TED Talk by 180 Degrees CEO: “Free Charities from The Idea of Charity” – Nat Ware

May 20, 2014

We need to be willing to change our conception of charity.

Nat Ware (Founder and CEO of 180 Degrees Consulting. Follow on Twitter @NatJWare.)

 

 

Transcript:

To begin with, I want to do something very straightforward. I want you all to think of a charity. Maybe think of your favorite charity. Everyone got one?

Would you think less of that charity if I told you that in the process of helping people they were also making money… they were making a profit for themselves?

Would you think less of that charity if I told you that only 50 cents of every dollar you donate was going to actual programs?

You would probably think less of them.

We have expectations of what a charity should be and how a charity should behave:

We usually think of a charity as an organization that raises money by collecting donations, and then spends that money on worthwhile causes.

We expect them to transfer the funds as directly as possible, with as little as possible spent on things like administration.

And we expect charities to be not-for-profit. We certainly expect charities to provide their services free of charge. We don’t want them making money off the poor.

Non-profit. Low admin costs. Those things are all part of our idea of charity.

Now for the past five years I’ve been involved in an organization called 180 Degrees Consulting. 180 Degrees provides affordable consulting services to charities around the world.  It’s an organization that is trying to work with charities to make them even more effective than they already are.

Through 180 Degrees I’ve had the privilege of meeting hundreds of people working for all sorts of charities. And I’ve found that many of these people feel pigeonholed, boxed in, constrained by expectations of what a charity should be. They feel constrained by the traditional notion of charity.

 

1. One of the main ways they feel constrained is by the expectation that they should have low administration costs.

Many charity comparison websites, such as Charity Navigator and Intelligent Philanthropy, still use administration expense as a key measure of the effectiveness of charities.

But the goal should not be to minimize administration costs.

It’s much better to have 50 cents in the dollar go to a charity that has all the checks and balances, that measures its social impact, and that ensures the 50 cents is used in the best possible way,

than to have 95 cents in the dollar go to a charity with an ineffective approach, and without all the necessary checks and balances.

I mean you don’t choose to invest in Apple or Google based on the amount they spend on admin. Which is probably a good thing given that – based on common ways of assessing charities – Apple has 65% overhead and Google has 74% overhead. They’d fail every charity rating!

We recognize when we’re making normal for-profit investments that administration expense isn’t really correlated with financial return, and it’s about time we realized that admin costs for charities isn’t really correlated with social impact. Sometimes it takes Google-sized expenditure to have Google-sized returns.

 

2. Another expectation that we have of charities is that they be ‘not for profit’.

And when an organization is mostly focused on doing good, but also makes some money, we frown upon it. We see it as uncharitable. But is this really rational?

Let me give you two examples:

Say you walk into a normal restaurant and there’s a sign that says “we donate 20% of our profits to the poor”. How do you feel about the restaurant?

Now say you go to a microfinance organization that provides loans to poor people in developing countries so they can start businesses to bring themselves out of poverty. And there’s a sign that says “we keep 20% of the money we make for ourselves”. How do you feel about the organization?

Some of you might like what the restaurant is doing, but dislike what the microfinance organization is doing.

But let’s think about this.

The restaurant is keeping 80% of profit and 20% goes to good causes, and the microfinance organization is keeping 20% of profit and 80% goes to good causes.

If anything, it should be the other way around!

For some reason, we like organizations that are mostly profit focused with a bit of social focus, but dislike organizations that are mostly socially focused with a bit of profit focus.

I suspect the reason for this is that we assume there’s a tradeoff between social and financial returns. We assume that for there to be winners there must be losers. We think the microfinance organization is somehow exploiting the poor… that it should instead operate on a completely non-profit basis.

But this ignores the fact that often these organizations wouldn’t exist as they currently do if they weren’t allowed to make money. Often you need to make money to attract investment to achieve the scale and the impact that you want.

And scale is important.

There are 780 million people without access to clean water.

There are 2.5 billion people without access to proper sanitation.

There are 2.6 billion people without access to insurance protection.

Do you really think we can rely on altruism to provide clean water, proper sanitation, and insurance protection to that many people?

The scale of the problems facing our world demands solutions that altruism can’t supply. And just because an organization is making a profit doesn’t mean it can’t also do a lot of good. Insisting that they always be non-profit constrains them.

 

3. Another way that we treat charities differently from businesses is that we often assess the worth charities based of anecdotal evidence.

I’m sure most of you have read stories about lives being transformed by different charities.

The problem is that even bad programs can be made to sound impressive. It’s very possible for a charity to have 99% of failure cases, 1% of success cases, but some amazing anecdotes. A story is a sample size of one. There is no knowing whether it’s the norm or the exception. So anecdotes are a terrible measure of how good an organization is.

Why is this important? How is this a constraint on charities?

Because we want the best ideas to win out. We want the best approaches to attract the most money and the best talent.

For this to happen, we need to be more objective. We need to do our best to collect and analyze data, to measure and compare the impact of different charities.

By relying heavily on anecdotal evidence, we risk misdirecting funds and talent.

Indeed, economic research shows that for every $1 people donate to one cause they reduce their support for other causes by about 50 cents. There’s a substitution effect. So by raising money for programs that only do some good we’re reducing the money for the best programs.

This means that just because an organization does some good doesn’t mean it should exist. It may sound counterintuitive, but doing good isn’t good enough.

 

4. Another constraint on charities is the fear of failure. We expect them to exist in perpetuity.

In the for-profit entrepreneurship community, failure is not seen as a bad thing. It’s simply a part of the process. Richard Branson failed – Virgin Cola. Steve Jobs failed – The computer “Apple Lisa”. Bill Gates failed – his business Traf-O-Data. Failure means you were innovative, you tried something new. It means you’re more experienced, more likely to succeed the next time. Venture capitalists recognize that one really successful company will more than offset a dozen failures.

Unfortunately, the same thinking doesn’t apply to charities. We expect charities to always succeed, to always generate a social return. And so many charities feel that they need to play it safe, that they cannot innovate, that they cannot take risks. But every charity succeeding at playing it safe will not generate the rate of improvement that we need.  The only way we’ll get there is through riskier innovations that are transformative.

If anything, there should be far more failures in the charity sector than the business sector. Here’s why:

When you’re making a purely financial investment, it makes sense to tradeoff risk and return because you care about the financial return that accrues to you and only you.

But when making a donation, you care about the wellbeing of other people. And given that there are many donors and many charities, the risk is already diversified. It doesn’t matter if one person’s donation fails to make an impact. What matters is the overall impact. And to maximize the overall impact, each person and charity should try things that won’t always succeed but if they do will have a really big impact.

We actually constrain charities by not allowing them to fail, by expecting them to live forever.

Besides, if foundations or charities do their jobs really well, they should really put themselves out of business!

 

5. Lastly, I want to talk about the common perception that charity is an emotionally charged endeavour for overly sensitive ‘do-gooders’, rather than an intellectual endeavour.

Many university students I speak to say they feel like they have to choose between doing good and being intellectually challenged. But this is a false dichotomy.

When there are so many possible approaches to solving each problem, it is a real challenge to work out the best existing approach or to develop a new improved approach.

Running a charity is also often harder than running a business.

It’s often harder to motivate volunteers than employees whose bonus depends on performance.

It’s harder to measure social returns than financial returns.

It’s harder when you’re expected to have the cheapest resources and not the best resources.

 

Just as side, tangential point: People also often assume that they can do more good by working for a large company or foundation, than for a small charity.

And I can see why people may think this way.

Say you have the choice between working for The Coca-Cola Foundation and starting a small charity. The Coca-Cola Foundation has a much larger budget, reaches far more people, and has a much larger social impact. Last year alone they gave out over $70 million for various initiatives.

If we divide the impact of the organisation by the number of people, it’s probably also the case that per person social impact of the Coke Foundation is greater than the per person social impact of the small charity.

But it does not follow that you would necessarily have a greater social impact working for the Coke Foundation than starting the charity. The crucial question is “What would happen if you weren’t there?”

If you don’t work for Coke, someone else would, who would probably be just as smart as you and do just as much good as you. They may even be better than you.

And if someone else would do a better job than you… if someone else would create more social impact than you… then the impact of you being there may in fact be negative.

On the other hand, if you start a charity or social enterprise, the absolute social impact may be quite small, but your incremental impact would at least be positive.

We need to move away from the idea that bigger is better, that working for a larger organisation means you can have a bigger social impact. We need to ask ourselves “what would otherwise happen?” We should choose careers for which we are uniquely qualified, where we can make a unique contribution.

 

I think it’s about time I concluded…

There is a plethora of ways to help people. There are many different ways to achieve the same outcome.

Say we want to increase literacy and improve educational outcomes.

We could distribute free books – the approach of Better World Books
We could build more schools – which is what the 40K Foundation does
We could give out laptops – what One Laptop Per Child attempted to do

We could pay for more teachers so as to reduce class sizes
We could provide teacher training
We could establish a program to mentor disadvantaged children through school
We could develop phone apps to enable children in Africa to teach themselves

We could develop an online platform for free high quality education – Khan Academy
We could attract the best university students to become teachers – Teach for America
We could build a website where anyone can contribute their knowledge – Wikipedia

We could build libraries, reward students for improving, or simply explain to parents the importance of sending their children to school.

You get the message. There are so many different ways to achieve the same outcome.

But, when we calculate how much each of these programs cost, and how many more children became literate as a result, we realize that some ways are more effective than others. Different approaches have dramatically different results. Some approaches are 10x, 100x, even 1000x more effective than others.

We cannot afford for the best ideas to be pushed aside. It’s more important for a charity to have the right ideas – the right approach, than to have lots of money to spend on worthwhile causes. Doubling the amount money a charity receives would improve the effectiveness of that charity by 2x. But finding the right approach can improve the effectiveness of that charity by 10x, 100x or 1000x.

In the game of social impact, method trumps money.

Ladies and Gentlemen, in order to have the greatest impact… in order to do the most good… in order to be truly charitable… we must to be willing to change our conception of charity.

Just because a charity spends a lot on admin, doesn’t mean it is wasting money. Just because a charity is making money, doesn’t mean it’s exploiting the poor. Just because a charity has the best story, doesn’t mean it’s the best charity. Just because a charity tries something that fails, doesn’t mean the charity is a failure. And just because we get emotional about causes, doesn’t mean charitable work is an emotional endeavour.

There are so many different ways to help people, and our traditional notion of charity is just one of those ways.

Charities have been put in a box for far too long. Let’s set them free!

Thank you very much.