposed to the roles that you did with Newlife. In which you were a direct employer.
Can you explain that a little bit? Why the new direction and how you think it is benefiting the sector I guess or others? Maybe explain particularly the Responsible Futures component of it.
John: I suppose one of the things and I sat back. Spark came about for one reason and actually instigated a though process. Actually going back to our vision mission, social justice through enterprise, that doesn’t mean it has to be ours. We’ve created a number of businesses, it sounds terrible, but I don’t want to do it again. Eleven, 12 years on I’ve done that.
The businesses are running and successful and delivering, but actually if it’s just me that has that knowledge or our organisation has that knowledge. It’s based in Leicester and it doesn’t get itself out across the country, across other places, then actually we’re just being a little bit selfish and a bit egotistical.
We’re not interesting and I’m very clear, I’m not interested in building an empire. I’m about - we want to change the world a bit. Whether we change the world a bit physically ourselves or we encourage other people to change the world a bit, the result is the same. The result is probably more powerful if half a dozen people are trying to change it a little bit.
That in a sense was a sort of the philosophy behind it. Spark in a sense came out of that. Saying actually what we want to do is be an enabler. We want to put some passion in. We want to demonstrate through our organisation, look you can bloody do, we’ve done it. We’ve got a few bloody noses on the way, but we’ve done it and we’re still here. To have the guts.
Spark in a sense is trying to be an enabler. It’s also trying I think - what was really important to us is to sort of take away the impression of the evil capitalist commercial sector. It is actually value for combination between the two. If you took to a lot of social enterprises, the commercial, the PLC, the private sector, they’re the enemy. They don’t need to be.
The reality is that most successfully, the biggest things are delivered through people having an honest partner in a relationship. Spark and hence the crunches about trying to get an equal three way partnership and a skill basis from all.
That’s really where Spark and what we’ve done, whether it’s our fish and chip shop which we’ve enabled it to continue. We’re big enough and I think it’s a big enough organisation now; we have a responsibility to deliver. Just as someone helped us at the beginning and did our payroll and this, that and the other. We can do the same for others.
We don’t want to become a 20 million organisation. We grew some of our companies and what happened they grew, they made some money. You felt good. You won awards because we were the fastest growing this, that and the other. We stopped delivering what we set up to do. We’re quite happy with that.
I suppose the other big, Responsible Futures which is something that - this was one of those intermediary talks. There was myself, a guy called Nigel from Hill Holt Wood and another guy we were part of one of the government funded business planning missions to get large sectoral social enterprises together to talk.
We went to this thing, only three of us turned up. We had three people presenting to us consultants. They started their presentation about social enterprise and where it needed to go. We all looked at each other and though this is shit, but actually we were all together.
We walked off and we went and unplugged their projector and went, honestly we don’t want to listen to this. We sat down and said what shall we do? Where are the issues? We said, one of the issues is if somebody wants to engage within the East Midlands with a social enterprise to deliver something on the holistic [unclear] [to] products and services, where do they go? Absolutely lost. Despite all the intermediaries, despite all that, if someone wants to do something, were do they go?
We literally sat there with two computers. I went a bought a website, someone else went and bought the company. We set up Responsible Futures. The concept is here is an organisation made up of other organisations that actually has geographic spread, sectoral spread on delivery and products and services and financial clout that can actually act as the contracting body for large contracts. In a sense a safe pair of hands which will then actually a, deliver itself or will actually engage.
It’s creating itself as an intermediate company. It actually captured a lot of imagination. We actually haven’t managed to move it forward much on some of the website and stuff because life has taken over. What it’s done already is we are getting the first transfer of public assets into it.
One thing that’s interesting, where I see opportunity in the UK is public sector is going to get hammered. Actually there is tonnes of unused assets lurking around that don’t know what to do with liabilities to them.
Privately we will have the first 20 houses transferred to us in the next six months. We will set those up using from the Community Land Trust. Our intention is to provide training and employment and we can provide the capital for it to get them back into habitual fashion with eco stuff.
They will end up with then in a sort of three way structure of us in a sense being a partner in it, another organisation, then actually the community will become the third partner in that community asset base. What we’re trying to do is through that creating different models that there is different ways of developing stuff. That’s the vision. It’s running before it can walk at the moment, but that’s quite often what we end up doing.
Facilitator: You get to do the fun stuff now. The experimentation and to create the new, the next…
John: All the time and not losing sight. If the other companies don’t do it no one pays our wages. We’ve still got the basics and we’ve got to pay our wages.
Female 4: I just wondered if you had an opinion about Social investment bonds
John: I think that will be a way that - social investment models has got various advantage to government. A, they’re not paying up front. It doesn’t go at this point in time on what is a pretty big public deficit.
Facilitator: Can you just give the quick 30 second what is a social bond?
John: What the social bond has said is, I’ll tell you what organisations, we as a government, we aren’t going to pay you for the services you delivered to help these ex-offenders come out. What we will do is we will pay you serious money if after three years or four years, I can’t remember what the level is, if you’ve managed to reduce the reoffending rate of the prisoners coming out by 7.5 per cent. We’re not going to pay you up front, but if you hit that target we will give you a serious bunch of money. Within that, if you look at the model on paper, if they achieve that against a cost model that they have theoretically put forward, there’s a £20 million bonus there. It’s an investible bit.
What’s happened is and it’s a charity and a couple of other organisations are basically up fronting the government on the delivery of service. They will get paid on results. A lump of money has been raised to deliver over three years of service with the prize at the end of it.
I think the slight fear of that is what happens is you tend to go and target the ones you can get easy wins on. The people that are really difficult, require large amounts of investment and support you think bugger it, I’m not bothering. That’s the real worry at the moment.
Yes, theoretically fantastic, but what tends to happen in any sort of bit that is totally outcome based on success, is you try and target the winners. The people who really need support just get, leave them down there because it’s going to cost me £10.50. If I work on this one it’s only £5. I think that’s my fear.
The full interview can be obtained by contacting Nina Howard – nina.howard@socialtraders.com.au
More information on the social enterprises mentioned in this interview can be found here:
http://www.thetreesgroup.org.uk/
http://www.newlifefitnesscentre.com/
