One thing that I hope will be a bit clarifying is an outline from a previous call with Vin in which I outlined some of the functions of the Consumer Power Initiative. I have posted it in another comment.
What metrics do you think are useful to decide which industries guiding companies make (most) sense for?
I think research on the willingness-to-pay-premium in contexts in which there is data, such as organic or fairtrade products would be a good place to start. Another way to test willingness-to-pay-premium is by launching low-cost Guiding Producers in a variety of sectors. One idea I have had was to launch a Dropshipping store that sells gaming peripherals, such as headphones that works in conjunction with streamers/âonline influencers. An advantage of this sector is that positive discrimination by another market participant, streamers/âinfluencers, could be extremely powerful in addition to positive discrimination by consumers. Because I have very little ecommerce/âwebsite development experience, I am very eager to find partners that could help launch low-cost Guiding Producers (forgive me if I sometimes refer to them as Producers rather than Companies, the broader category would be Producers), not only to generate money for worthy charities and boost Guided Consumption generally, but also to test what sectors are most responsive to charitable profit destination.
Price inelastic products may be a good sector for GC because of their side benefit of broadly exposing the public to the idea of GC. This is part of what I am going to try to achieve when I launch the Giving Store, offer a wider degree of offerings to the general public so that a wider degree of people can become part of the project: buying stuff they were going to anyway.
Another area to research is one that you referenced earlier, the relationship between market-share and profitability. Determining where expanded market share would translate to high profitability is a big question.
Large companies vs. smaller companies
Yes, considering whether large companies or small ones is best is an open question. One thing that I would note is that the costs of marketing GC (both in its general form and of specific Guiding Producers) decline in cost with scale and being able to exploit huge markets offers a lot of opportunities.
Maximizing P (profitability attributable to the popularity of charitable profit destination)
Firstly, finding sectors that offer the greatest opportunities for GC is a way to maximize P. This is discussed by us already. It is also discussed in subsection 3(A)(i) of my longer paper.
Another critical way to maximize P is not specific to a given Guiding Producer, but will benefit all Guiding Producers, and that is marketing of Guided Consumption generally. That is why one of the functions of the Consumer Power Initiative is to create a mass social movement questioning why the wealthy enjoy the vast majority of producer surplus and not charities and trying to direct the producer surplus from their purchases to worthy charities, when possible. This is an ambitious mission, to be sure, but because of the reasonable ask of consumers (donât be inconvenienced or sacrifice anything, just buy what you would have anyway through Guiding Producers), I believe it will succeed.
Fairtrade/âorganic certifications
I have yet to learn and am interested in learning these lessons. One thing that I would note is that the advantage Guided Consumption has as a species of Conscious Consumption is that popular ownership identity confers an advantage without a corresponding cost. Conversely, most other examples of conscious consumption have a cost corresponding to their advantage of consumer preference in their favor. Commit to ensuring that the coffee farmers involved in supplying your coffee are paid fairly? It will probably cost you a bit more than competitors. Commit to treating the animals that will become the meat product you are selling more humanely? There will likely be a corresponding cost as well. This is not to say the use of conscious consumption in other ways is not noble, important, and may offer competitive advantage in excess of its costs. I simply note that Guided Consumption seems to be unique in that popular shareholder identity does not have an attendant cost (vis a vis other investors).
Single vs. Mixed Value Propositions
The value proposition that CPI and Guiding Producers offer consumers and other economic participants is pretty singular and clear: significantly further worthy causes by going through me. This value proposition, though singular, can be directed at many actors in the economic field, though my focus has been on consumers. To consumers: do good by buying from me. To employees: do good by working for me. To consultants: do good by providing me free or discounted consultation. To advertisers: do good by providing me free or discounted advertising.
One way that a value proposition could get mixed would be through the complexity of charitable profit destination. It is an open question as to whether consumers would be more inclined to discriminate in favor of a charitable trust that directed funds to a variety of charities, or if they would prefer fewer charities. I am inclined to think that few, or even one, charitable profit destination would be appealing to consumers.
Who is investing in Guiding Companies?
I was not contemplating charities themselves investing in the capitalization of Guiding Firms themselves (although perhaps it would make sense for them in some contexts). I was more contemplating charitable investors who wanted to use charities as a means to do good.
So, for a simple example to illustrate what I would be thinking of doing-
Letâs say that there are 4 global ketchup producers that each occupy 25% of the market: Heinz (H), Americaâs Choice (A), Del Monte (D), and 365 (T). Letâs say consumers do not differentiate between them very much. The value of all outstanding shares are $300 million.
In come a number of charitable investors who are interested in reducing global poverty and believe GiveDirectly is a great way to fight global poverty. So, they pool together $50 million to do a leveraged buyout of one of the ketchup producers. They go to H, and given that H realizes that he has a buyer interested in buying out the company, H demands a premium valuing the company at $350 million. However, the set of investors leak this information to A, D, and T, who are each worried that a Guiding Producer in their sector, given the lower differentiation in their sector, could dramatically reduce their value, thus starting a reverse bidding war, ending in the investors being able to acquire D for $200 mil.
Thus, the investors do a leveraged buyout supplying 25% of the funds for the acquisition, with a debt of $150 million. Post-acquisition, they advertise heavily that when you buy ketchup from D instead of H, A, or T, you help lift the extreme poor out of poverty. Given that the other competitors cannot favorably differentiated themselves, D comes to occupy 90% of the ketchup sector within 1.5 years, and the outstanding shares are valued at $1.2 billion. The investors borrow $480 million (40%) to pay off the $150 million from the leveraged buyout and direct $330 million to GiveDirectly. Over the next decade, they direct a portion of Dâs profits to paying off the $480 million debt. So, within 1.5 years, from $50 mil in charitable investment, they were able to get $330 million to GiveDirectly (over 6x investment). Furthermore, they have continuing income to support GiveDirectly, and an enormous asset they can use to support GiveDirectly. Furthermore, given the Efficient Market Hypothesis, once this has happened a few times, the market will be able to more quickly identify the value of the company, allowing for even faster valuation increase, shortening the time that charity funding would have to wait. Ideally, what we need to establish is that G(d) > d, where d is a quantity of direct donation to a charity and G(d) is funding which proceeds from the capitalization of a Guiding Producer with the quantity of investment d. Once we show that, in a given context, G(d) > d, billions should be available from the philanthropic sector.
Structural advantage
Structural advantage isnât contingent on the construction of the âno-brainerâ; the âno-brainerâ is simply a context in which structural advantage is most likely to translate into a decisive advantage, as discussed above. In a super low-differentiation context, charitable profit destination is more like running faster in a 100-meter dash. However, even with a many dimensioned product area, charitable profit destination would still offer some advantage. One of the functions of the Consumer Power Initiatives is identifying where the structural advantage is most powerful. However, I would imagine as Guided Consumption becomes a more prevalent feature of our world, Guiding Producers will tend to occupy a wider variety of sectors, because they will still have some advantage.
Time Horizon
As illustrated above, as Guided Consumption becomes more prevalent, I do not think that the time horizon issue will be as big. The Efficient Market Hypothesis should allow for asset value to be identifiable at sooner points, allowing for acceleration of charitable funding through mechanisms like securitized debt and fractional sale.
Getting around high initial investments and (not?) low returns
As you can see from above, I do not think that Guided Consumption would necessarily imply low returns. As for high initial investments, this is where we find a quite vexing catch-22: funding is needed (or at least helpful) in creating the proof of concepts and the broad marketing that would increase P, yet philanthropists often require demonstrated proof of effectiveness to fund projects.
One way that I am looking to get around this is, as mentioned above, looking for low-cost opportunities for the creation and/âor partnership with existing Guiding Producers, such as Misercordia, BOAS, the Giving Store Iâm working on, and possibly Newmanâs Own and Humanitix.
Also, given the degree to which EA values cause area exploration, it would be eminently sensible to fund the exploration costs associated with Guided Consumption, so I will be applying for grants and otherwise trying to obtain funding for the Consumer Power Initiative.
Would Charitable Profit Destination Advantage Startups?
I donât see why being a GC would not advantage a startup in some ways. If other economic actors privilege charities over normal investors, this could be potentially powerful. The issue is that having equity stakes often incentivizes and aligns early actors in the early stages of a startup. One potential solution would be to have buyout options by charities available at amounts that would still allow for extreme enrichment of founders and other actors in unicorns, but would facilitate transition to becoming a Guiding Producer.
EA Angels
I will reach out to them. Although they typically do not deal with nonprofits, the Consumer Power Initiative is obviously intimately involved in a certain kind of for-profit entity, Guiding Producers/âCompanies. I think their insight could be great.
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). Youâll find commodities/âmonopolies (oil, Google) and more differentiated companies (apple), so it seems that for overall profit potential both avenues could work.
âWhat leads you to conclude that investing in guiding companies is a better alternative to these existing investments?â
I agree that the main factor is what Brad has already mentioned: itâs a structural advantage and it cannot be replicated by competitors who are for-profit (investors love companies that have something that canât 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, youâre 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 EAâs 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.
âAgreed on your points here. Which metrics do you think are useful to decide which industries guiding companies make sense for? â
In addition to your metrics I would look at the competitiveness of markets. Itâs 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 donât 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 worldâs 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.
âIn real life, Iâve heard a lot of entrepreneurs talk about how âmixed value propositionsâ 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.â
Great point, and one that Iâve 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 USPâs: weâre sustainable and we donate all profits. We have already found that people care more about the second USP (encouraging) and weâre now thinking if we need to only focus on the non-profit part. Itâs something that we need to test though, but thatâs very simple. Profit destination should murk the offering.
âCurious to hear your thoughts on getting around the initial high investments /â low returns :-)â
I think we would tackle this exactly how the for-profit sector has done it: VCâs who are okay waiting 2-10 year for an ROI. I donât 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: âI am inclined to think that few, or even one, charitable profit destination would be appealing to consumers.â
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 childrenâs cancer charities). I think choice is really important for consumers and based proximity that will be many charities. Thatâs 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.
âThe most important factors considering where people donate are proximity (favoring local donations) and how close it is to their heartâ
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 itâs 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 itâs critical for some trusted means for âcertificationâ of effectiveness and integrity to be in place, much as Brad describes in his full length post (i.e. âNCCOsâ). Itâs 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 doesnât know whether The Malaria Consortium spends their money well, but they probably donât want to make rich elites even richer.
Although that would be great, from all of the research I read about donations, it doesnât seem that effectiveness is a big factor for consumers. I do think a certification for effectiveness could help, but based on the data Iâm 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 youâve seen thus far at BOAS, I think itâd help with establishing credibility for CPI :-)
RE: âI am inclined to think that few, or even one, charitable profit destination would be appealing to consumers.â 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/âphilanthropists 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.
RE: Making a Dropshipping site I have web development experience. If you have clear goals/âa âwhyâ behind making the site, I can get it done for you for free. Feel free to message when you get to that stage :-)
RE: Inelastic Products + general customer exposure Good point, I hadnât thought of this :-)
RE: âOne of the functions of the Consumer Power Initiative is to create a mass social movement questioning why...â Iâd be eager to hear your marketing plans when you have more specific information.
RE: âGuided Consumption seems to be unique in that popular shareholder identity does not have an attendant cost (vis a vis other investors).â Lots of social justice charities have tried to market black owned businesses /â businesses started by former felons. Ex: Inmates to Entrepreneurs.
Have you looked into how scalable /â effective their âP-valueâ is? Do you think itâd help to talk to them to learn what has/âhasnât worked well for them?
RE: âThe value proposition that CPI and Guiding Producers offer consumers and other economic participants is pretty singular and clear: significantly further worthy causes by going through me. â This may be true when customers choose you from a directory with exactly the right information. Itâs less true on a Google Search page. Less true still on an industrial product datasheet. Less true still on a supermarket aisle.
What Iâm saying is that the context (channel) by which consumers buy the products of guiding companies will influence the value proposition(s) they see for those products vs. competitorsâ products. And given how much information is sometimes thrown at consumers, the decisions they make on average might be surpising to you or me.
Thatâs awesome! I will get back to you shortly, probably in a week or so, with a more fully-fledged value proposal and details regarding The Giving Store. But The Giving Store will serve many purposes:
(1) it will be a concrete example of Guided Consumption in the United States, with a wider variety of products that will enable a broad range of people to be able to do good by buying cool and helpful items, this I think will help market the idea of Guided Consumption to the general public more accessibly than an essay for many.
(2) It will provide data regarding Guided Consumption for the Consumer Power Initiative- and potentially a proof-of-concept for others
(3) It will generate funds for an effective charity- I have one in mind now, but I am still thinking it over.
Marketing Plans:
I am still developing marketing plans, and the resources that you mentioned of Development Media International and Inmates to Entrepreneurs are definitely two groups that may have some very valuable input. Some ideas that I have had on marketing:
(1) Developing the Consumer Power Initiative website as a hub where people can be directed to a variety of affiliated Guiding Producers and learn more about Guided Consumption.
(2) Coming up with a simple, fun video for YouTube that goes into the microeconomics of consumer/âproducer surplus and presents the possibility of using consumer power through Guided Consumption to benefit charities instead of rich people. I had thought of a video similar in style and humor to this .
(3) Trying to engage influencers/âstreamers to potentially become ambassadors for Guided Consumption and let their audiences know about it, as well as some cool Guiding Producers that they can buy from.
(4) Potentially engaging a variety of musician Guiding Producers who can release musical albums online where 100% of the money generated will go to an effective charity.
(5) Vin and EA Forum user Tomer_Goloboy, who founded Misercordia had thought of a kind of publicity stunt like a million-dollar t-shirt where all the profits would go to a charity.
Clear Value Proposition/â Channels and Contexts of Buying through Guiding Producers
In Section III(B)(ii) of my longer paper discusses the need to eliminate the frictions in transactions and make the path of least resistance for the consumer lead to a Guiding Producer.
The Consumer Power Initiative, by having a marketing GC function and a function of supporting Guiding Producers will solve some key problems that individual Guiding Producers would have by themselves. An individual GC may have difficulty justifying a degree of marketing sufficient to broadly inform consumers of charitable profit destination. However, CPI, advancing many GCs, is cost-justified in broadly marketing Guided Consumption and allowing Guiding Producers to easily signal that they are a part of the project. The Consumer Power Initiative can also assist Guiding Producers in functions such as search-engine optimization, providing transparency mechanisms, and otherwise endeavoring to make Guiding Producers the most easy and attractive choice if a consumer is looking to buy in a sector where a Guiding Producer is available.
Please note that there are many steps to take before such a robust role could be played by the CPI and I am merely noting the possibilities opened up by economies of scale and a robust organization with the mission of promoting Guided Consumption.
One thing that I hope will be a bit clarifying is an outline from a previous call with Vin in which I outlined some of the functions of the Consumer Power Initiative. I have posted it in another comment.
What metrics do you think are useful to decide which industries guiding companies make (most) sense for?
I think research on the willingness-to-pay-premium in contexts in which there is data, such as organic or fairtrade products would be a good place to start. Another way to test willingness-to-pay-premium is by launching low-cost Guiding Producers in a variety of sectors. One idea I have had was to launch a Dropshipping store that sells gaming peripherals, such as headphones that works in conjunction with streamers/âonline influencers. An advantage of this sector is that positive discrimination by another market participant, streamers/âinfluencers, could be extremely powerful in addition to positive discrimination by consumers. Because I have very little ecommerce/âwebsite development experience, I am very eager to find partners that could help launch low-cost Guiding Producers (forgive me if I sometimes refer to them as Producers rather than Companies, the broader category would be Producers), not only to generate money for worthy charities and boost Guided Consumption generally, but also to test what sectors are most responsive to charitable profit destination.
Price inelastic products may be a good sector for GC because of their side benefit of broadly exposing the public to the idea of GC. This is part of what I am going to try to achieve when I launch the Giving Store, offer a wider degree of offerings to the general public so that a wider degree of people can become part of the project: buying stuff they were going to anyway.
Another area to research is one that you referenced earlier, the relationship between market-share and profitability. Determining where expanded market share would translate to high profitability is a big question.
Large companies vs. smaller companies
Yes, considering whether large companies or small ones is best is an open question. One thing that I would note is that the costs of marketing GC (both in its general form and of specific Guiding Producers) decline in cost with scale and being able to exploit huge markets offers a lot of opportunities.
Maximizing P (profitability attributable to the popularity of charitable profit destination)
Firstly, finding sectors that offer the greatest opportunities for GC is a way to maximize P. This is discussed by us already. It is also discussed in subsection 3(A)(i) of my longer paper.
Another critical way to maximize P is not specific to a given Guiding Producer, but will benefit all Guiding Producers, and that is marketing of Guided Consumption generally. That is why one of the functions of the Consumer Power Initiative is to create a mass social movement questioning why the wealthy enjoy the vast majority of producer surplus and not charities and trying to direct the producer surplus from their purchases to worthy charities, when possible. This is an ambitious mission, to be sure, but because of the reasonable ask of consumers (donât be inconvenienced or sacrifice anything, just buy what you would have anyway through Guiding Producers), I believe it will succeed.
Fairtrade/âorganic certifications
I have yet to learn and am interested in learning these lessons. One thing that I would note is that the advantage Guided Consumption has as a species of Conscious Consumption is that popular ownership identity confers an advantage without a corresponding cost. Conversely, most other examples of conscious consumption have a cost corresponding to their advantage of consumer preference in their favor. Commit to ensuring that the coffee farmers involved in supplying your coffee are paid fairly? It will probably cost you a bit more than competitors. Commit to treating the animals that will become the meat product you are selling more humanely? There will likely be a corresponding cost as well. This is not to say the use of conscious consumption in other ways is not noble, important, and may offer competitive advantage in excess of its costs. I simply note that Guided Consumption seems to be unique in that popular shareholder identity does not have an attendant cost (vis a vis other investors).
Single vs. Mixed Value Propositions
The value proposition that CPI and Guiding Producers offer consumers and other economic participants is pretty singular and clear: significantly further worthy causes by going through me. This value proposition, though singular, can be directed at many actors in the economic field, though my focus has been on consumers. To consumers: do good by buying from me. To employees: do good by working for me. To consultants: do good by providing me free or discounted consultation. To advertisers: do good by providing me free or discounted advertising.
One way that a value proposition could get mixed would be through the complexity of charitable profit destination. It is an open question as to whether consumers would be more inclined to discriminate in favor of a charitable trust that directed funds to a variety of charities, or if they would prefer fewer charities. I am inclined to think that few, or even one, charitable profit destination would be appealing to consumers.
Who is investing in Guiding Companies?
I was not contemplating charities themselves investing in the capitalization of Guiding Firms themselves (although perhaps it would make sense for them in some contexts). I was more contemplating charitable investors who wanted to use charities as a means to do good.
So, for a simple example to illustrate what I would be thinking of doing-
Letâs say that there are 4 global ketchup producers that each occupy 25% of the market: Heinz (H), Americaâs Choice (A), Del Monte (D), and 365 (T). Letâs say consumers do not differentiate between them very much. The value of all outstanding shares are $300 million.
In come a number of charitable investors who are interested in reducing global poverty and believe GiveDirectly is a great way to fight global poverty. So, they pool together $50 million to do a leveraged buyout of one of the ketchup producers. They go to H, and given that H realizes that he has a buyer interested in buying out the company, H demands a premium valuing the company at $350 million. However, the set of investors leak this information to A, D, and T, who are each worried that a Guiding Producer in their sector, given the lower differentiation in their sector, could dramatically reduce their value, thus starting a reverse bidding war, ending in the investors being able to acquire D for $200 mil.
Thus, the investors do a leveraged buyout supplying 25% of the funds for the acquisition, with a debt of $150 million. Post-acquisition, they advertise heavily that when you buy ketchup from D instead of H, A, or T, you help lift the extreme poor out of poverty. Given that the other competitors cannot favorably differentiated themselves, D comes to occupy 90% of the ketchup sector within 1.5 years, and the outstanding shares are valued at $1.2 billion. The investors borrow $480 million (40%) to pay off the $150 million from the leveraged buyout and direct $330 million to GiveDirectly. Over the next decade, they direct a portion of Dâs profits to paying off the $480 million debt. So, within 1.5 years, from $50 mil in charitable investment, they were able to get $330 million to GiveDirectly (over 6x investment). Furthermore, they have continuing income to support GiveDirectly, and an enormous asset they can use to support GiveDirectly. Furthermore, given the Efficient Market Hypothesis, once this has happened a few times, the market will be able to more quickly identify the value of the company, allowing for even faster valuation increase, shortening the time that charity funding would have to wait. Ideally, what we need to establish is that G(d) > d, where d is a quantity of direct donation to a charity and G(d) is funding which proceeds from the capitalization of a Guiding Producer with the quantity of investment d. Once we show that, in a given context, G(d) > d, billions should be available from the philanthropic sector.
Structural advantage
Structural advantage isnât contingent on the construction of the âno-brainerâ; the âno-brainerâ is simply a context in which structural advantage is most likely to translate into a decisive advantage, as discussed above. In a super low-differentiation context, charitable profit destination is more like running faster in a 100-meter dash. However, even with a many dimensioned product area, charitable profit destination would still offer some advantage. One of the functions of the Consumer Power Initiatives is identifying where the structural advantage is most powerful. However, I would imagine as Guided Consumption becomes a more prevalent feature of our world, Guiding Producers will tend to occupy a wider variety of sectors, because they will still have some advantage.
Time Horizon
As illustrated above, as Guided Consumption becomes more prevalent, I do not think that the time horizon issue will be as big. The Efficient Market Hypothesis should allow for asset value to be identifiable at sooner points, allowing for acceleration of charitable funding through mechanisms like securitized debt and fractional sale.
Getting around high initial investments and (not?) low returns
As you can see from above, I do not think that Guided Consumption would necessarily imply low returns. As for high initial investments, this is where we find a quite vexing catch-22: funding is needed (or at least helpful) in creating the proof of concepts and the broad marketing that would increase P, yet philanthropists often require demonstrated proof of effectiveness to fund projects.
One way that I am looking to get around this is, as mentioned above, looking for low-cost opportunities for the creation and/âor partnership with existing Guiding Producers, such as Misercordia, BOAS, the Giving Store Iâm working on, and possibly Newmanâs Own and Humanitix.
Also, given the degree to which EA values cause area exploration, it would be eminently sensible to fund the exploration costs associated with Guided Consumption, so I will be applying for grants and otherwise trying to obtain funding for the Consumer Power Initiative.
Would Charitable Profit Destination Advantage Startups?
I donât see why being a GC would not advantage a startup in some ways. If other economic actors privilege charities over normal investors, this could be potentially powerful. The issue is that having equity stakes often incentivizes and aligns early actors in the early stages of a startup. One potential solution would be to have buyout options by charities available at amounts that would still allow for extreme enrichment of founders and other actors in unicorns, but would facilitate transition to becoming a Guiding Producer.
EA Angels
I will reach out to them. Although they typically do not deal with nonprofits, the Consumer Power Initiative is obviously intimately involved in a certain kind of for-profit entity, Guiding Producers/âCompanies. I think their insight could be great.
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). Youâll find commodities/âmonopolies (oil, Google) and more differentiated companies (apple), so it seems that for overall profit potential both avenues could work.
âWhat leads you to conclude that investing in guiding companies is a better alternative to these existing investments?â
I agree that the main factor is what Brad has already mentioned: itâs a structural advantage and it cannot be replicated by competitors who are for-profit (investors love companies that have something that canât 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, youâre 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 EAâs 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.
âAgreed on your points here. Which metrics do you think are useful to decide which industries guiding companies make sense for? â
In addition to your metrics I would look at the competitiveness of markets. Itâs 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 donât 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 worldâs 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.
âIn real life, Iâve heard a lot of entrepreneurs talk about how âmixed value propositionsâ 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.â
Great point, and one that Iâve 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 USPâs: weâre sustainable and we donate all profits. We have already found that people care more about the second USP (encouraging) and weâre now thinking if we need to only focus on the non-profit part. Itâs something that we need to test though, but thatâs very simple. Profit destination should murk the offering.
âCurious to hear your thoughts on getting around the initial high investments /â low returns :-)â
I think we would tackle this exactly how the for-profit sector has done it: VCâs who are okay waiting 2-10 year for an ROI. I donât 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: âI am inclined to think that few, or even one, charitable profit destination would be appealing to consumers.â
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 childrenâs cancer charities). I think choice is really important for consumers and based proximity that will be many charities. Thatâs 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.
âThe most important factors considering where people donate are proximity (favoring local donations) and how close it is to their heartâ
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 itâs 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 itâs critical for some trusted means for âcertificationâ of effectiveness and integrity to be in place, much as Brad describes in his full length post (i.e. âNCCOsâ). Itâs 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 doesnât know whether The Malaria Consortium spends their money well, but they probably donât want to make rich elites even richer.
Although that would be great, from all of the research I read about donations, it doesnât seem that effectiveness is a big factor for consumers. I do think a certification for effectiveness could help, but based on the data Iâm 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 youâve seen thus far at BOAS, I think itâd help with establishing credibility for CPI :-)
RE: âI am inclined to think that few, or even one, charitable profit destination would be appealing to consumers.â
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/âphilanthropists 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.
RE: Making a Dropshipping site
I have web development experience. If you have clear goals/âa âwhyâ behind making the site, I can get it done for you for free. Feel free to message when you get to that stage :-)
RE: Inelastic Products + general customer exposure
Good point, I hadnât thought of this :-)
RE: âOne of the functions of the Consumer Power Initiative is to create a mass social movement questioning why...â
Iâd be eager to hear your marketing plans when you have more specific information.
Maybe Development Media International would know EA-aligned marketers whoâd be willing to help out?
RE: âGuided Consumption seems to be unique in that popular shareholder identity does not have an attendant cost (vis a vis other investors).â
Lots of social justice charities have tried to market black owned businesses /â businesses started by former felons. Ex: Inmates to Entrepreneurs.
Have you looked into how scalable /â effective their âP-valueâ is? Do you think itâd help to talk to them to learn what has/âhasnât worked well for them?
RE: âThe value proposition that CPI and Guiding Producers offer consumers and other economic participants is pretty singular and clear: significantly further worthy causes by going through me. â
This may be true when customers choose you from a directory with exactly the right information. Itâs less true on a Google Search page. Less true still on an industrial product datasheet. Less true still on a supermarket aisle.
What Iâm saying is that the context (channel) by which consumers buy the products of guiding companies will influence the value proposition(s) they see for those products vs. competitorsâ products. And given how much information is sometimes thrown at consumers, the decisions they make on average might be surpising to you or me.
Dropshipping Site:
Thatâs awesome! I will get back to you shortly, probably in a week or so, with a more fully-fledged value proposal and details regarding The Giving Store. But The Giving Store will serve many purposes:
(1) it will be a concrete example of Guided Consumption in the United States, with a wider variety of products that will enable a broad range of people to be able to do good by buying cool and helpful items, this I think will help market the idea of Guided Consumption to the general public more accessibly than an essay for many.
(2) It will provide data regarding Guided Consumption for the Consumer Power Initiative- and potentially a proof-of-concept for others
(3) It will generate funds for an effective charity- I have one in mind now, but I am still thinking it over.
Marketing Plans:
I am still developing marketing plans, and the resources that you mentioned of Development Media International and Inmates to Entrepreneurs are definitely two groups that may have some very valuable input. Some ideas that I have had on marketing:
(1) Developing the Consumer Power Initiative website as a hub where people can be directed to a variety of affiliated Guiding Producers and learn more about Guided Consumption.
(2) Coming up with a simple, fun video for YouTube that goes into the microeconomics of consumer/âproducer surplus and presents the possibility of using consumer power through Guided Consumption to benefit charities instead of rich people. I had thought of a video similar in style and humor to this .
(3) Trying to engage influencers/âstreamers to potentially become ambassadors for Guided Consumption and let their audiences know about it, as well as some cool Guiding Producers that they can buy from.
(4) Potentially engaging a variety of musician Guiding Producers who can release musical albums online where 100% of the money generated will go to an effective charity.
(5) Vin and EA Forum user Tomer_Goloboy, who founded Misercordia had thought of a kind of publicity stunt like a million-dollar t-shirt where all the profits would go to a charity.
Clear Value Proposition/â Channels and Contexts of Buying through Guiding Producers
In Section III(B)(ii) of my longer paper discusses the need to eliminate the frictions in transactions and make the path of least resistance for the consumer lead to a Guiding Producer.
The Consumer Power Initiative, by having a marketing GC function and a function of supporting Guiding Producers will solve some key problems that individual Guiding Producers would have by themselves. An individual GC may have difficulty justifying a degree of marketing sufficient to broadly inform consumers of charitable profit destination. However, CPI, advancing many GCs, is cost-justified in broadly marketing Guided Consumption and allowing Guiding Producers to easily signal that they are a part of the project. The Consumer Power Initiative can also assist Guiding Producers in functions such as search-engine optimization, providing transparency mechanisms, and otherwise endeavoring to make Guiding Producers the most easy and attractive choice if a consumer is looking to buy in a sector where a Guiding Producer is available.
Please note that there are many steps to take before such a robust role could be played by the CPI and I am merely noting the possibilities opened up by economies of scale and a robust organization with the mission of promoting Guided Consumption.