I really enjoyed reading your dialogue and wanted to jump in with some more thoughts.
If you look at companies ranked by market cap (an easy way to estimate the overall profitability potential of companies). You’ll find commodities/monopolies (oil, Google) and more differentiated companies (apple), so it seems that for overall profit potential both avenues could work.
“What leads you to conclude that investing in guiding companies is a better alternative to these existing investments?”
I agree that the main factor is what Brad has already mentioned: it’s a structural advantage and it cannot be replicated by competitors who are for-profit (investors love companies that have something that can’t be replicated!). In addition, I think that funding guiding companies are a more direct and impactful path to impact. If you invest in guiding companies, you’re investing in a company that donates directly, and you can influence the path of that company to more impact (rather than profit) and the founders and employees might be persuaded to become EA’s and sign the founders pledge. Additionally, showing that guiding companies can work might slowly start to shift the broader economy to guided consumption, and with the economy having trillions and trillions of dollars in profit each year this could make more than just a dent in some very important problems.
“Agreed on your points here. Which metrics do you think are useful to decide which industries guiding companies make sense for? ”
In addition to your metrics I would look at the competitiveness of markets. It’s very hard to enter monopolized markets such as search engines. Is it a market where we can build a competitive offering?
If we believe that it will be continue to be hard to get funding for guiding companies, it might make sense to start with businesses that are easy and cheap to start, thus requiring less capital. Dropshipping is a good example.
I believe that price is a more important factor for consumers than donating profits to charities, so I would start with a business that can offer similar prices to the competition. I run an online marketplace that has the same prices as competition. That also makes it easier to test the extent to which people value guided consumption. We actually ran 2 ads on Google where one was the add of the competition, and the other was the same ad including the profit destination. The profit destination ad was clicked on 50% more often, a very encouraging stat.
Another category of products would be one where people don’t care much about the price (or buy even more if the prices are higher): luxury. Thomas, Brad and I were brainstorming if we could not create the world’s most expensive products and sell those to the rich (e.g. a 10 million USD T-Shirt where all profits go to charities). Just a thought.
“In real life, I’ve heard a lot of entrepreneurs talk about how ‘mixed value propositions’ actually lead to fewer customers deciding to buy a product than a single, clear value proposition. How have you thought so far about ensuring that product marketing leads to one deciding factor separating a guiding company from competitors, not unclear value propositions that repel customers.”
Great point, and one that I’ve seen in my work as a marketeer a lot. We run a sustainable marketplace that donates all profits to charities, so we have 2 important USP’s: we’re sustainable and we donate all profits. We have already found that people care more about the second USP (encouraging) and we’re now thinking if we need to only focus on the non-profit part. It’s something that we need to test though, but that’s very simple. Profit destination should murk the offering.
“Curious to hear your thoughts on getting around the initial high investments / low returns :-)”
I think we would tackle this exactly how the for-profit sector has done it: VC’s who are okay waiting 2-10 year for an ROI. I don’t think this will be an issue, because many HNWI already work with these time horizons for their for-profit investements, billionaires grant money across their lifetime in smaller tranches and EA is already being patient with their funding.
Brad: “I am inclined to think that few, or even one, charitable profit destination would be appealing to consumers.”
I think the opposite. The most important factors considering where people donate are proximity (favoring local donations) and how close it is to their heart (e.g. I lost a nephew to cancer so I donate to children’s cancer charities). I think choice is really important for consumers and based proximity that will be many charities. That’s a problem because local and close to heart charities are usually not that effective, so if we want to provide choice and try to give as much as possible to EA charities, we might want to try and nudge people to the best options.
“The most important factors considering where people donate are proximity (favoring local donations) and how close it is to their heart”
I agree these are important factors in how people like me often chose a charity but an equal or greater factor is having a sense of confidence that the Guiding Company and the charities it’s owned by are not only legit but also effective. In these days where so many people have reduced trust in just about everything, I think it’s critical for some trusted means for “certification” of effectiveness and integrity to be in place, much as Brad describes in his full length post (i.e. “NCCOs”). It’s sad but there is a lot of skepticism out there today which keeps some people on the sidelines especially with lesser known charities.
Yeah. People in EA are confident in the effectiveness of charities such as those endorsed by Givewell, but the general public is likely to be more skeptical. Especially with declining public confidence in institutions that has been prevalent...
This is why I think negative advertising could be effective… Maybe the public doesn’t know whether The Malaria Consortium spends their money well, but they probably don’t want to make rich elites even richer.
Although that would be great, from all of the research I read about donations, it doesn’t seem that effectiveness is a big factor for consumers. I do think a certification for effectiveness could help, but based on the data I’m pessimistic how much it would add compared to marketing your charity effectively.
Useful perspectives! If you were inclined to write a followup post with some of the data you’ve seen thus far at BOAS, I think it’d help with establishing credibility for CPI :-)
RE: “I am inclined to think that few, or even one, charitable profit destination would be appealing to consumers.” I can see how both of you reached your conclusions. Empirical data would be the best solution :-)
Yeah we can definitely do that. We have a research paper coming out on Monday with loads of references and data and the research is independent (but sponsored by BOAS). Will post it here once it comes out.
You can already look at our pitch for investors/philanthropists which has some data points from ads and talking to more than 100 user and 50 brands. We always encourage feedback so feel free to reply.
The Giving Store allows for a natural experiment contra BOAS. Of course, there will be a lot of potentially confounding factors, but still good information.
I really enjoyed reading your dialogue and wanted to jump in with some more thoughts.
If you look at companies ranked by market cap (an easy way to estimate the overall profitability potential of companies). You’ll find commodities/monopolies (oil, Google) and more differentiated companies (apple), so it seems that for overall profit potential both avenues could work.
“What leads you to conclude that investing in guiding companies is a better alternative to these existing investments?”
I agree that the main factor is what Brad has already mentioned: it’s a structural advantage and it cannot be replicated by competitors who are for-profit (investors love companies that have something that can’t be replicated!). In addition, I think that funding guiding companies are a more direct and impactful path to impact. If you invest in guiding companies, you’re investing in a company that donates directly, and you can influence the path of that company to more impact (rather than profit) and the founders and employees might be persuaded to become EA’s and sign the founders pledge. Additionally, showing that guiding companies can work might slowly start to shift the broader economy to guided consumption, and with the economy having trillions and trillions of dollars in profit each year this could make more than just a dent in some very important problems.
“Agreed on your points here. Which metrics do you think are useful to decide which industries guiding companies make sense for? ”
In addition to your metrics I would look at the competitiveness of markets. It’s very hard to enter monopolized markets such as search engines. Is it a market where we can build a competitive offering?
If we believe that it will be continue to be hard to get funding for guiding companies, it might make sense to start with businesses that are easy and cheap to start, thus requiring less capital. Dropshipping is a good example.
I believe that price is a more important factor for consumers than donating profits to charities, so I would start with a business that can offer similar prices to the competition. I run an online marketplace that has the same prices as competition. That also makes it easier to test the extent to which people value guided consumption. We actually ran 2 ads on Google where one was the add of the competition, and the other was the same ad including the profit destination. The profit destination ad was clicked on 50% more often, a very encouraging stat.
Another category of products would be one where people don’t care much about the price (or buy even more if the prices are higher): luxury. Thomas, Brad and I were brainstorming if we could not create the world’s most expensive products and sell those to the rich (e.g. a 10 million USD T-Shirt where all profits go to charities). Just a thought.
“In real life, I’ve heard a lot of entrepreneurs talk about how ‘mixed value propositions’ actually lead to fewer customers deciding to buy a product than a single, clear value proposition. How have you thought so far about ensuring that product marketing leads to one deciding factor separating a guiding company from competitors, not unclear value propositions that repel customers.”
Great point, and one that I’ve seen in my work as a marketeer a lot. We run a sustainable marketplace that donates all profits to charities, so we have 2 important USP’s: we’re sustainable and we donate all profits. We have already found that people care more about the second USP (encouraging) and we’re now thinking if we need to only focus on the non-profit part. It’s something that we need to test though, but that’s very simple. Profit destination should murk the offering.
“Curious to hear your thoughts on getting around the initial high investments / low returns :-)”
I think we would tackle this exactly how the for-profit sector has done it: VC’s who are okay waiting 2-10 year for an ROI. I don’t think this will be an issue, because many HNWI already work with these time horizons for their for-profit investements, billionaires grant money across their lifetime in smaller tranches and EA is already being patient with their funding.
Brad: “I am inclined to think that few, or even one, charitable profit destination would be appealing to consumers.”
I think the opposite. The most important factors considering where people donate are proximity (favoring local donations) and how close it is to their heart (e.g. I lost a nephew to cancer so I donate to children’s cancer charities). I think choice is really important for consumers and based proximity that will be many charities. That’s a problem because local and close to heart charities are usually not that effective, so if we want to provide choice and try to give as much as possible to EA charities, we might want to try and nudge people to the best options.
“The most important factors considering where people donate are proximity (favoring local donations) and how close it is to their heart”
I agree these are important factors in how people like me often chose a charity but an equal or greater factor is having a sense of confidence that the Guiding Company and the charities it’s owned by are not only legit but also effective. In these days where so many people have reduced trust in just about everything, I think it’s critical for some trusted means for “certification” of effectiveness and integrity to be in place, much as Brad describes in his full length post (i.e. “NCCOs”). It’s sad but there is a lot of skepticism out there today which keeps some people on the sidelines especially with lesser known charities.
Yeah. People in EA are confident in the effectiveness of charities such as those endorsed by Givewell, but the general public is likely to be more skeptical. Especially with declining public confidence in institutions that has been prevalent...
This is why I think negative advertising could be effective… Maybe the public doesn’t know whether The Malaria Consortium spends their money well, but they probably don’t want to make rich elites even richer.
Although that would be great, from all of the research I read about donations, it doesn’t seem that effectiveness is a big factor for consumers. I do think a certification for effectiveness could help, but based on the data I’m pessimistic how much it would add compared to marketing your charity effectively.
Useful perspectives! If you were inclined to write a followup post with some of the data you’ve seen thus far at BOAS, I think it’d help with establishing credibility for CPI :-)
RE: “I am inclined to think that few, or even one, charitable profit destination would be appealing to consumers.”
I can see how both of you reached your conclusions. Empirical data would be the best solution :-)
Yeah we can definitely do that. We have a research paper coming out on Monday with loads of references and data and the research is independent (but sponsored by BOAS). Will post it here once it comes out.
You can already look at our pitch for investors/philanthropists which has some data points from ads and talking to more than 100 user and 50 brands. We always encourage feedback so feel free to reply.
Please note that my latest comment includes the research paper with additional data. Looking forward to receiving more feedback.
The Giving Store allows for a natural experiment contra BOAS. Of course, there will be a lot of potentially confounding factors, but still good information.