Strategies: Mission Possible

Making money while doing good isn't easy, but more companies are proving it can be done. Here are some successful strategies

By Anne Field

If Xavier Helgesen's sole concern were boosting his company's profits, the decision would have been easy. Helgesen's $17 million business, Better World Books in Mishawaka, Ind., collects textbooks donated by students at 1,000 colleges and resells them online. At first, the company gave 15% of its revenues to charities that combat illiteracy. But after a year or so, Helgesen knew it wasn't working. "We were recording losses," says the 29-year-old. And the company wasn't able to contribute to its employee profit-sharing plan, which Helgesen considered a vital part of Better World Books' compensation package.

Clearly, the company needed to keep more of its profits. But this was a social enterprise, one founded as much for its mission to do good as to make money. Helgesen eventually made a tough decision, cutting to 7.5% the share of revenues earmarked for most of the company's nonprofit partners, and funding the profit-sharing plan before splitting the remainder 50-50 with those partners.

The goals of making money and doing good are often at odds. But that is not stopping a growing number of entrepreneurs from starting hybrid businesses. These so-called double- or triple-bottom-line companies, which seek social or environmental returns as well as profits, and often all three, began popping up in the '70s and gathered steam in the '90s as organic food caught on and a new generation of entrepreneurs recoiled from corporate excesses. About 20,000 such companies—roughly four times as many as five years ago—now exist, according to Jay Coen Gilbert, co-founder of B Lab, a Berwyn (Pa.) nonprofit that rates social enterprises.

At first glance, socially responsible companies are hard to pigeonhole. Their goals range widely, entailing anything from curbing pollution to educating students about substance abuse. The product itself—organic baby food, say—may be central to the mission. Or a company might hire employees from disadvantaged neighborhoods or offer a great package of benefits. That variable nature can make it difficult to distinguish them from the many companies that boast about their environmental efforts or philanthropy when their main lines of business are not socially responsible, or worse.

A closer look, however, reveals that these companies' social and environmental goals aren't add-ons or marketing ploys. They're the raison d'être of the company. "It's part of the DNA of the business," says Matt Lombardi, entrepreneurial services director of the Investors' Circle, a 14-year-old angel investment group focusing on social ventures.

Of course, detractors insist that the very notion of building a business around a social agenda is misguided. They argue that companies can do more good by being as profitable as possible and assisting social causes through philanthropy or volunteerism. Others suggest that social problems are best addressed by nonprofits. "Starting a social venture is one approach, but not the only approach," says David Vogel, Solomon P. Lee Distinguished Professor in Business Ethics at the University of California's Hass School of Business. Says T.J. Rodgers, founder and CEO of Cypress Semiconductor in San Jose, Calif., whose corporate giving program works with charities providing food and shelter: "Working directly through a local nonprofit is the most effective approach."

But social entrepreneurs believe that a corporate structure is the most efficient agent. As profit-seeking businesses, they are spared the need to chase a limited supply of grant money. They also have more tools to motivate employees and lure top-notch talent. Says Seth Riney, the 33-year-old founder of PlanetTran, a Cambridge (Mass.) limousine service with an all-Prius fleet: "If you are for-profit, you have an extra feather in your cap when you are recruiting, and you can give stock options and performance-based bonuses a nonprofit can't."

Still, running a hydra-headed venture is tricky. And serving more than one master is never easy. "Unquestionably, it is more difficult to manage and grow a business that is accountable to multiple constituencies," says Gilbert.