We agree that profit has contributed to many of the problems that we face. We also agree that profit for non-profits is one factor among many, but I disagree that this is always a small factor. I believe it’s a small factor in some businesses (e.g. the restaurant example, where you’re going to go with the best marketed, top-reviewed and most tasty option) and a bigger factor in other business (e.g. buying from an insurance broker, where two dozen brokers are all selling an identical product and one donated all profits to charities).
But let’s assume it is a really small factor and suppose two identical companies (an online marketplace), where one is purely for-profit, and the other donates profit to charities, start. These companies need one billion in funding to generate 10 billion in future profits. The for-profit company gets the billion from VC because the expected value is 10 times the investment. In the current state of the world, the company directing profits to charities doesn’t get the one billion because there is no VC like EA infrastructure to fund it. But if such a structure existed (e.g. SBF donating/investing the billion), the company directing profits to charities would be able to take off and donate 10 billion to charities over its lifetime. Again, both of these companies are identical, and let’s assume they have a 1000 differentiating factors, only one of them being the profit destination. With all things being equal, the company who has 1001 differentiating factors would win. You’re right that the reality is much more complex, and you’re right in saying: “It is not safe to assume that because a business purchases, manufactures, and distributes the same or similar goods, their up-front cost is the same and therefore the cost to the consumer is virtually the same.” But these are factors that are relevant to both for-profit companies and guiding companies. Statistically, if you start the above company a 1000 times you would have 1000 different outcomes, but even with an additional differentiating factor (assuming it’s positive), the odds of the guiding company to win are higher, even if that’s just a very small percentage. And that should warrant investment in them.
In reality I think companies have less differentiating factors and a company that donates all profits to charities has more than 1 extra. A couple are named in the article and a recent blog on this forum also hinted to another advantage which is going to be really important for success, employee recruitment/retention. I have found this to be true for my own EA startup, which directs all profits to charities.
So the crucial part that seems to be missing at this moment, is an infrastructure to fund guiding companies. If I start a for-profit, I can go to investors, and if they like the team, the numbers and the idea they will invest in it. This doesn’t exist for guiding companies, but if it did, I don’t see why guiding companies couldn’t do at least as well as for-profit companies (if people don’t at all care about the profits going to charities) or better (if people do care).
You raise a very interesting point about for-profit companies being dependent on coercion, exploitation, etc. I think that’s true for many of the biggest companies, but not true for smaller companies and I don’t agree that it’s always necessary to be successful, but it is in most cases. I genuinely think that some of the biggest companies in the world can be ones that are mostly good (e.g. Patagonia or FTX). I say mostly, because any billion dollar company will make mistakes. I don’t think businesses whose sole purpose it is to do good always have to use coercion or exploitation, but I agree that they sometimes have to. Personally, I don’t start businesses who rely on these methods, but I do think creating companies that have to use coercion to compete and that donate their money to charities are still a (much) better option than we have now. Government has to work together with guiding companies to create a playing field where these methods can’t be used anymore, but we can’t wait for that to happen.
Hi Jo,
We agree that profit has contributed to many of the problems that we face. We also agree that profit for non-profits is one factor among many, but I disagree that this is always a small factor. I believe it’s a small factor in some businesses (e.g. the restaurant example, where you’re going to go with the best marketed, top-reviewed and most tasty option) and a bigger factor in other business (e.g. buying from an insurance broker, where two dozen brokers are all selling an identical product and one donated all profits to charities).
But let’s assume it is a really small factor and suppose two identical companies (an online marketplace), where one is purely for-profit, and the other donates profit to charities, start. These companies need one billion in funding to generate 10 billion in future profits. The for-profit company gets the billion from VC because the expected value is 10 times the investment. In the current state of the world, the company directing profits to charities doesn’t get the one billion because there is no VC like EA infrastructure to fund it. But if such a structure existed (e.g. SBF donating/investing the billion), the company directing profits to charities would be able to take off and donate 10 billion to charities over its lifetime. Again, both of these companies are identical, and let’s assume they have a 1000 differentiating factors, only one of them being the profit destination. With all things being equal, the company who has 1001 differentiating factors would win. You’re right that the reality is much more complex, and you’re right in saying: “It is not safe to assume that because a business purchases, manufactures, and distributes the same or similar goods, their up-front cost is the same and therefore the cost to the consumer is virtually the same.” But these are factors that are relevant to both for-profit companies and guiding companies. Statistically, if you start the above company a 1000 times you would have 1000 different outcomes, but even with an additional differentiating factor (assuming it’s positive), the odds of the guiding company to win are higher, even if that’s just a very small percentage. And that should warrant investment in them.
In reality I think companies have less differentiating factors and a company that donates all profits to charities has more than 1 extra. A couple are named in the article and a recent blog on this forum also hinted to another advantage which is going to be really important for success, employee recruitment/retention. I have found this to be true for my own EA startup, which directs all profits to charities.
So the crucial part that seems to be missing at this moment, is an infrastructure to fund guiding companies. If I start a for-profit, I can go to investors, and if they like the team, the numbers and the idea they will invest in it. This doesn’t exist for guiding companies, but if it did, I don’t see why guiding companies couldn’t do at least as well as for-profit companies (if people don’t at all care about the profits going to charities) or better (if people do care).
You raise a very interesting point about for-profit companies being dependent on coercion, exploitation, etc. I think that’s true for many of the biggest companies, but not true for smaller companies and I don’t agree that it’s always necessary to be successful, but it is in most cases. I genuinely think that some of the biggest companies in the world can be ones that are mostly good (e.g. Patagonia or FTX). I say mostly, because any billion dollar company will make mistakes. I don’t think businesses whose sole purpose it is to do good always have to use coercion or exploitation, but I agree that they sometimes have to. Personally, I don’t start businesses who rely on these methods, but I do think creating companies that have to use coercion to compete and that donate their money to charities are still a (much) better option than we have now. Government has to work together with guiding companies to create a playing field where these methods can’t be used anymore, but we can’t wait for that to happen.