Do philanthropists make better entrepreneurs? One of the most common bits of advice given to startups is to focus on the product, not the returns. It makes sense, then, that entrepreneurs who love their business make for a better investment than those who love cash.
Many of the most successful businesses think about what they do and why they do it, not how much money they’ll make if they do it well. They focus relentlessly on the product or service that forms the cornerstone of their business.
By thinking of ways to consistently grow and improve the business, the money takes care of itself, or so the theory goes. But by zeroing in on the dollar signs, entrepreneurs can get distracted from important goals and create distance between them and the customers they set out to serve.
But what do investors think about going one stage further and backing entrepreneurs who, once they have made their money, are keen to give some of it away?
It’s counterintuitive for an investor to plough money into a business that puts its profits anywhere other than straight back into the business, but backing philanthropists makes a lot more sense than it first appears.
Philanthropy and enterprise is a natural fit
To begin with, almost all famous philanthropists are successful business people. This point is a little chicken versus egg (would they be philanthropic without a billion dollars in the bank?), but there is definitely a link – think, for example, Bill Gates, Warren Buffett, James Dyson, Richard Branson, Tom Farmer and Lord Sainsbury.
What binds these people is a global outlook and an awareness of need. Appreciating the needs of your customers is not a big leap from understanding the world’s problems and potential solutions. Good business people are problem solvers, sometimes for financial gain and sometimes not.
There are stronger causal links between philanthropy and success in business. For one, philanthropy is great for branding. Consumers look for price and product reviews first and foremost, but corporate reputations are becoming more important as a factor in buying decisions.
A brand is only as strong as its reputation and there have been countless recent examples of businesses losing sales because of scandals in their supply chain or data leaks or forged emissions tests, to name a few.
Bad news is usually more impactful than good, but companies that give to charity and express public support for causes can boost brand collateral in a reverse effect to that of companies that cheat the system or cut corners.
Some companies – The Body Shop, Lush and the Co-op – have been so entwined with charitable giving that it becomes their brand and customers expect more of the same.
People enjoy listening to philanthropists too. Business owners are in demand on the speaking circuit – see the TED video series for evidence – and can command the ear of large audiences. They can engage the young and inspire people to remember their name.
Building better businesses
Philanthropy is not just a great marketing tool, however. In an era dominated by technologically and politically savvy millennials – the generalised term given to younger workers – it can also give a significant boost to recruitment and staff morale.
More than any other generation, graduates are acutely aware of corporate reputations and many express a desire to work for a company that does some good, as well as paying them a decent salary and providing career prospects.
Again, this usually means they swerve companies with poor track records when it comes to their impact on people and planet, but it’s almost as potent a pull factor to employers who are seen to care about the by-products of what they do.
It is said that a company’s culture mimics the behaviour of the board and senior management. Nice bosses, who can demonstrate their charitable credentials, breed nice employees who in turn can charm prospective customers, partners and suppliers.
So the next time you consider an investment, consider the morals of the founders. Are they natural givers who care about the welfare of others? If so, then there are more than just charitable reasons to back them.