Business Rx: Tips for starting a business that wants to do well by doing good

January 15, 2012

Entrepreneurship thrives in poor economic times — the opportunity cost for taking a risk with a business idea is quite low when the alternatives are less than lucrative. It’s times like these that also lead some to think about a starting a business that serves a social purpose as well. As individual consumers and city, state and federal governments tighten their purse strings, start-ups seeking to fulfill goals of profit and social value creation need to recognize this changing environment and adjust accordingly. What follows are some considerations to take into account for moving that “change the world” business idea from paper to practice in 2012.

Does it have to be a nonprofit?

The old dichotomy of either business or charity is gone. You have many more choices now and should consider the legal and organizational model that best fits your mission. For example, a socially responsible coffee seller likely would fit better as an incorporated business or benefit corporation, while an organization providing direct services to the homeless is a better match for the 501 (c)(3) tax-exempt model.

As of 2009, benefit corporations have specific language allowing organizations to do business with a social mission while relieving a CEO from direct bottom line profit maximization (and thus shareholder liability). The state of Maryland became the first in the country to recognize this legal structure in 2009, with Virginia putting the B-Corps into law starting in July of 2011. Legislation was introduced in the District in November.

What are your soft tools for getting started?


Twitter and Facebook have become entrenched in the marketing vernacular, and many start-ups thrust their hats into the space with high aspirations about acquiring thousands of “followers” and “likes.” While such Internet presence comes with some positives, make sure to understand exactly what the value is of putting precious time into a social media strategy focused on quantity. Quality can be just as powerful as long as you are sharing relevant information.

The Washington region has a host of communities and resources for idea-driven professionals, and free advice is incredibly valuable when developing an initial model or business plan. Don’t be afraid to put yourself out there in one of the dozens of clubs, communities, universities or informal networking events available in the region. Learn the landscape, build some allies and position yourself for advancement.

Start-up costs?

Depending on the nature of your organization’s business or start-up needs, something like KickStarter.com or StartSomeGood.com might be appealing for getting initial capital. However, these crowdsourcing options need to know that you know what that capital will lead to.

Make sure not to close yourself off to capital-relieving opportunities that may align with your mission. For example, there are significant benefits that can be collected from the Federal Employment Opportunity Tax Credits, wherein businesses receive tax credits for hiring individuals in specific demographic groups, including ex-felons, individuals on food stamps and veterans. That is in addition to state-level benefits that can be collected as well. Explore all your options, especially if you are in the business of making operational decisions to give back to society.

Grants are a great way to get going, but the funding environment is extremely sensitive right now. On top of that, it is always good practice to diversify your revenue stream and protect the organization from cash flow shock if you lose a funding source. Are there sales opportunities out there? Merchandising? Subsidized service delivery opportunities? Consider all options, but invest wisely.

Guillermo Olivos is the assistant director of the Center for Social Value Creation at the Robert H. Smith School of Business. For more information on how to take your socially driven idea to reality, e-mail csvc@rhsmith.umd.edu.

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