U.S. Markets closed

Are Altruism and Profits Mutually Exclusive in Business?

Allison Kade

NEW YORK (MainStreet)—When donating money to nonprofits, most consumers look for organizations that send the maximum impact to their causes and keep as little as possible for themselves.

But what about companies with a social mission that aren't officially nonprofits? Wedged in the space between a traditional company and a charity, are these companies at a disadvantage when it comes to competing with either end of the spectrum, or do they have a niche all their own? How do they manage the expectations of ROI against their stated mission?

This topic was of particular interest to the audience at Internet Week New York this year, which voted for an audience-submitted panel on tech startups with strong social missions. Speaking at the panel were Gene Gurkoff of Charity Miles, Su Sanni of WeDidIt and Zack Rosenberg of DoGoodBuyUs to explain how their companies bridge the two worlds.

Also see: Is Lack of Quality Mentorship Why Women Earn Less?

Are Mission-Driven Businesses at an Advantage or Disadvantage?

It's logical to think that splitting a company's attention between its core business and its social mission could be distracting. Gurkoff agreed that donating a percentage of profits could set a company back: "If you're selling a shirt for $14 and saying 50% of proceeds go to charity, then you could sell it for $7, and someone else will—and that will put you out of business."

Gurkoff said that's why his company doesn't follow that model. Charity Miles is a mileage tracker for runners and other athletes. The more you work out, the more money donated to your cause. The money is provided by corporate sponsors, who participate for the positive publicity and to bolster their own charitable pursuits.

Sanni felt similarly; his company is a business that helps charities fundraise more efficiently. Rosenberg sees his value as helping businesses sell products they make, creating value rather than just donating money (DoGoodBuyUs is an online marketplace for items made and sold by charities, though those items do give a percent of proceeds back to charity, usually 50% or more ).

All the same, Rosenberg disagreed with Gurkoff's general assumption that consumers are driven solely by price. "Not everyone is shopping based on lowest price," he said. "A disadvantage is we can't always go with the cheapest option, if it isn't made sustainably or we don't stand behind it. But I don't think we're going after same audience."

Also see: Dispatch from Internet Week: How Women Use Tech Differently

All three entrepreneurs felt that companies with a social mission still need to focus on their success and business plan, same as any company. "It's really hard to start a business, whether it has a social aspect or not," Gurkoff said. Sunni referred to an article in Black Enterprise Magazine last year saying that being a non-profit is not a license to have no profits. Even nonprofits should be run like a business, Sanni said: "Look at the tenets of any profitable or sustainable business and embed that in your mission."

Despite the challenges of all businesses in general and socially driven ones in particular, there is an upside: Hiring.

"A social mission can distinguish you from competitors," Gurkoff said. "There are many other run/walk/bike tracking apps to see how far you went, but there's no other app that lets you feed someone in need when you walk your dog. That allows us to stand out and build a brand around our mission, which is attractive to people."

Also see: How Big Brands Are Using Supply Chain Storytelling

The fact that these companies are bona fide businesses rather than nonprofits can work in their favor. "Everyone wants to work at a nonprofit, but not everyone can afford to do so," Rosenberg said. "A social business can let you do both."

That doesn't mean they can compete in salary with some of the biggest tech players, but Sunni doesn't attribute this to the mission itself. "We can't pay people a Google salary," he said. "But that's not because of our social mission. That's because it's hard as a startup anyway." So, within that context, the social aspect is a plus. "Like any marketing, we want inbound leads, people who reach out to us, see the vision we have," Sunni said.

Gurkoff adds that there's a movement among charities and startups simply to pay more for top tech talent. Previously, he said, heads of such companies would complain that they can't get the best talent, because they don't pay as well as Google.

Another perk of being a business rather than a nonprofit? You can lure employees with the promise of equity in the company.

Also see: 10 Sustainability Tips That Will Save You Cash

Who Are the Target Consumers?

Also see: 5 Consumer Activism Campaigns that Changed the Garment Industry

Many people would assume that the majority of customers willing to buy more expensive products because of their philanthropic edge aren't regular people shopping for products, but those looking to mobilize their charitable dollars. Sunni doesn't think they're serving a niche audience.

"A lot of times we work with [nonprofit] organizations trying to partner with different brands and businesses that want to seem more philanthropic." Sunni said. "It seems that now there are more businesses that are conscious of how to give back in a scalable way. We're trying to create different opportunities for those companies and brands to get involved and give back while operating their businesses."

Rosenberg mentioned a Nielsen study from last year asking consumers if they would be willing to pay more for a product that gave back; 48% said yes, they would pay more, up to $20. "That's a very telling story because when they asked the same question a year before, the answer was less than half that percentage," Rosenberg said. "So folks are certainly more aware now that these types of things are out there."

The do-gooder ethic isn't enough to make these businesses successful by itself. Users are looking for a real value proposition. Gurkoff used brands like Warby Parker and Toms as examples of successful companies that also give back. "They're successful because they're great brands with a great product, at a lesser or equal price as competitors," he said. "So they're not just successful because of the social mission."

--Written by Allison Kade for MainStreet

EXCLUSIVE OFFER: See inside Jim Cramer’s multi-million dollar charitable trust portfolio to see the stocks he thinks could be potentially HUGE winners. Click here to see his holdings for FREE.