Selling Out to Growth

Nonprofit RealBenefits realized its software could help more people only if it got greedier

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Lauren Fuller for TIME

Merging with TriHealix helped Balaguer, center, maintain his firm's social mission

About one-third of Americans who qualify for public assistance haven’t signed up. That amounts to millions of people needlessly going without food stamps, low-income housing or health insurance.

This predicament is what RealBenefits, a Boston-based software start-up, was created to solve. The five-person firm’s Web database circumvents complicated government paperwork with easy-to-use screening and enrollment tools. So far RealBenefits has connected nearly 100,000 families to more than $371 million in government aid since 2000.

Yet amid this success, RealBenefits, which began life as a nonprofit, faced the same dilemma that many social enterprises do: how to scale up without selling out. “No software firm is going to attract donors easily, even a nonprofit,” says Sharon Oster, dean of the Yale School of Management and an expert on social entrepreneurship. “And to grow, you need access to equity capital.”

(See pictures of the RealBenefits team.)

So in 2006, RealBenefits went commercial. Still tucked under the umbrella of founder Community Catalyst, the sales staff began slowly refocusing its energy on paying customers like hospital chains, governments and school districts rather than the community organizations and nonprofits that had previously peppered its client list. A subscription-based service, RealBenefits charges a fee that ranges from $10,000 for, say, a homeless-services group to six figures on the high end. “Our model was to find large health-care providers who’d be willing to pay because they were actually increasing reimbursements and minimizing uncompensated care by using our technology,” says CEO Enrique Balaguer.

At both ends, low-income families win. Whereas an uninsured patient going to the emergency room once faced a bill for thousands of dollars, now, using RealBenefits, hospital staff can screen him to see if he is eligible to file a claim with Medicaid. One Massachusetts hospital, Baystate Medical Center, reported a 50% increase in the number of Medicaid reimbursements it received in 2006 by using RealBenefits.

Nonetheless, RealBenefits was still struggling to expand because of the difficulty of accessing capital. So the firm set out to find a buyer willing to continue its social mission. It eventually settled on TriHealix, a Connecticut-based health-care IT company. The June 2008 deal was worth $3 million to $4 million, Balaguer says.

For RealBenefits, the transaction allowed it to tap into a larger sales and marketing force. The firm now aims to expand into at least 15 states over the next two to three years. “Our three core goals — to maximize benefits to families, effect policy change and to create additional capacity — remain in place,” Balaguer says. “And being profitable is a major component of that.” It’s a target that will most likely pay dividends to the whole community.

TIME’s Kathleen Kingsbury discusses the unlikely success of RealBenefits