Given that is hard to choose good investments a priori, I imagine building a portfolio of PFG businesses would be a sound approach.
Which I would like to compare to putting the money in an index fund and withdraw a certain amount for philantropic purposes.
I would love to have an estimation of the edge due to PFG driving consumer preferences, media attention, and better deals over the baseline of just putting the money in an index fund.
Do we have an estimation? Some data to cook it, and probably as you say, test it?
Great questionâthis is exactly the comparison serious philanthropists should be making.
The theoretical edge is substantial:
Index fund approach: $100M invested â ~7-10% returns â $7-10M annual charitable giving, capital preserved.
PFG portfolio approach (if stakeholder advantages are real): $100M deployed â businesses generating $15-28M annually to charity based on margin improvements from stakeholder advantages, capital preserved as operating business equity.
Where do these numbers come from?
Iâve been compiling empirical evidence on PFG stakeholder advantagesâmeasurable preference across all stakeholder groups at price parity. For a typical 10% margin business, documented advantages (consumer preference 5-20%, employee wage discounts 4-7%, turnover reduction 50-60%, earned media worth millions) compound to 50-180% profit increases.
Iâve summarized the key evidence here. This is part of a larger research compilation Iâm finishing.
On the âtoo good to be trueâ concern:
The results sound extraordinary, but they follow from compounding modest, effects through margin leverage. Each individual advantage is small: consumers show 5-10% preference at price parity, employees accept 4-7% wage discounts, turnover drops by half. None of these are implausible.
But hereâs the key: most businesses operate on 10-20% margins (revenue minus costs). When you apply a 5% revenue increase and 2% cost reduction to a business with 10% margins, you donât get a 7% improvement in profitsâyou get a 70% improvement, because those changes flow entirely to the bottom line. This margin leverage is why modest stakeholder advantages translate to dramatic profit improvements. The math isnât speculativeâitâs what happens when several small, documented effects compound through thin margins.
That said, this absolutely requires rigorous validation through early-stage trials.
Why early experiments are relatively low risk:
Unlike typical venture investments, PFG experiments have asymmetric upside:
Downside: If stakeholder advantages donât materialize, you still own operating businesses with normal market returnsâcapital isnât consumed like grants
Upside: If advantages do materialize, youâve demonstrated a model that can attract much larger capital deployment
Learning value: Even âfailuresâ generate valuable data about which contexts/âcategories work best
Portfolio approach: Testing across multiple sectors (ticketing, consumer goods, professional services) diversifies risk while identifying where advantages are strongest
A few well-designed experiments deploying $5-10M could demonstrate whether advantages actually materialize in practice, quantify them precisely, and build the proof-of-concept that unlocks major philanthropic capital. Perhaps most importantly, the information value from rigorous experimentation could exceed any direct financial returnsâproving the degree to which PFG advantages are real would inform how billions in philanthropic capital get deployed.
[epistemic status: tentative, as I did not pay attention very well in my one-credit accounting class ~20 years ago]
Regarding your summary of the evidence, Iâm not sure how much weight to give the lived experiences of PfG /â PfG-adjacent companies. I pulled data for two of them, and I didnât see evidence of large improvements in margins relative to what I would expect from comparable profit-for-yacht businesses. Although presumably businesses could improve, these are also among the current best-in-class PfG companiesâand survivorship bias means that weâre not likely to analyze attempts that didnât work out well (or at all).
Thankyouâs financials are difficult to discernâmost numbers of interest are redacted in the report I pulled from the Australian charity regulator. A 2019 news report reflects donations of about $700K AUD (about half of its profit) on revenues of about $31MM. I confess that I donât know a whole lot about the âfast-moving consumer goodsâ category . . . but profits equal to about 4.5% and donate-able profits of about half that doesnât immediately strike me as having a massive advantage to similarly situated private-profit competitors. I did not see sales numbers for the Good Store, so donât have any comparison to make there.
To check another PFG company: Newmanâs Own was reported in 2017 to have donated close to $30M a year on sales of over $600M/âyear, so ~5%. A glance at KraftHeinzâs balance sheetâobviously they sell much more than salad dressing! -- suggests net income after taxes of about 10% of net sales (p. 60 of this link). Although donate-able profits and net income after taxes arenât the same thing, the numbers here donât give me the impression that Newmanâs Ownâwhich has been around for decadesâis crushing it compared to its competitors in the field. (Also I think one should consider what Newmanâs Own would look like without the free strong endorsement by Paul Newman. I think failure to make that adjustment would oversell PfGâs contribution to the enterpriseâs success.)
To be sure, KraftHeinzâs numbers reflect the advantage of its size. But the large companies that currently lead in the market come to the table with that advantage, and their access to capital would be much better even if all of EA (or even all of US philanthropy) became sold on PfG. They can (and presumably would) use those advantages in an attempt to drive off any PfG firm they deemed to be too threatening. So comparing PfG margins to the margins of industry-leading megafirms, rather than similarly-sized and capitalized profit-for-yacht firms, seems appropriate here.
Thanks, Jason â this is exactly the kind of scrutiny I think the idea needs.
On your core point: I basically agree with your descriptive read. Looking at Thankyouâs ~4â5% donate-able margin or Newmanâs ~5% donations on ~5% net margins does not scream âthese businesses are crushing the for-profit competition.â When I talk about large profit uplifts, Iâm not claiming we already see that in their published numbers; Iâm saying the mechanism (thin margins + modest stakeholder advantages) could plausibly generate big differences if we ever set this up deliberately and at scale. What we actually have today are a handful of pioneers operating under lousy conditions: low category awareness, no shared certification, and a chronic capital misfit (too âweirdâ for normal investors, too âbusinessyâ for most philanthropy). In that world, youâd expect âsurvive and sometimes do well,â not âobvious margin dominance.â
I also think youâre right to flag survivorship and the Paul Newman effect. Newmanâs Own probably got a brand tailwind few founders can replicate, and we donât have good public data on the PFG attempts that fizzled. Thatâs partly why the article opens by saying âthe basic math is compelling, what we lack is rigorous measurement.â Iâm using Thankyou/âNewmanâs as existence proofs (âthis can work at allâ), not as clean evidence that the multiplier is already realized in the wild.
On the Kraft question and capital: I donât think the story has to be âsmall PFG beats the global leader on day one.â The more realistic path I have in mind is stepwise:
First, PFG companies grow with philanthropic and mission-aligned capital in niches where capital requirements are tractable and stakeholder preference is strong (ticketing, insurance distribution, hated-fee services, values-expressive categories, etc.). At that stage, the relevant comparison really is similarly sized âprofit-for-yachtâ firms, not KraftHeinz.
Then, if they show normal or better cash-flow performance, they can access ordinary credit markets. Banks and lenders care about coverage ratios and default risk, not whether residual profits go to a foundation or to a family office. A PFG firm with solid EBITDA and a boring business model can still borrow to expand, even if 100% of distributable profits ultimately go to charity.
Only much later do we get to the level where youâre buying or competing head-to-head with a Kraft-scale incumbent. At that point, youâd likely be using a mix of philanthropic equity, retained earnings, and conventional debt â not trying to fund a $50B play entirely out of grants.
So Iâm not claiming âPFG firms are already out-earning Kraftâ or that we have tidy margin graphs to prove a large edge. Iâm claiming: (a) we have decent evidence that stakeholder preferences exist at parity and can matter; (b) the margin arithmetic makes it at least plausible that, in the right contexts, this could translate into big differences in distributable profits; and (c) given that, itâs rational for philanthropists to run some careful, sector-specific experiments rather than either assuming PFG canât compete or assuming it already does. If those trials show no advantage once you control for capital and sector, Iâll happily update. Right now, the main thing Iâm arguing against is staying forever in exactly the âanecdata vs intuitionâ uncertainty youâre highlighting.
Hi, thanks for this post. Quite inspiring.
Given that is hard to choose good investments a priori, I imagine building a portfolio of PFG businesses would be a sound approach.
Which I would like to compare to putting the money in an index fund and withdraw a certain amount for philantropic purposes.
I would love to have an estimation of the edge due to PFG driving consumer preferences, media attention, and better deals over the baseline of just putting the money in an index fund.
Do we have an estimation? Some data to cook it, and probably as you say, test it?
Great questionâthis is exactly the comparison serious philanthropists should be making.
The theoretical edge is substantial:
Index fund approach: $100M invested â ~7-10% returns â $7-10M annual charitable giving, capital preserved.
PFG portfolio approach (if stakeholder advantages are real): $100M deployed â businesses generating $15-28M annually to charity based on margin improvements from stakeholder advantages, capital preserved as operating business equity.
Where do these numbers come from?
Iâve been compiling empirical evidence on PFG stakeholder advantagesâmeasurable preference across all stakeholder groups at price parity. For a typical 10% margin business, documented advantages (consumer preference 5-20%, employee wage discounts 4-7%, turnover reduction 50-60%, earned media worth millions) compound to 50-180% profit increases.
Iâve summarized the key evidence here. This is part of a larger research compilation Iâm finishing.
On the âtoo good to be trueâ concern:
The results sound extraordinary, but they follow from compounding modest, effects through margin leverage. Each individual advantage is small: consumers show 5-10% preference at price parity, employees accept 4-7% wage discounts, turnover drops by half. None of these are implausible.
But hereâs the key: most businesses operate on 10-20% margins (revenue minus costs). When you apply a 5% revenue increase and 2% cost reduction to a business with 10% margins, you donât get a 7% improvement in profitsâyou get a 70% improvement, because those changes flow entirely to the bottom line. This margin leverage is why modest stakeholder advantages translate to dramatic profit improvements. The math isnât speculativeâitâs what happens when several small, documented effects compound through thin margins.
That said, this absolutely requires rigorous validation through early-stage trials.
Why early experiments are relatively low risk:
Unlike typical venture investments, PFG experiments have asymmetric upside:
Downside: If stakeholder advantages donât materialize, you still own operating businesses with normal market returnsâcapital isnât consumed like grants
Upside: If advantages do materialize, youâve demonstrated a model that can attract much larger capital deployment
Learning value: Even âfailuresâ generate valuable data about which contexts/âcategories work best
Portfolio approach: Testing across multiple sectors (ticketing, consumer goods, professional services) diversifies risk while identifying where advantages are strongest
A few well-designed experiments deploying $5-10M could demonstrate whether advantages actually materialize in practice, quantify them precisely, and build the proof-of-concept that unlocks major philanthropic capital. Perhaps most importantly, the information value from rigorous experimentation could exceed any direct financial returnsâproving the degree to which PFG advantages are real would inform how billions in philanthropic capital get deployed.
[epistemic status: tentative, as I did not pay attention very well in my one-credit accounting class ~20 years ago]
Regarding your summary of the evidence, Iâm not sure how much weight to give the lived experiences of PfG /â PfG-adjacent companies. I pulled data for two of them, and I didnât see evidence of large improvements in margins relative to what I would expect from comparable profit-for-yacht businesses. Although presumably businesses could improve, these are also among the current best-in-class PfG companiesâand survivorship bias means that weâre not likely to analyze attempts that didnât work out well (or at all).
Thankyouâs financials are difficult to discernâmost numbers of interest are redacted in the report I pulled from the Australian charity regulator. A 2019 news report reflects donations of about $700K AUD (about half of its profit) on revenues of about $31MM. I confess that I donât know a whole lot about the âfast-moving consumer goodsâ category . . . but profits equal to about 4.5% and donate-able profits of about half that doesnât immediately strike me as having a massive advantage to similarly situated private-profit competitors. I did not see sales numbers for the Good Store, so donât have any comparison to make there.
To check another PFG company: Newmanâs Own was reported in 2017 to have donated close to $30M a year on sales of over $600M/âyear, so ~5%. A glance at KraftHeinzâs balance sheetâobviously they sell much more than salad dressing! -- suggests net income after taxes of about 10% of net sales (p. 60 of this link). Although donate-able profits and net income after taxes arenât the same thing, the numbers here donât give me the impression that Newmanâs Ownâwhich has been around for decadesâis crushing it compared to its competitors in the field. (Also I think one should consider what Newmanâs Own would look like without the free strong endorsement by Paul Newman. I think failure to make that adjustment would oversell PfGâs contribution to the enterpriseâs success.)
To be sure, KraftHeinzâs numbers reflect the advantage of its size. But the large companies that currently lead in the market come to the table with that advantage, and their access to capital would be much better even if all of EA (or even all of US philanthropy) became sold on PfG. They can (and presumably would) use those advantages in an attempt to drive off any PfG firm they deemed to be too threatening. So comparing PfG margins to the margins of industry-leading megafirms, rather than similarly-sized and capitalized profit-for-yacht firms, seems appropriate here.
Thanks, Jason â this is exactly the kind of scrutiny I think the idea needs.
On your core point: I basically agree with your descriptive read. Looking at Thankyouâs ~4â5% donate-able margin or Newmanâs ~5% donations on ~5% net margins does not scream âthese businesses are crushing the for-profit competition.â When I talk about large profit uplifts, Iâm not claiming we already see that in their published numbers; Iâm saying the mechanism (thin margins + modest stakeholder advantages) could plausibly generate big differences if we ever set this up deliberately and at scale. What we actually have today are a handful of pioneers operating under lousy conditions: low category awareness, no shared certification, and a chronic capital misfit (too âweirdâ for normal investors, too âbusinessyâ for most philanthropy). In that world, youâd expect âsurvive and sometimes do well,â not âobvious margin dominance.â
I also think youâre right to flag survivorship and the Paul Newman effect. Newmanâs Own probably got a brand tailwind few founders can replicate, and we donât have good public data on the PFG attempts that fizzled. Thatâs partly why the article opens by saying âthe basic math is compelling, what we lack is rigorous measurement.â Iâm using Thankyou/âNewmanâs as existence proofs (âthis can work at allâ), not as clean evidence that the multiplier is already realized in the wild.
On the Kraft question and capital: I donât think the story has to be âsmall PFG beats the global leader on day one.â The more realistic path I have in mind is stepwise:
First, PFG companies grow with philanthropic and mission-aligned capital in niches where capital requirements are tractable and stakeholder preference is strong (ticketing, insurance distribution, hated-fee services, values-expressive categories, etc.). At that stage, the relevant comparison really is similarly sized âprofit-for-yachtâ firms, not KraftHeinz.
Then, if they show normal or better cash-flow performance, they can access ordinary credit markets. Banks and lenders care about coverage ratios and default risk, not whether residual profits go to a foundation or to a family office. A PFG firm with solid EBITDA and a boring business model can still borrow to expand, even if 100% of distributable profits ultimately go to charity.
Only much later do we get to the level where youâre buying or competing head-to-head with a Kraft-scale incumbent. At that point, youâd likely be using a mix of philanthropic equity, retained earnings, and conventional debt â not trying to fund a $50B play entirely out of grants.
So Iâm not claiming âPFG firms are already out-earning Kraftâ or that we have tidy margin graphs to prove a large edge. Iâm claiming: (a) we have decent evidence that stakeholder preferences exist at parity and can matter; (b) the margin arithmetic makes it at least plausible that, in the right contexts, this could translate into big differences in distributable profits; and (c) given that, itâs rational for philanthropists to run some careful, sector-specific experiments rather than either assuming PFG canât compete or assuming it already does. If those trials show no advantage once you control for capital and sector, Iâll happily update. Right now, the main thing Iâm arguing against is staying forever in exactly the âanecdata vs intuitionâ uncertainty youâre highlighting.