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Starting a Socially Responsible Business: How to Make It Work

Starting a Socially Responsible Business: How to Make It Work
A philanthropic business model means donating a portion of your profits to social and charitable causes. / Credit: Shutterstock

With the holidays coming up, you might be planning a special charitable promotion for your small business, such as donating to a local nonprofit organization. While many for-profit startups make a point to give back to their communities during the season of giving, some incorporate philanthropy into their business model all year round. It may not be feasible for all small businesses, but for those who can afford it, the long-term benefits of social responsibility far outweigh the cost of giving away a portion of their profits.

For-profit companies that have a philanthropic business model make a commitment to support a social cause with every sale, 365 days a year. A well-known example of this is Toms' "One for One" model, in which the footwear company gives a pair of shoes to a child in need for each pair of shoes it sells. Other companies donate a percentage of each sale to a certain cause or variety of causes, with some allowing customers to choose where their donations go. If you think your business will lose money with a model like this, think again: Philanthropic incentives only help your bottom line.

"Research tells us that 80 percent of customers are willing to switch to another brand that's associated with a charity of their choice," said Marti Beller, co-founder and CEO of charitable fundraising and donation platform PlanG. "There is virtually no downside to driving your business while impacting the greater good. It's a win-win-win — nonprofits receive increased donations, customers feel connected and empowered, and businesses win loyal customers."

[Social Entrepreneurs: The Business of Giving Back]

Tom Hsieh, CEO of SplinterRock, a technology consulting firm that provides free services to nonprofit organizations, agreed, noting that businesses should proactively demonstrate to consumers that they are positive contributors to society.

"People want to connect with the brands that they purchase," Hsieh said. "They want to identify with companies that are giving back and making a difference in the world."

Consumers want simple, convenient ways to wield their purchasing power in the name of doing good. They want to make a difference in the world without having to single-handedly track down and donate directly to each cause that's important to them. While committing to donate some of your business's profits to a single cause is still a great way to practice social responsibility, giving your customers choices can provide a great advantage.

"Today's shoppers don't give in just one way or to just one cause," Beller told BusinessNewsDaily. "They also want to find ways to give more without changing their daily lifestyle. That's one reason retail-based philanthropic incentives are so popular."

"People are generous at heart and really want to give, but many don't think they have the time or money to do so," added Stephanie David, founder and CEO of e-commerce website PopNod. "PopNod provides a simple way for people to integrate giving into their everyday lives by offering cash back for their purchases, which they can then donate to their favorite causes."

There are a number of business-to-business, or B2B, services that allow companies to partner with them and set up a system of choice-based charitable donations for customers, such as Plan G and Charitable Checkout.

Zack Rosenberg is the founder and CEO of Do Good Buy Us, an online marketplace that purchases and sells products made by nonprofit organizations and donates more than 50 percent of its proceeds to a variety of global causes. He advised social entrepreneurs to emphasize exactly what is accomplished when consumers purchase from your company.

"Anytime you can tell the consumer, 'Because of you, here's what's possible,' it's a win for your business," Rosenberg told BusinessNewsDaily. "It's all about selling a story."

As one of the founding partners of the national Giving Tuesday movement, Rosenberg encouraged business owners to begin their philanthropy with a Giving Tuesday campaign. Now in its second year, this movement is part of the post-Thanksgiving holiday kick-off week (following Cyber Monday) and aims to promote a day of national giving and support for charitable activities. By participating in Giving Tuesday, small businesses have the opportunity to dip their toes into the philanthropic pool and start on a journey to year-round social entrepreneurship.

Originally published on BusinessNewsDaily.

Nicole Fallon
Nicole Fallon

Nicole Fallon received her Bachelor's degree in Media, Culture and Communication from New York University. She began freelancing for Business News Daily in 2010 and joined the team as a staff writer three years later. She currently serves as the assistant editor. Reach her by email, or follow her on Twitter.