"You wouldn’t invest in a startup or a public company based purely on how little the CEO was paid or how slim the marketing budget was, right?"
I had the good fortune and circumstance of starting a company with my best friend, that was eventually acquired. Today I want to share why I decided to give a portion of my exit proceeds away, and the surprising lessons I learnt from an in-depth exploration of the non-profit sector. And if you think I shouldn’t be sharing this information publicly, I recommend giving this a read first. Staying private about philanthropy, although well intentioned, is one of several behaviors in the charity space that I think needs to stop.
Charity: A dirty word?
As an entrepreneur, I always felt ‘charity’ was a dirty word. In my eyes, charities were organizations that did lackluster work with little accountability towards how effective they were or how they spent their money. In the startup world, I know I wasn’t alone in that sentiment.
However, a deeper dive has taught me that it’s much more complex than I originally thought. The biggest barrier to effectiveness is not lack of accountability, but rather that doing good is incredibly complicated. And when most donors think the main problem is accountability, they don’t create the right incentives for charities to be effective, experimental, and evidence driven.
Let’s talk about the decision to donate in the first place
I think giving back can actually be a difficult exercise if you’ve been conditioned not to spend money. Startup founders are of course no exception to that.
If every dollar spent needs an associated outcome, then you can expect fierce resistance when it comes to donating to charity. But I have since learnt that a portion of charities out there are truly committed to data evaluation, with substantially higher impact than the majority of social programs, so you can donate to charity without feeling like you’re betraying your entrepreneurial mindset.
I also realised that my ‘success’, although it never would have been realized without hard work, was undoubtedly linked to my socio-economic background, ethnicity, birthplace, education, parents, and upbringing. Not to mention incredible co-founders that arguably carried all of the weight, a great team, and investors that were willing to take a chance on us.
Much of what had brought about my success was luck and privilege. Combine that with technology being a main driver of inequality as of late. Pretty quickly the prospect of not donating my money started to seem absurd.
Are you in the 1%?
If you make over $34,000 USD per year, you are officially in the top 1% of earners on planet earth. If the world was a neighborhood, it would mostly be slums with one mansion. You would be the person in the mansion. Let that sink in for a bit.
Being well off in the Western world is an incredible privilege, and one that I think should come with a responsibility to help others. But instead of an appeal to guilt, I think it’s useful to focus on the immense opportunity we have to make a significant difference in people’s lives by supporting impactful and effective organizations in developing countries. This means actually diving into the evidence and data, to find out which organizations are truly solving the world’s toughest problems.
The most important lessons I learned
As I started to think about my donation, I soon realized I was massively ill-equipped to conduct any research on my own, because of the complex nature of sourcing great giving opportunities. So I leveraged the research team of an organization called Founders Pledge: a community of entrepreneurs who approach charitable giving in a brand new way. They use data and evidence to source effective giving opportunities and as a result maximize their donors’ impact. These are the two most important lessons I learnt:
Creating positive social impact is much more complex than charity advertising would have you believe
Helping another person seems easy. If someone needs something, and you have the money to provide that thing, how could things possibly go wrong?!
Well, turns out it’s a lot more difficult than it sounds to do this at scale. Which is why, in various studies on social interventions, somewhere between 75–90% of the 120+ programs evaluated were estimated to have little or no positive impact. Even in spite of having the best of intentions, and in many cases being backed by expert opinion.
This means there is a 75–90% chance that a random donation either has a weak or negative impact.
Let’s face it: in the private sector, there’s a bit of an unspoken agreement that the tasks are harder, work is more fast-paced, and talent brighter, than in the social sector. I’ve fully changed my mind on this. The scale and ambition of what some charities aim to do, coupled with extreme budget restrictions and various regulatory issues, makes doing great social work incredibly difficult.
Genuinely helping people at scale is not so easy. Go figure.
A small percentage of charities are up to 100x more effective than others
Usually, when we talk about charity work going wrong, we think of financial scandals and high executive pay (as much as 67% of the public think that charities spend too much on salaries and administration). But you wouldn’t invest in a startup or a public company based purely on how little the CEO was paid or how slim the marketing budget was, right?
You’d invest based on how much you thought they could achieve. In other words, the outcome.
When donors focus on the wrong deliverables in deciding where to give, they won’t find the best opportunities to maximize their impact. And as a result, we see many charities spending more on flashy marketing and less on impact evaluations. But when donors focus on data and outcomes, charities will optimize accordingly. So the question we should be asking is: how much good is this charity achieving? And is there evidence to support this?
We have to start using a framework that looks beyond overhead costs and executive pay, and instead prioritizes outcomes. This is essential because some charities are orders of magnitude more effective than most of the charities you hear about in your day-to-day life. Finding these charities means you could potentially achieve tens (and in some cases hundreds) of times more good with your donation.
To illustrate how important this is: donating to the best charity in a specific cause area could potentially be like donating ten times that amount to the next best charity.
These truly effective charities are backed by evidence and randomized control trials. They approach problem solving with an entrepreneurial mindset, and re-iterate on their strategy. They track their outcomes so they can learn from their mistakes, and are fully transparent with their results and expenditures. These are the charities we want to be donating our money to.
If you want to know where my new insights took me, I am currently writing an article on where I decided to donate, so that people can get an intimate look at the research and decision-making process.
Continue the conversation
In the interest of transparency, I have since writing this decided to join the Founders Pledge team as the CEO of their North American charity — a testament to how much I valued my experience as a member of their pledge community. If you’re an entrepreneur and are interested in social impact, please do get in touch. I can help you get connected to sign the Founders Pledge. It’s a no brainer and helps you lock in your accountability to give upfront. Then when you have some liquidity, the team provides all the support necessary to give effectively. And the whole thing is free.
If you’re not an entrepreneur and are committed to giving, I would encourage you to take the Giving What We Can pledge. They provide all the resources you will need to get started on your journey and ultimately contribute to effective charities.
If you have any questions or comments about this, or god forbid you disagree, I’d love to hear from you in the comments. Hopefully we can get an honest dialogue going.