Why philanthropy still matters

Philanthropy is big business. A survey by Chief Executives for Corporate Purpose found that between 2016 and 2019, a group of companies representing $7.6 trillion in revenue increased their total giving by 11% to $26 billion. Businesses worldwide give to every cause imaginable, although this often works out at a tiny fraction of their overall revenue.

Charitable giving in business might seem like a marketing ploy, but it has real world benefits on both sides of the donation. This trend is changing how business is conducted worldwide and offers a welcome change from enterprise culture even thirty or forty years ago.

Not just for the big players

While it’s true that corporations give eyewatering amounts to charity, they aren’t alone. A survey by Work For Good found that as many as 60% of SMEs donate to charity. There is a clear appetite for giving in startups that isn’t unique to large companies.

The simple fact is that it’s more common for businesses to give to charity than not. The modern consumer is socially responsible and wants the companies they do business with to be the same. And it’s cynical to think that only consumers have this mindset. Today’s business owner wants to give back to the community too. Otherwise startups, of which an extremely high percentage fail, wouldn’t risk their profits by engaging in philanthropy.

Many startups even find alternate methods of philanthropy, such as donating goods or services instead of cash to keep spending to a minimum. Others partner with local charities and connect their employees with the cause, so a business doesn’t have to donate millions to have an impact.

Building a better business

The way businesses are built is changing, but in order to do the most good, you need to know what you are doing. This means you shouldn’t expect your business to have an immediate impact. Learning about causes and fully understanding the issues goes a long way. As a startup, you will be much closer to the ground and be able to build a personal relationship with charities, whereas a huge corporation would struggle.

Warren Buffet, speaking on philanthropic philosophy, said: “You can have the greatest goals in the world, but if you have the wrong people running it, it isn’t going to work.” Sometimes the best people to make something work are the people receiving the gift themselves. The philanthropist Ewan Kirk noted, “My philosophy has always been to look for the general area and allow the recipient to tell you the best thing to do within that broad space.”

Startups are increasingly thinking about their giving strategy and which employees put the wheels in motion. An example of a popular philanthropic business strategy is Pledge 1%, when companies pledge 1% of all of their profits to good causes. Some go even further with the 1/1/1 model, which is when companies give 1% of their sales, 1% of their equity and 1% of their employees’ time to charitable and philanthropic causes.

A social mission

Given the changing public attitude towards things like giving and social justice recently, it’s no surprise that many new businesses go further still. Some startups are built from the ground up with the goal to maximise social impact. A study in 2017 found that the number of social enterprises in the UK alone was 471,000.  The UK government defines social enterprises as:

“Businesses with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profits for shareholders and owners”.

Deloitte published a report in 2018 that hinted at this paradigm shift in the way businesses are built. Their reasoning behind this increase in social enterprises is because of the increased power of the individual, where social capital is now more important than financial. Second, they believe businesses are being forced to fill a leadership gap in society and third, technological advances are allowing for companies to support growth while simultaneously helping others.

All of these points influence startups. In a world where social capital is a strengthening currency, small businesses must consider it just as much as they consider their cash flow.

Get what you give

Rather than just benefiting those on the receiving end of philanthropy, startups who engage in charitable giving or other forms of philanthropy find their own gains too. Work For Good also found that startups who gave at least 1.5% of their profits to charity experienced a 20% increase in sales.

Likewise, philanthropy can help increase employee retention and even act as a magnet for potential talent. A 2016 study by Cone found that 75% of millennials would prefer to work for a socially responsible company even if it meant a lower salary.

If you volunteer your employees’ time, then you might find other benefits. Several studies have shown that coworkers who volunteer together have an increased feeling of camaraderie and your employees will feel happier for giving back to a good cause, both of which lead to greater team productivity.

Philanthropy and changing public attitudes go hand in hand. The benefits speak for themselves, and that’s why so many startups are choosing to change the way they run. The need for companies to lead the way in social responsibility, as well as technological advances that make it possible to have a social mission while making a profit, mean we will continue to see a rise in philanthropy even in SMEs for years to come.