Categorized | Social Entrepreneur

Business for Good: For-Profit Social Entrepreneurship – PhilanTech

I believe in the power of business to do good. While nonprofits are critical in delivering social and environmental value, for-profit businesses also have an important role to play. As social entrepreneurship grows, tax structure is becoming less of a dividing line between companies that exist to make money, and nonprofits that exist to provide social benefit.

I’ve always been interested in social entrepreneurship, even before I knew the term. In college, I tutored kids at a local middle school that hadn’t had a budget for new books for its library in several years. I recruited several other students from a music group on campus to record a CD of original music, which we funded through donations from campus groups, and then sold on and around campus. We raised nearly $1,000 to buy new books for that middle school library in a matter of weeks. We repeated the project the next two years and raised money for a local food bank, as well as a local playground.

The idea of creating something with two bottom lines – something that created both financial and social value – stuck.

I spent the next several years working in educational technology, hoping to make a difference in people’s lives – kids, initially, then college students, then managers and business leaders – by providing them with valuable learning opportunities. The various jobs I held all had value, but I didn’t feel that I was making the difference I wanted to make. So I went to business school to try to gain the skills I needed to be a socially responsible business leader.

In 2003, I was working for Ashoka – a leading funder and supporter of social entrepreneurship that provides three-year fellowships to social entrepreneurs around the world. One of my tasks was to create a process for measuring the social impact of the fellowships. In researching different approaches to measuring social impact (or social return on investment – a topic that is still hotly debated and explored), I discovered that very few organizations were using online tools to track and report on social impact. That planted the seed of an idea.

It turns out that measuring and reporting on social impact – combined with the process of putting together information to request the funding that supports programs and services that lead to social impact – is very costly.

Reporting on social impact in the nonprofit sector frequently occurs in the context of grant reports to foundations and other institutional funders that request those reports. For those of you not familiar with the grantmaking world, the process usually goes something like this: a nonprofit doing good work needs money to support that work. It searches for institutional donors (likely in addition to individual donors) that might support its mission, and puts together grant proposals to those donors. Those institutions review the grant proposals, and decide whether or not to provide funding in the form of a grant. After a grant is awarded, the donor requests (and frequently requires, as a condition of funding) reports on how the grant money was spent and what impact it had.

A report by the Center for Effective Philanthropy concluded that 13% of every foundation dollar in the U.S. is spent on grants administration. In 2009, foundations in the U.S. awarded $42.9 B in grants (down from $46.8 B in 2008). That means that $5.6 B was spent on grants administration – money that could have been spent on programs and services, and, ultimately, social impact.

That multi-billion dollar inefficiency suggested an opportunity to make a difference. I spent the year after my time at Ashoka (which happened to coincide with my second year of business school at NYU) writing a business plan, with the help of some very smart and talented friends, to address this problem in order to help the nonprofit sector with this inefficiency.

When I first came up with the idea for PhilanTech, and PhilanTrack, our online grants management system (more about that later), I thought that I would create the organization as a nonprofit. It seemed a nonprofit would be best suited to address a nonprofit sector inefficiency. But as I talked with more people about the idea, every one of them suggested that PhilanTech should be a for-profit company. In 2004, very few foundations were funding technology, and the consensus among the nonprofit and foundation leaders and staff members with whom I talked was that if PhilanTech was going to be successful, it would have to do so without relying on foundations as a source of funding.

PhilanTech was launched as a for-profit social venture in 2004. We were very fortunate to receive a grant from the Stewart Satter Social Venture Fund in 2004 as seed funding (the Fund was tax status agnostic, which was more unusual a few years ago than it is today) to develop an alpha version of PhilanTrack. I describe PhilanTech as “a nice for-profit,” a company that has been socially and environmentally responsible from the outset in terms of business practices, not only in terms of the social benefit provided by our tools.

PhlianTrack helps both grantmakers and grant seekers manage the grant process from the initial proposal to the final report. For grantmakers, it provides an online application process, grant and contact management, post-grant monitoring and reporting (the opportunity to measure social impact), and a financial analysis tool to enable funders to evaluate the financial health and stability of their grantees and applicants.

For grant seekers, the problem PhilanTrack solves is a bit different. A nonprofit that applies for 30 grants from 30 different funders is filling out 30 different proposals in slightly different formats (requesting largely the same information), which is incredibly time consuming. Say the nonprofit gets 15 of those grants. The nonprofit then fills out 15 different progress reports in slightly different formats (sometimes more than that, if any of the funders require more than one report). It’s a time consuming and costly process for nonprofits, taking an average of up to 100 hours per grant, according to the Center for Effective Philanthropy.

PhilanTrack provides a way for nonprofits to easily reuse information from proposal to proposal, from report to report, regardless of the format required by the funder. PhilanTech’s patent-pending technology facilitates this process to enable nonprofits to easily reuse information while still meeting each funder’s individual requirements. Nonprofits can prepare all of their grant proposals in PhilanTrack (regardless of whether or not their funders are using PhilanTrack for their online applications), track all of the grants they receive, and prepare all of their progress reports. PhilanTrack helps build the grant management capacity of nonprofit organizations, while helping to provide institutional memory for grant-related information as well.

PhilanTrack was released in September 2007, and is now in use by hundreds of organizations, both grantmakers and grant seekers. In 2009, I was named by BusinessWeek as one of the country’s 25 most promising social entrepreneurs.

In December of 2007, PhilanTech became a founding B Corporation. B Corporations are a new type of company that is setting the standard for social and environmental responsibility. For PhilanTech, B Corporation certification – and being part of the growing B Corporation community – validates the socially and environmentally responsible elements of the business that have been in the company’s DNA since day one.

Not every business can be dedicated to helping the nonprofit sector, but increasing numbers of businesses are building social and environmental responsibility into their business practices – not only donating a portion of profits to charity, but also creating sustainable business practices from sourcing to community engagement. As a social entrepreneur, I’m excited to see this trend. Someday, all entrepreneurship will be social entrepreneurship.

Dahna Goldstein is the Founder of PhilanTech, LLC

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