Many entrepreneurs think of philanthropy as something to consider way off in the future when their businesses are mature and profitable. There is a better approach. Philanthropy works best when it is included in a company's business plan from the very start — when it is part of a company's actual DNA, growing and prospering over the years as the company itself grows and prospers.
Each month, more than 500,000 people create new businesses in the United States. Some founders dream that their ventures will become high-tech giants like Google or Facebook, while others pursue more modest goals. At the very least, they all hope to make a living. At the very best, they hope to strike it rich.
By inserting philanthropy into the very DNA of a startup, entrepreneurs make community engagement an organic part of the organization. This simple step enhances recruitment, productivity, sales and ultimately the bottom line. At the same time, it builds stronger and healthier communities in which to live and work.
Excellent resources are available to assist entrepreneurs who want to make philanthropy an intrinsic part of their business plans.
The Entrepreneurs Foundation of Colorado is a network of 53 Colorado companies who have pledged 1 percent of either their founding equity or annual profits to the community. When an EFCO member startup succeeds (by attaining profitability, an initial public offering or by selling itself), the community benefits from its equity interest.
EFCO is affiliated with and benefits The Community Foundation of Boulder County. It also benefits the Rose Community Foundation and The Denver Foundation. Foundations using the EFCO model can be found across the United States and in Israel.
So far, EFCO has raised more than $500,000 for local charities. It expects a large infusion this fall when proceeds are realized from the successful $84 million IPO of Rally Software, one of its founding members.
"Business is the only force on the planet large enough to correct the environmental and social justice problems we created in the last century," said Ryan Martens, chief technology officer of Rally and board chair of EFCO. He encourages startups to commit from the very beginning, when their shares are worth little, rather than waiting until an exit is near.
"New companies should put a stake in the ground from the very start," said Seth Levine, co-founder of EFCO and managing partner of Foundry Group. "Company-building does not happen in a vacuum. Rather, a company's success results in part from the health of the community in which it operates."
The Telluride Foundation takes a somewhat different approach with its Venture Accelerator, which uses its donations and grants to help fund startups with a $30,000 "investment." Then, using a typical business accelerator model, it provides mentorship, coaching and other tools to help these startups succeed. In return, the foundation is granted a 4 percent equity stake in the new company. If the company achieves success, the money earned becomes available to fund additional startups.
"If the philanthropic community is serious about systemic change, it needs to look at more than grant-making and advocacy, and make some riskier venture philanthropy investments," foundation president and CEO Paul Major said. "Such social investments have real potential to create self-sustaining economic ecosystems bringing innovation, jobs and ideas to communities."
At birth, most startups have high hopes but low dollar value. At this time, it is quite easy to make the commitment to donate "1 percent of nothing" to community philanthropy.
By doing so, a young business aligns itself with others with similar goals, gains access to additional resources, creates a culture of "paying it forward" for employees and customers and improves its chances of long-term success.
Bruce DeBoskey is a Colorado-based philanthropic strategist, helping families, businesses and foundations design and implement their philanthropic initiatives. More at deboskeygroup.com