Great post, Trish â appreciate the thoughtful exploration of direct-impact for-profits.
Some thoughts:
EA lens on operational impact: While thereâs significant investment in âdoing good through operationsâ (B-Corps, social enterprises, etc.), most arenât applying EA cost-effectiveness bars. A company might proudly reduce carbon emissions at $500/âton when that same money could remove 500x more CO2 through other interventions. Thereâs room for more rigorous impact evaluation within operational models and I am also excited to see EA interest in this!
Subsidizing positive externalities: Your framework assumes profitable ventures, but what about cases where massive positive externalities justify subsidies? If a venture generates $10M in social value but loses $1M annually, thatâs still a 10:1 social return. Traditional impact investing struggles here (expects returns), and traditional charity struggles too (not set up to run businesses). Could be worth exploring hybrid models where philanthropic capital subsidizes high-externality ventures that canât quite reach profitability (of course would have to consider the extremely high counterfactual potential impact of the dollar to effective charities).
Profit for Good as complementary lever: Beyond operational impact, thereâs the neglected question of where profits flow. Profit for Good (PFG) companies compete normally but lock 90%+ of profits to charity through ownership structures. This creates interesting dynamics: (1) no operational tradeoffs needed since the business still maximizes profit, (2) âcharity choiceâ effects where consumers preferentially buy from companies funding causes over enriching shareholders, creating competitive advantages, (3) philanthropic multiplier where $1 invested can generate many times that for charity over time. Humanitix (event ticketing) has donated $16.5M AUD while taking market share from Ticketmaster â not through guilt but through better user experience plus the fact that event organizers prefer funding education over enriching monopolists. The model needs mission-aligned capital (VCs want returns), but for the right contexts it should multiply philanthropic funding. Happy to share research on this if helpful. (hereâs my blog post on this competitive advantage thesis).
In theory, many hospitals and universities in the US should fit into the âpositive externalitiesâ modelâthey significantly rely on both program service revenue and subsidies from private donors. My understanding is that nonprofit hospitals and universities are often poorly governed, so Iâm curious whether this is related to the serving-two-masters problem as opposed to sector-specific pathologies.
ETA: Someone who knows more than I do about microfinance may be able to comment on how experience with microfinance orgs updates toward or against the subsidizing positive externalities in a unprofitable business model being viable more generally.
Re subsidizing positive externalities: Iâm not necessarily suggesting that typical instances of external subsidization of businesses with positive externalities are particularly impactful, just that there may be possible cases, especially if we are looking for opportunities from an EA lens.
Great post, Trish â appreciate the thoughtful exploration of direct-impact for-profits.
Some thoughts:
EA lens on operational impact: While thereâs significant investment in âdoing good through operationsâ (B-Corps, social enterprises, etc.), most arenât applying EA cost-effectiveness bars. A company might proudly reduce carbon emissions at $500/âton when that same money could remove 500x more CO2 through other interventions. Thereâs room for more rigorous impact evaluation within operational models and I am also excited to see EA interest in this!
Subsidizing positive externalities: Your framework assumes profitable ventures, but what about cases where massive positive externalities justify subsidies? If a venture generates $10M in social value but loses $1M annually, thatâs still a 10:1 social return. Traditional impact investing struggles here (expects returns), and traditional charity struggles too (not set up to run businesses). Could be worth exploring hybrid models where philanthropic capital subsidizes high-externality ventures that canât quite reach profitability (of course would have to consider the extremely high counterfactual potential impact of the dollar to effective charities).
Profit for Good as complementary lever: Beyond operational impact, thereâs the neglected question of where profits flow. Profit for Good (PFG) companies compete normally but lock 90%+ of profits to charity through ownership structures. This creates interesting dynamics: (1) no operational tradeoffs needed since the business still maximizes profit, (2) âcharity choiceâ effects where consumers preferentially buy from companies funding causes over enriching shareholders, creating competitive advantages, (3) philanthropic multiplier where $1 invested can generate many times that for charity over time. Humanitix (event ticketing) has donated $16.5M AUD while taking market share from Ticketmaster â not through guilt but through better user experience plus the fact that event organizers prefer funding education over enriching monopolists. The model needs mission-aligned capital (VCs want returns), but for the right contexts it should multiply philanthropic funding. Happy to share research on this if helpful. (hereâs my blog post on this competitive advantage thesis).
In theory, many hospitals and universities in the US should fit into the âpositive externalitiesâ modelâthey significantly rely on both program service revenue and subsidies from private donors. My understanding is that nonprofit hospitals and universities are often poorly governed, so Iâm curious whether this is related to the serving-two-masters problem as opposed to sector-specific pathologies.
ETA: Someone who knows more than I do about microfinance may be able to comment on how experience with microfinance orgs updates toward or against the subsidizing positive externalities in a unprofitable business model being viable more generally.
Re subsidizing positive externalities: Iâm not necessarily suggesting that typical instances of external subsidization of businesses with positive externalities are particularly impactful, just that there may be possible cases, especially if we are looking for opportunities from an EA lens.