Over the weekend, Simon Griffiths closed the doors to his Manchester Lane bar and band room for the last time.

The owner of the not-for-profit venture announced the three-year-old venue’s untimely closure earlier this month, which he said was due to noise complaints from the neighbouring East Police Station’s sleeping quarters.

Bands booked after June 25 were cancelled. Melbourne musicians mourned the loss of a rare mid-sized band room – an important stepping-stone live venue for emerging artists.

On June 17, The Age published an article claiming Shebeen’s marketing material deceived customers by giving the impression patrons were helping to fund overseas aid projects every time they bought a beer or a glass of wine. The article accused Shebeen of not having made a donation since mid-2013.

Before Shebeen sinks beneath the waves for good, we wanted to give Griffiths the chance to speak his piece.

Below is our full, unedited interview with Griffiths.

Broadsheet: What was your reaction when [The Age article] was published? Did you feel it was a fair representation of the situation?

Simon Griffiths: Shebeen was one of the first social businesses, globally, to test the business model we created. The stakes were high – there were a lot of unknowns, but if we could prove the model worked, the resulting impact would have been significant. In the end, unfortunately, we weren’t successful. There wasn’t any single issue, but rather a perfect storm of challenges that led to the closing of Shebeen.

As you know, running any business is hard, and service-based businesses are especially hard. Some weeks are great, and others are terrible. Overall, the business got off to a relatively good start. In our first 18 months, through the 2013 and 2014 financial years, Shebeen performed relatively well. Although we had limited cash flow, we set aside funds to donate $12,787. This donation was split evenly among our charities. $10,000 of this was donated in June 2013, with the remainder being donated earlier this month as part of winding down the business.

In the 2015 financial year we had some operational issues and high staff turnover, which led to a mixed performance. We were profitable through some periods, but not others, and we made a small loss overall for the year. It’s very common for a hospitality business to have period like this. Nevertheless, we believed we could reduce costs to trade our way back to a profitable state. We finished the financial year with the operational issues resolved, and had a good plan to make the business profitable again.

Marketing flyer at Shebeen. Photography: Martina Gemmola

Unfortunately that plan was never realised. At the start of the current financial year it became apparent that we shared our basement wall with the police station around the corner. As a result of the disturbance to the police, the Victorian Commission for Gambling and Liquor Regulation (VCGLR) were asked to look at our operations. Following noise testing, the VCGLR couldn’t find any compliance issues in relation to noise, but took issue with a different clause in our licence, and issued an infringement. The regulatory issue is complex (see PDF).

A high degree of regulatory pressure meant that we had to make several adjustments to the way we operate the business. Most notably, we could no longer have live music after 11pm, which significantly affected our ability to attract top-notch talent and, therefore, patrons. Live-music-patron numbers dropped around 20 per cent, and revenue declined roughly 15 per cent in the same period. We couldn’t cut costs fast enough, and the floor essentially fell out from beneath the business.

We appealed the infringement, but lost last month. Unfortunately we didn't have the resources to continue to appeal it in the magistrates court. In the week that our appeal failed, we had three separate visits from the authorities who said that music noise could be heard in the police station next door, and it became clear we faced the very real risk of this same set of circumstances unfolding again.

Based on Shebeen’s financial performance and the ongoing regulatory challenges, we decided we needed to wrap things up. We looked at selling the business (which would mean our staff could keep their jobs and we could have made a donation from the sale proceeds), but the sale proved to be impossible. Unfortunately, the best option was to shut the business down.

Coming back to your original question, the answer is no. We learnt a hell of a lot through this process, so I’d like to have seen dialogue in the media around the challenges of running a social business and the learnings that have come from Shebeen. We spent several days providing journalists with all the relevant documentation to show how the business operated and the issues it faced, including documentation from our accountants and lawyers verifying Shebeen’s operations, donations, my salary (in eight years I drew a total salary of $26,264), compliance and the significant regulatory challenges. Unfortunately they chose to run with a different angle, but I’d still like to contribute to the story of how to further social innovation wherever there’s an opportunity.

Can you elaborate on how you drew a salary?

I have worked on Shebeen since 2008, but the size of my role grew significantly in 2012 as the business grew closer to opening. My preference was always for the business to have as much cash flow as possible, so I only drew a wage in periods where I absolutely needed to in order to personally survive financially. I drew a wage at the end of 2012, in some periods of 2013, and in some periods in first half of 2014. Since July 2014 I’ve worked in the business pro-bono and continued to loan funds to the business to assist with cash flow. In total I have drawn $26,264 in gross wages from the business.

"When you are experimenting with something for the first time you don’t have the benefit of hindsight."

BS: What have these last few weeks been like for you, personally?

SG: Shebeen is something I’ve invested my heart, soul and a lot of time and money into, so it’s been really sad to bring that chapter to a close in such a negative way. It’s also been really challenging to see how the media has told the story of Shebeen. Innovation comes from trying something out, learning what worked and what didn’t, then trying again. Shebeen failed, but when failure is so disparaged, it discourages people from trying new things, and ultimately stifles innovation. That’s especially problematic in the social sector, where new models of delivering social good are so sorely needed.

BS: What has the reaction been like from the public? What are some of the responses you've had since announcing the closure of Shebeen, and since The Age article came out?

SG: I’ve been happy to see that the vast majority of people have reacted positively – they understand what we were ultimately trying to achieve, and what we believe in, the value of experimenting. As a result, this week has been very busy at Shebeen as lots of customers have come in to say goodbye. At the other end of the spectrum are some people who have read specific media coverage and feel let down, which I understand. I think it’s safe to say that we all wish Shebeen could have achieved more.

BS: This is the copy as it stands on your website:

We donate 100% of our profits, and your choice at the bar determines where they end up. Here's how it works ... Every beer, wine, cider and margarita sale sends funds back to that drink's country of origin.

Do you feel there could have been any miscommunication – even unintentional –between Shebeen and its customers about the nature of your not-for-profit model?

SG: Shebeen was always positioned as a not-for-profit business in that, if we turned a profit, 100 per cent of it would be donated. I think people understand that a business, especially one just starting out, does not always turn a profit.

Having said that, we’ve learned a lot of lessons about how people interpreted the nature of our business, and that some interpretations might be different to what we intended. I’m comfortable that we did what we said we would do by donating 100 per cent of our profits and allocating those donations to our seven charities. If we could do it all again, we might have tried a different approach with our messaging, however, when you are experimenting with something for the first time you don’t have the benefit of hindsight.

BS: The Age article mentioned an issue regarding potential penalties for not registering the business as a "fundraiser". Are you concerned about this? Was it a surprise to you? Do you think there are similar not-for-profit organisations around the state not aware of this requirement?

SG: As I mentioned, Shebeen was one of the first social businesses to test the business model we created, so there wasn’t a precedent we could follow to get everything up and running. As a result, we worked with some of Australia’s top law firms to set up Shebeen.

We’ve been looking at the Fundraising Act and its registration process again this week, and the language used in the registration process makes it difficult to understand how the Act would be applied to a business like Shebeen. Nevertheless, as part of winding down the business and carrying out a review of our operations to date, we intend to speak directly with Consumer Affairs Victoria to seek their guidance on any applicable requirements.

It’s safe to say that if Shebeen needs to be registered, there would likely be hundreds or thousands of other businesses that would potentially need to be registered too.

"Broadly speaking, I’ve learnt that the Australian media isn’t as forgiving of failure as I had expected."

BS: Do you think customers would be surprised that no donations have been made since 2013? Has Shebeen been transparent about this? If so, how?

SG: Our reason to exist was to create social impact through donations and we made every effort to turn a profit in order to benefit our charity partners. Even this year, through some of the tougher financial periods, we were working to sell the business and make a good donation, but unfortunately that’s not how things have ended up. I’ve heard from many customers who have read the full story of our closure and understand what has happened, but I’m sure there are many other customers that are upset. Nobody is more disappointed than I am that Shebeen hasn’t been able to generate more impact, and that it has come to an end in the way that it has.

BS: If the noise complaints hadn't been a factor in its sudden closure, what do you think Shebeen's future would have looked like?

SG: Had we not faced the regulatory challenges we had this year, I believe we would have been on track to profitability. Unfortunately, that’s not on the cards.

BS: What have you learned from the experience of running a not-for-profit hospitality venture? What worked? What would you have done differently? Would you try it again down the track? What advice do you have for others looking to do something similar?

SG: Broadly speaking, I’ve learned that the Australian media isn’t as forgiving of failure as I had expected. Society needs experimentation, and when things don’t work it’s important to pick yourself up, dust yourself off, and try again. We made mistakes, as any new business does, and I wish we could discuss those mistakes honestly so that others could learn from them. I’ve learned that the mainstream media may not be the place for that, as it seems clicks are more important than dialogue in the internet era. I think that’s disappointing.

More specifically I’ve learned that running a bar, and a live music venue, is really hard. If it rains, you’re in trouble. If you book the wrong act, you’re in trouble. So while there are still opportunities to raise charitable funds through hospitality-based businesses, I’ve seen the challenges of scaling these businesses and I think I’ll be steering clear of them in the future. I’d prefer to work in businesses that are easier to scale, and whose revenue and profitability is more regular and stable. I think these types of businesses lend themselves better to creating scalable social good and ultimately helping more people, which is ultimately what I’m passionate about.

Simon Griffiths' other social enterprise Who Gives A Crap sells toilet paper and raises money to build toilets in the developing world.

This article was updated on June 29, 2016 to include further details on Griffiths's salary.