[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, I’m not sure how much weight to give the lived experiences of PfG / PfG-adjacent companies. I pulled data for two of them, and I didn’t 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 companies—and survivorship bias means that we’re not likely to analyze attempts that didn’t work out well (or at all).
Thankyou’s financials are difficult to discern—most 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 don’t know a whole lot about the “fast-moving consumer goods” category . . . but profits equal to about 4.5% and donate-able profits of about half that doesn’t 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 don’t have any comparison to make there.
To check another PFG company: Newman’s Own was reported in 2017 to have donated close to $30M a year on sales of over $600M/year, so ~5%. A glance at KraftHeinz’s balance sheet—obviously 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 aren’t the same thing, the numbers here don’t give me the impression that Newman’s Own—which has been around for decades—is crushing it compared to its competitors in the field. (Also I think one should consider what Newman’s Own would look like without the free strong endorsement by Paul Newman. I think failure to make that adjustment would oversell PfG’s contribution to the enterprise’s success.)
To be sure, KraftHeinz’s 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 — 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 Thankyou’s ~4–5% donate-able margin or Newman’s ~5% donations on ~5% net margins does not scream “these businesses are crushing the for-profit competition.” When I talk about large profit uplifts, I’m not claiming we already see that in their published numbers; I’m 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 “weird” for normal investors, too “businessy” for most philanthropy). In that world, you’d expect “survive and sometimes do well,” not “obvious margin dominance.”
I also think you’re right to flag survivorship and the Paul Newman effect. Newman’s Own probably got a brand tailwind few founders can replicate, and we don’t have good public data on the PFG attempts that fizzled. That’s partly why the article opens by saying “the basic math is compelling, what we lack is rigorous measurement.” I’m using Thankyou/Newman’s as existence proofs (“this can work at all”), not as clean evidence that the multiplier is already realized in the wild.
On the Kraft question and capital: I don’t think the story has to be “small PFG beats the global leader on day one.” 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 “profit-for-yacht” 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 you’re buying or competing head-to-head with a Kraft-scale incumbent. At that point, you’d likely be using a mix of philanthropic equity, retained earnings, and conventional debt — not trying to fund a $50B play entirely out of grants.
So I’m not claiming “PFG firms are already out-earning Kraft” or that we have tidy margin graphs to prove a large edge. I’m 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, it’s rational for philanthropists to run some careful, sector-specific experiments rather than either assuming PFG can’t compete or assuming it already does. If those trials show no advantage once you control for capital and sector, I’ll happily update. Right now, the main thing I’m arguing against is staying forever in exactly the “anecdata vs intuition” uncertainty you’re highlighting.
[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, I’m not sure how much weight to give the lived experiences of PfG / PfG-adjacent companies. I pulled data for two of them, and I didn’t 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 companies—and survivorship bias means that we’re not likely to analyze attempts that didn’t work out well (or at all).
Thankyou’s financials are difficult to discern—most 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 don’t know a whole lot about the “fast-moving consumer goods” category . . . but profits equal to about 4.5% and donate-able profits of about half that doesn’t 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 don’t have any comparison to make there.
To check another PFG company: Newman’s Own was reported in 2017 to have donated close to $30M a year on sales of over $600M/year, so ~5%. A glance at KraftHeinz’s balance sheet—obviously 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 aren’t the same thing, the numbers here don’t give me the impression that Newman’s Own—which has been around for decades—is crushing it compared to its competitors in the field. (Also I think one should consider what Newman’s Own would look like without the free strong endorsement by Paul Newman. I think failure to make that adjustment would oversell PfG’s contribution to the enterprise’s success.)
To be sure, KraftHeinz’s 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 — 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 Thankyou’s ~4–5% donate-able margin or Newman’s ~5% donations on ~5% net margins does not scream “these businesses are crushing the for-profit competition.” When I talk about large profit uplifts, I’m not claiming we already see that in their published numbers; I’m 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 “weird” for normal investors, too “businessy” for most philanthropy). In that world, you’d expect “survive and sometimes do well,” not “obvious margin dominance.”
I also think you’re right to flag survivorship and the Paul Newman effect. Newman’s Own probably got a brand tailwind few founders can replicate, and we don’t have good public data on the PFG attempts that fizzled. That’s partly why the article opens by saying “the basic math is compelling, what we lack is rigorous measurement.” I’m using Thankyou/Newman’s as existence proofs (“this can work at all”), not as clean evidence that the multiplier is already realized in the wild.
On the Kraft question and capital: I don’t think the story has to be “small PFG beats the global leader on day one.” 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 “profit-for-yacht” 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 you’re buying or competing head-to-head with a Kraft-scale incumbent. At that point, you’d likely be using a mix of philanthropic equity, retained earnings, and conventional debt — not trying to fund a $50B play entirely out of grants.
So I’m not claiming “PFG firms are already out-earning Kraft” or that we have tidy margin graphs to prove a large edge. I’m 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, it’s rational for philanthropists to run some careful, sector-specific experiments rather than either assuming PFG can’t compete or assuming it already does. If those trials show no advantage once you control for capital and sector, I’ll happily update. Right now, the main thing I’m arguing against is staying forever in exactly the “anecdata vs intuition” uncertainty you’re highlighting.