Small business: Earning a profit from nonprofits

  • Article by: TODD NELSON , Special to the Star Tribune
  • Updated: July 6, 2008 - 10:37 PM

A data management firm has found a growing niche by helping nonprofit groups stay in touch with donors.

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Mark Paquette, left, and Chris Hanson are founders of thedatabank, a for-profit company that works with nonprofits, offering technology that keeps the organizations in touch with their supporters. The company expects to reach $1 million in revenue this year for the first time.

Photo: ELIZABETH FLORES , Star Tribune

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Keeping nonprofit organizations in touch with supporters is a personal mission and profitable business for entrepreneur-activists Chris Hanson and Mark Paquette.

Their Minneapolis software company, thedatabank, makes customized, Web-based relationship-management software. More than 800 nonprofit groups in Minnesota and around the country use it to communicate with donors and spur members to action.

Hanson, the CEO, and Paquette, president and chief technology officer, have extensive experience starting and running companies. They also have lengthy track records of working and volunteering with nonprofit organizations involved in such issues as social justice, peace and human rights.

Today, clients use the company's "technology for change" on behalf of causes related to the environment, education, immigrant and refugee rights and, in this election year, getting out the vote.

"Basically, we're saving the world through data management practices," Paquette said. "We have a lot of clients that rely on us to keep their fund-raising and volunteer opportunities going smoothly."

Hanson and Paquette launched thedatabank 10 years ago. The dot-com boom was in full swing, but some questioned whether a for-profit company could stay in business working with nonprofits.

They proved that it could. Revenue has risen 15 to 20 percent a year, Hanson said, and is expected to reach $1 million this year for the first time. Despite the sputtering economy, the first half of 2008 has been the firm's best for adding clients.

Plenty of demand

"If there is an industry that's recession-proof, I think fundraising is one of them," Hanson said.

Even before they started thedatabank, Hanson and Paquette knew they'd have built-in demand for the technology.

Hanson, whose background is in fundraising and direct marketing, was a principal at a St. Paul agency that began managing data for nonprofit clients in the early 1990s.

The nonprofits needed to track direct mail and marketing, but didn't have the resources to do it themselves, Hanson said. The agency split in 1997, with Hanson taking the data management portion.

Hanson eventually contacted Paquette, whom he had met working on a Democratic gubernatorial campaign in 1993.

Paquette's expertise was in developing nonprofit and education software, including the bestselling title the Oregon Trail. Creating databases and other data management systems for nonprofit organizations where he volunteered had become routine.

Hanson and Paquette financed the start-up themselves and received $250,000 from four angel investors in 2000, Hanson said. Since then, the company has self-financed through growth.

At that time, the idea of Web-based data management was a new one for many prospective clients. The ability to access and manage it in a familiar way, through a Web browser using an intuitive, easy-to-use interface, made them more comfortable with their system, Paquette said.

Subscription model

Another innovation was the company's business model, which provided a regular income stream in the form of monthly subscription fees that clients pay. The company also charges a one-time fee for setup, customization and data migration; support, training and upgrades are free.

"So many dot-coms went into business without having any idea how they were going to make money," Hanson said. "We didn't have to get up every day and say, 'Where's the money going to come from?' "

The company has been handling database functions -- member lists, member e-mail and action alerts and fundraising campaigns -- for the Progressive Democrats of America, a virtual nonprofit, since September, Communications Director Laura Bonham said.

"We had very complicated needs, and [they] did an exceptional job working with us to meet those needs," Bonham said. "They were highly responsive. It appears to me they've organized themselves in a more progressive way, where they solve a client's problem by coming at it from a team perspective."

Working with thedatabank system the past four years has enabled the Minnesota Senior Foundation to get action alerts to members quickly, said Tom McGrath, membership information manager.

"It's an important part of our advocacy program, being able to get out in very short notice information about issues and getting people to take action," said McGrath, who was using reports from thedatabank system to tailor a fundraising mailing to suit donor preferences.

The market potential is huge, Hanson said, with about 8,000 nonprofit organizations operating nationally.

The company is not rushing to grow. One challenge, Hanson said, is generating greater national recognition.

He and Paquette have discussed expanding their sales and marketing staff to New York, San Francisco and Washington, but have no immediate plans to do so.

Such an expansion likely would require outside financing. "It's not critical to the business as far as its survival," Hanson said. "We're in a position where we can decide not just based on money but based on what comes with that investment."

The expert says: Avinash Malshe, marketing professor at the University of St. Thomas Opus College of Business, said thedatabank has a novel idea, but that promoting the company and creating greater awareness will be critical for growth.

Malshe's suggestions included leveraging the company's expertise in working with nonprofits to move into other segments of the market.

He also recommended going beyond just managing data. "Basically they could morph into a value-added services area," Malshe said.

One way to do that would be to begin analyzing client data, to offer insights and create future marking campaigns.

"In many companies, a lot of data comes in and there's hardly anybody to look at what the data tells you," Malshe said.

Todd Nelson is a freelance writer in Woodbury. His e-mail address is todd_nelson@mac.com.

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  • thedatabank Inc.

    Sunday July 6, 2008

    Business: Provides tech expertise for nonprofits that don't have their own IT staffFounded: 1998Headquarters: MinneapolisWebsite: www.thedatabank.comEmployees: sevenExecutives: founders Chris Hanson,...

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