Why companies should commit to charitable giving before generating a profit

Alex Sloan

By J. Alexander Sloan, Director of Strategic Partnerships, Tides

Hey startup CEOs! Now is the time to invest in the culture of your new enterprise and in your community. Having a positive social impact is a new minimum standard for businesses – as essential as creating products people want.

One company knew that it was not only possible but also necessary to give back before they were even breaking even – Rally Software.

In 2003, ten years before it went public, Rally Software allocated 1% of its series A equity in a warrant to The Community Foundation of Boulder, Colorado. It also committed 1% of its staff time (more than 1000 hours) to volunteering. In 2008, it became a Certified B-Corp, and in 2010, it set aside 1% of its series D equity to create the Rally For Impact Foundation, a donor advised fund within The Community Foundation. When Rally went public in 2013, employees and founders donated additional shares to the Rally for Impact Foundation. The sale of the shares given in 2003 and 2013 totaled over $1 million.  Rally for Impact Foundation supports employee matching and give-back efforts while it also shares a strategic partnership with Code for America to help create Civic Tech volunteers around the world.  In 2014, Rally’s staff volunteered nearly 4,000 hours. Along the road, Rally also provided its Flowdock, Waffle and AgileZen products for free to open source developers, non-profits and students.

That’s a lot of social punch for one company. It is a large social impact that was built into the culture, mission and employee engagement on day 1.

Rally employees volunteering

Over 200 Rally employees spent over 640 volunteer hours to transform a school in New Orleans that had been hit by Hurricane Katrina. Projects included painting walkway posts bright colors and creating inspirational signs that hang in the covered walkways that connect the dozen trailers that make up the school.

 

If Rally had waited the ten years until it went public to contribute equity and staff time, the surrounding community would have lost thousands of charitable hours and dollars, and Rally would not have been known as a responsible corporate partner in its community, a quality that American consumers value. Just consider:

  • 85% of consumers have a more positive image of a product or company when it supports a cause they care about. (Source)
  • 59% of Americans are more likely to buy a product associated with a corporate-nonprofit partnership. (Source)
  • And companies with engaged employees outperform those without by up to 202%. (Source)

Rally would have also missed out on attracting and retaining employees who wanted to work for a socially responsible company:

  • Six out of ten Millennials state a “sense of purpose” as part of the reason they chose to work for their current employers. (Source)
  • Companies where corporate citizenship is integrated into the culture have 2.3 times more employee retention. (Source)
  • Employees who are the most engaged in their organizations put in 57% more effort on the job and are 87% less likely to resign. (Source)

If as a startup founder, you are planning on waiting to give back until you’ve hit a certain financial milestone or gone public, you are making your life harder, not easier. Why wouldn’t you build a culture of corporate social responsibility into your company’s DNA when you have between one and ten employees, and not wait until you have 300? Trying to backfill a corporate culture of generosity amongst your employees, management team and board is very hard to do, if not impossible.

It’s also a lot simpler to make a charitable giving commitment in your company’s early days. If you ask a pre-IPO company with a $10 billion valuation to allocate 1% of its equity for charitable purposes, stakeholders will think you’re taking some of their slice of the pie. On the other hand, if you commit in your early days when your company’s equity has little to no value, the process will be much easier, similar to granting stock options.

After working in venture capital for 20 years before moving into the social sector, I can tell you that nine out of ten early stage companies will never go public. If your company is able to allocate some equity, product, profit, or employee time now, and you go out of business or are acquired in four years, well, then that’s four years you were able to generate substantial value to your employee and real contributions to your community. You don’t have to wait for your “golden IPO moment” to make a difference. If it turns out that your company is the one in ten that becomes a successful IPO and is able to create a charitable dot-org, that’s fantastic, and you can build on that culture of generosity that you have already established, but it’s not the only story. You can make reasonable contributions of time, product, profit or equity at the founding of your enterprise and at every step along the way.

As a founding CEO or early stage manager of a tech startup, you are working 100-hour weeks, a lot of your compensation is in equity, and the stakes are high. You’re trying to hit your milestones, get a high valuation on your next round of funding, and stay in the game. You probably love the idea of giving away a percentage of your company’s time, profit, product, or equity, but you feel like now isn’t the right time. I’m here to tell you that it is. Integrating charitable engagement into your corporate culture from the start will attract and retain great talent, increase your revenue, and be easier and more affordable to implement than trying to do it five or ten years from now. Waiting is a cost you can’t afford.

Today, Tides announced a new partnership with Pledge 1% to facilitate early stage and established companies’ giving back. My friend Ryan Martens, founding CEO of Rally and co-founder of Pledge 1%, chose that path and doing so fundamentally shaped the success of his company and his personal journey as an entrepreneur. Making the pledge is step one, and it only takes two minutes. Pledge 1% provides resources and community to make it easy and affordable for companies to fulfill their commitment. Over 700 companies have joined the movement to date, including Yelp, Glassdoor, PopSugar and Twilio. Thousands more companies will take the pledge in the coming few years. I hope you won’t wait to take it too – just visit pledge1percent.org.

Leave a Reply