UpFront - June/July 2008

Mission Possible

Social entrepreneurs balance bottom lines with a desire to make a difference

by Emily McMackin

Clayton "Nick" Nicholas knows what it's like to worry about profit margins, but in his business, Nashville, Tenn.-based Giving Tree, money isn't the only bottom line and his stakeholders extend beyond his board of investors.

Community and a sense of purpose are equally--if not more--important than revenue. In fact, they're the reason Nicholas started his business in the first place.

Two years ago, while buying prepaid gift cards for family and friends for Christmas, Nicholas wished he could find a way to make his gifts more personal. From his work as a healthcare executive, he knew how difficult it was for nonprofits to find funding. So, he thought: Why not pair a gift card with a charitable donation?

Shortly after launching the online business, which sells the GiveCard--a prepaid Visa or MasterCard that allows recipients to donate 10 percent of their gift to the charity of their choice--Nicholas and cofounder Jeff Jacobs discovered that consumers were eager to give back.

"We've gotten responses from parents and grandparents who see this as a way to teach kids about giving back," Nicholas says. "It's also popular with employers who use the card for employee rewards."

Despite his ambition to grow Giving Tree into a nationally known business that taps the booming gift-card market, Nicholas knows he can't measure profitability by revenue alone.

"Our mission is to bring philanthropy to the masses," he says. "We believe everyone can be a philanthropist--You don't have to be a celebrity or have a lot of money. We want to create a culture of giving."

Small business owners have always been community-conscious people driven by more than just the desire to make money. Whether they aspire to create a better workplace for employees or address a need in their community, most owners want to make a difference.

Young entrepreneurs today are taking this tradition a step further by forming businesses to tackle specific problems in society, says Jeff Cornwall, director of the Belmont University Center for Entrepreneurship in Nashville, Tenn.

Without the IRS constraints that nonprofits have or the need to beg donors for money, these social entrepreneurs are finding more freedom to bring about change.

"Rather than trusting in these large institutions they don't think are effective, they're going out and solving problems at a grassroots level," Cornwall says.

That's exactly what motivated Patricc Reed and his Marine buddies, Josie Wilder and Reece Donner, to start 3 Clothing Company, a Lusby, Md.-based T-shirt business that donates 10 percent of profits from each sale to the charity of the customer's choice.

While talking one night about the poverty they'd witnessed during past deployments, the guys wondered why corporations couldn't do more to share their wealth. Reed's solution? Build a business that leads by example.

"What we contribute is not enough to cure cancer or stop violence, but if we can get other businesses to follow this trend, it could help so many people," Reed says.

So far, charities from St. Jude's Children's Hospital to the Children of Uganda have benefited from sales.

"We look at it as good karma," Reed says. "What goes around comes around."

Balancing a bottom line with a desire to make a difference can be tricky, Giving Tree's Nicholas says, especially when sticking with your mission means sacrificing profits.

"We're lucky to have investors who believe in us and are patient about when they'll get a return on their investment," Nicholas says.

Matching your business model with the right type of investors helps, as well as looking for creative ways to grow.

"This type of business attracts good people--customers and employees who are passionate about what we're doing and businesses that value our model and want to partner with us--and that's a reward in itself," Nicholas says.

Tapping Your Social Conscience

Bringing a social conscience to your business can help attract employees, draw customers and build your credibility. But where do you start? Whether you plan to launch a social enterprise of your own or initiate a charitable effort within your company, remember these tips:

Do your homework
Research your idea before testing it. Before launching Giving Tree, Nick Nicholas had studied growth trends in the gift-card market and in online giving.

Make it count
Once you commit to something, be authentic. Promising to donate 10 percent of your profits to charity but raising your price 5 percent will only mislead customers and diminish your impact. While it's good to publicize what you're doing, too much promotion can sound insincere, so leave it to others to spread the word about your charitable efforts.

Get personal
The more you involve employees and customers in your philanthropy, the more effective it will be. When Giving Tree customers purchase a Give Card, they determine the value of the card, where the tax deduction goes and the message included on the card. When activating the card online, recipients can peruse a database of nonprofits to decide who gets their contribution.

Start small
Don't have the resources to give back on a grand scale? Take small but significant steps to improve the world around you. If you can't afford to donate your money, give your time, says 3 Clothing Company's Patricc Reed, who devotes a few nights a month to serving meals at a local soup kitchen. Find a need in the neighborhood where your business is located and organize a volunteer effort, or give employees a paid day off each month to do volunteer work.