Ask HN: Can Startups Do Well AND Good?

https://news.ycombinator.com/item?id=1908993

by onwardly • 16 years ago

8 13 16 years ago

news.ycombinator.com

A co-conspirator and I have a long running argument that I'd love your input on.

Is it ever OK for startups to give a certain % of their earnings to a charitable cause? Assume in-kind services won't work.

My position: There can be substantial marketing benefits, employees will appreciate it, its the right thing to do.

His position: Startups need cash, giving money to charitable causes is something only Big Co's do.

Curious if there are any interesting ways you've seen startups successfully integrate social causes and their for-profit business.

barrydahlberg• 16 years ago

The most recent example that comes to mind is Duck Duck Go:

http://www.gabrielweinberg.com/blog/2010/11/help-me-start-a-...

In this case the founder is obviously not critically in need of money, it still helps though.

gaelian2• 16 years ago

What if rather than giving a hard percentage of one's earnings, one could try something like giving your product/service away for free or at a large discount to non-profit/educational orgs or the like? This is the kind of thing that I would consider as being far more realistic, at least at the earlier stages of a startup.

I've seen numerous startups do something like this. You're doing good, and you hopefully get some good publicity/reputation out of it as well without being out of pocket.

nl2• 16 years ago

From the post "Assume in-kind services won't work."

gaelian2• 16 years ago

Eh, thanks. I think I've been staring at a screen for too long today, completely spaced on that bit.

I guess my position is the same though. In the early days I'd have to go with not giving direct cash to charities. I guess if a start-up can afford to do this then that's probably a sign that they're doing pretty well. Notwithstanding some special kind of startup that might get some inordinate benefit (taxation related or otherwise) from donation.

jakarta• 16 years ago

I think this totally depends on the business you are running. If you have outside investors, I think they will for the most part dislike the idea of a percentage of income going outside of the business.

Plus, if your business requires capital to be reinvested in order to fund growth, that's where your cash flow should go.

In most cases, all your focus should be on growing your business because chances are that will allow you to donate and have a positive impact on the world if it's able to survive and make you wealthy.

There are a few cases where I could see your idea working out though:

I've analyzed some mostly family owned businesses with very low capital requirements. For example, there is one that builds a special component for aircrafts. Each year, the business generates about $800K in free cash flow. All that does is pile up on their balance sheet. In a normal company, the shareholders would ask for a dividend, but in this case, the family could donate that annual $800K in FCF with no problem.

There's also a European hedge fund, The Children's Investment Fund, that donates 0.5% of their assets to charity or $30M a year since they run $6B.

nl2• 16 years ago

Do you advertise and/or market your company?

Charitable giving by companies can often be thought of marketing that may have taxation benefits.

OTOH, it isn't exactly the most efficient or trackable form of advertising.

JCThoughtscream• 16 years ago

...why would it NOT be okay? Startups might need cash, but so do big corps. If we're talking about "donating equivalent to big corporations," then obviously we're talking flights of fancy. But we're not. I'm sure there's tax incentives for it; you've alluded to marketing incentives. But in the end, it's just a matter of whether or not the startup thinks it's financially in a place to do a little good.

Penny Arcade's got a staff size you can count on one hand; they run one of the best-known charities in gaming circles. They're not a Big Co. by any account, even if they've since developed Significant cultural presence.

dominostars• 16 years ago

I love trying to think of ways to make a startup do 'well and good', but donating to charity is a weak way of doing it. You're probably not making much money, so your donations will not have a substantial impact. Employees are more likely to feel that your $10,000 would have been much better utilized growing your company, than being sent to charity X to do who knows exactly what.

You can more directly do 'well and good' by doing well FROM doing good. Recently, I listened to a radio program about startups that were trying to do just that. For instance, one non-tech startup was based on collecting and selling unused fruits from people's yards. Employees can feel good because they have directly improved their community, by utilizing food that normally goes to waste.

coryl• 16 years ago

Only if it fits into your business model, IMO.

Just because your small startup gives away a small percentage of profit to charities doesn't mean you'll get a net positive benefit out of it. In most cases, you'll clearly end up with a net negative.

It's not really a trick you tack onto your existing product; it has to legitimately fit into your business model and market.

fabiandesimone• 16 years ago

I think we should all do this. However, for me is a timing thing.

I have this goal where I would like to create a Non profit (charity, etc) for every cash positive company I'm able to create. I'm not there yet, but is something that I take with me on every project I start.

asanwal• 16 years ago

The best examples I've seen are Tom's Shoes and Better World Books where the 'do good' element is part of their business. Tom's Shoes gives a free pair of shoes and Better World Books does similar things with books. In these cases, their charitable work fits with their business and so it's additive - not an add on.

IMO, adding on a "% of revenues goes to X charity" has become so commonly used that I think many are skeptical. I know I am.

cuchoperl• 16 years ago

In a startup cash is scarce. You can find best ways to give other than cash. For example, take your team to do some volunteer work in your community. Extra karma if your cause is consistent with your company's story.

zachallaun• 16 years ago

http://shrtn.co (posted on HN very recently) has an interesting take to being charitable. They allow users to gain money by placing shortened affiliate links into their social posts. Another option is for users to donate any affiliate money they generate to charity. In this case, shrtn.co will add 20% of the money donated.

In this way, you get to 1) do some good, 2) benefit from the marketing of it and 3) retain most of your profits.

Seems like a damn good middle-ground to me.

Ask HN: Can Startups Do Well AND Good?

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