Hi Lincoln and Ben, thanks for doing this! I would love to hear your perspective on the following topic:
Nonprofit entrepreneurship is a dominant career path within EA, with many people excited about the impact that it can achieve. Impact-focused for-profit entrepreneurship is rarely discussed or recommended by EA organizations, with a 2016 article about your startup being one of the only materials on this topic. I have also heard multiple people argue that for-profit entrepreneurship is an inherently less promising path than nonprofit entrepreneurship for various reasons.
What is your view on the value of for-profit entrepreneurship from an EA perspective? Do you believe this career path is undervalued by the EA community and its organizations today? If so, what do you believe people interested in for-profit entrepreneurship should do to found highly impactful organizations? Are there any specific opportunities you think are particularly interesting or exciting in this space?
From my perspective, for-profit entrepreneurship seems better than nonprofit entrepreneurship in terms of making an EA impact. The main reason is that the profit incentive gives you much broader access to capital, so it unlocks ideas that will only be impactful given enough money to get started. And I think there are a lot of ideas like this—it’s not hard to look at e.g. YC’s Requests for Startups and see obvious, huge-impact ideas that seem worth working on. (Linked from that page is another page about what YC looks for in a nonprofit, also a good read!)
I recommend that anyone wanting to start a company but not sure what to do, try looking at the Requests for Startups first and try to find something you have leverage on—but keep it small, your initial idea needs to start really “niche”, you won’t be able to solve a giant world problem from the get-go. Then read Paul Graham’s essays and Sam A’s startup playbook. Hopefully this literature will give you a better sense for whether entrepreneurship is for you. As you work on growing your business, don’t over-index on trying to make an EA impact early on—just focus on growth, like you would for any for-profit business. EA impact will come over time as you grow, and spending too much time worrying about the impact while you’re small is likely to be a distraction from growing as much as you can.
From my perspective, I wish more people would start software companies in Africa (presumably this is true for other places in the developing world). There’s a pretty wide appeal for lower-end tech optimized for consumers and businesses in these markets: low cost; Android-based; focused on mobile money.
(I also think nonprofit entrepreneurship is great in lots of ways, and in general I want to see people in EA putting energy behind all forms of innovation!)
All the above notwithstanding, it seems like it makes sense for EA orgs like 80000 hours not to spend much energy pushing people into for-profit entrepreneurship: there’s a model going around that the best entrepreneurs are driven enough that you don’t need to tell them to be an entrepreneur—it’s in their blood or something :). I am not myself too convinced this should be the blocker—I go around telling all my friends to start companies—but if that’s the working assumption, then they are probably acting correctly.
One final thought: If you rank EA ideas on a continuum from “produces no value” to “produces a ton of value,” it seems like the section of the continuum where nonprofit ideas are viable is quite small. Too low and your idea isn’t worth working on. But once you start producing lots of value for the world, stakeholders start to be willing to pay for the solution, and then you can start a for-profit company to do it. So from this perspective, the best EA nonprofit ideas are weird and non-central examples of value-producing ideas—they’re ideas that produce a lot of value but you can’t get anyone to pay for.
stakeholders start to be willing to pay for the solution
Under some ethical theories, the vast majority of stakeholders (nonhuman animals, future persons) are unable to pay in any meaningful sense. Are you more positive about nonprofit entrepreneurship for organizations that serve these stakeholders?
Fair question, and your comment elsewhere (about the narrow slice being the only slice that exists if the market is efficient) was enlightening.
However: my philosophy for startups is that I would nearly always take a different approach to solving these sorts of problems in the world. I would prefer to start Beyond Meat, and try to solve the nonhuman animals problem in an oblique way, instead of attacking it directly by starting a nonprofit. And I think a lot of entrepreneurs think like this as well: look at Elon Musk’s startup strategy—he tends to go for something which has a business/profitability angle from the first version, but with a big long-term mission (Tesla Roadster, early non-reusable SpaceX rockets). And as Ben writes elsewhere, I think the startup market is highly and obviously inefficient, so efficient market considerations are not very relevant.
Hmm. This argument seems like it only works if there are no market failures (i.e. ideas where it’s possible to capture a decent fraction of the value created), and it seems like most nonprofits address some sort of market failure? (e.g. “people do not understand the benefits of vitamin-fortified food,” “vaccination has strong positive externalities”...)
Yeah, that seems right to me, and is a good model that predicts the existing nonprofit startup ideas! My point is that it seems like a very narrow slice of all value-producing ideas.
To the extent that markets are efficient, that narrow slice is the only slice available (since the ways of creating value for which you can easily be paid have already been exploited).
(This is one reason why I personally am usually more excited about nonprofit startups: the low hanging fruit is usually picked in the for-profit world, but there’s a lot more remaining in the nonprofit space.)
Agree that if you put a lot of weight on the efficient market hypothesis, then starting a company looks bad and probably isn’t worth it. Personally, I don’t think markets are efficient enough for this to be a dominant consideration (see e.g. my response here for partial justification; not sure it’s possible to give a convincing full justification since it seems like a pretty deep worldview divergence between us and the more modest-epistemology-focused wing of the EA movement).
Can you elaborate on the “various reasons” that people argue for-profit entrepreneurship is less promising than nonprofit entrepreneurship or provide any pointers on reading material? I haven’t run across these arguments.
To clarify, I don’t have a strong opinion on this comparison myself, and would love to hear more points of view on this. Sadly I’m not aware of any reading materials on this topic, but have heard the following arguments made in one on one conversations:
For-profit entrepreneurship has built-in incentives that already cause many entrepreneurs to try and implement any promising opportunities. As a result, we’d expect it to be drastically less neglected, or at least drastically less neglected relative to nonprofit opportunities that are similar in how promising they are. This can affect both our estimate of how much we’d expect to find good opportunities still lying around, and also how we’d estimate our counterfactual impact (as if we hadn’t implemented a profitable intervention, there’s higher likelihood someone else would).
The specific cause areas that the EA movement currently sees as the most promising—including global poverty and health, animal welfare, and the longterm future—all serve recipients who (to different degrees) are incapable of significantly funding such work. This could be seen as directly related to the first point, but even if the first point is false, one could still argue that it just happens to be the case that the most promising cause areas are not a good fit for for-profit entrepreneurship. I think the case here applies more strongly to animals and future people (who clearly can’t pay for services), but to a lesser extent can also apply to the extremely poor who can pay only very little.
For-profit organizations may produce incentives that make it unlikely to make the decisions that will end up producing enormous impact (in the EA sense of that term). One variation of this argument is that the revenue/growth needs tend to always come first (I can’t do any good if I don’t exist), which means there ends up being little freedom to optimize for impact. Another variation argues that even if one could optimize for impact, these incentives alongside the environment can cause significant value drift, and many people following this path will end up not doing so.
Finally, I’ve also heard from several people the claim that today EA has an immense amount of funding, and if you’re a competent person founding a charity that works according to EA principles it is incredibly easy to get non-trivial amounts of funding. This is not necessarily an argument for nonprofits, but this potentially somewhat mitigates what is perhaps the strongest argument against nonprofits—access to capital. Somewhat like point 2, this is a more circumstantial argument than an inherent.
Finally, the fact that I listed arguments in favor of nonprofit entrepreneurship over for-profit entrepreneurship may give the impression that this is my opinion, so I want to clarify again that it is not and I am highly uncertain about this topic.
Cool! With the understanding that these aren’t your opinions, I’m going to engage with them anyway bc I think they’re interesting. I think for all four of these I agree that they directionally push toward for-profits being less good, but that people overestimate the magnitude of the effect.
For-profit entrepreneurship has built-in incentives that already cause many entrepreneurs to try and implement any promising opportunities. As a result, we’d expect it to be drastically less neglected, or at least drastically less neglected relative to nonprofit opportunities that are similar in how promising they are
Despite the built-in incentives, I think “which companies get built” is still pretty contingent and random based on which people try to do things. For instance, it’s been obvious that M-Pesa had an amazing business in Kenya since ~2012, but it still hasn’t had equally successful copycats, let alone people trying to improve it, in other countries. If the market were really efficient here I think something like Wave would be 4+ years further along in its trajectory.
The specific cause areas that the EA movement currently sees as the most promising—including global poverty and health, animal welfare, and the longterm future—all serve recipients who (to different degrees) are incapable of significantly funding such work
Similarly, this is directionally correct but easy to overweight—there are still for-profit companies working in all of these spaces that seem likely to have very large impacts (Wave, Impossible Foods, Beyond Meat, SpaceX, OpenAI...)
For-profit organizations may produce incentives that make it unlikely to make the decisions that will end up producing enormous impact (in the EA sense of that term).
This is definitely a risk, and something that we worry about at Wave. That said:
In many cases, revenue/growth and impact are highly correlated. In the examples I can think of where they aren’t, it mostly involves monopolies doing anticompetitive or user-hostile things.
In the monopoly case, many monopolies seem to have wide freedom of action and are still controlled by founders (e.g. Google, Facebook) and their decisions are often driven as much by internal dynamics as external incentives. Uncertain here, but it seems likely that if these companies thought more like EA’s they would produce more impact.
Finally, I’ve also heard from several people the claim that today EA has an immense amount of funding, and if you’re a competent person founding a charity that works according to EA principles it is incredibly easy to get non-trivial amounts of funding
I think “nontrivial” for a nonprofit is trivial for a successful for-profit :) Wave has raised tens of millions of dollars in equity and hundreds of millions in debt, and we’re likely to raise 10x+ more in success cases. We definitely could not have raised nearly this much as a nonprofit. Same with eg OpenAI which got $1b in nonprofit commitments but still had to become (capped) for-profit in order to grow.
Well Musk was the richest, who notably pulled out and then the money seems mostly not to have manifested. I haven’t seen a public breakdown of commitments those sorts of statements were based on.
Hi Lincoln and Ben, thanks for doing this! I would love to hear your perspective on the following topic:
Nonprofit entrepreneurship is a dominant career path within EA, with many people excited about the impact that it can achieve. Impact-focused for-profit entrepreneurship is rarely discussed or recommended by EA organizations, with a 2016 article about your startup being one of the only materials on this topic. I have also heard multiple people argue that for-profit entrepreneurship is an inherently less promising path than nonprofit entrepreneurship for various reasons.
What is your view on the value of for-profit entrepreneurship from an EA perspective? Do you believe this career path is undervalued by the EA community and its organizations today? If so, what do you believe people interested in for-profit entrepreneurship should do to found highly impactful organizations? Are there any specific opportunities you think are particularly interesting or exciting in this space?
Thanks in advance!
From my perspective, for-profit entrepreneurship seems better than nonprofit entrepreneurship in terms of making an EA impact. The main reason is that the profit incentive gives you much broader access to capital, so it unlocks ideas that will only be impactful given enough money to get started. And I think there are a lot of ideas like this—it’s not hard to look at e.g. YC’s Requests for Startups and see obvious, huge-impact ideas that seem worth working on. (Linked from that page is another page about what YC looks for in a nonprofit, also a good read!)
I recommend that anyone wanting to start a company but not sure what to do, try looking at the Requests for Startups first and try to find something you have leverage on—but keep it small, your initial idea needs to start really “niche”, you won’t be able to solve a giant world problem from the get-go. Then read Paul Graham’s essays and Sam A’s startup playbook. Hopefully this literature will give you a better sense for whether entrepreneurship is for you. As you work on growing your business, don’t over-index on trying to make an EA impact early on—just focus on growth, like you would for any for-profit business. EA impact will come over time as you grow, and spending too much time worrying about the impact while you’re small is likely to be a distraction from growing as much as you can.
From my perspective, I wish more people would start software companies in Africa (presumably this is true for other places in the developing world). There’s a pretty wide appeal for lower-end tech optimized for consumers and businesses in these markets: low cost; Android-based; focused on mobile money.
(I also think nonprofit entrepreneurship is great in lots of ways, and in general I want to see people in EA putting energy behind all forms of innovation!)
All the above notwithstanding, it seems like it makes sense for EA orgs like 80000 hours not to spend much energy pushing people into for-profit entrepreneurship: there’s a model going around that the best entrepreneurs are driven enough that you don’t need to tell them to be an entrepreneur—it’s in their blood or something :). I am not myself too convinced this should be the blocker—I go around telling all my friends to start companies—but if that’s the working assumption, then they are probably acting correctly.
One final thought: If you rank EA ideas on a continuum from “produces no value” to “produces a ton of value,” it seems like the section of the continuum where nonprofit ideas are viable is quite small. Too low and your idea isn’t worth working on. But once you start producing lots of value for the world, stakeholders start to be willing to pay for the solution, and then you can start a for-profit company to do it. So from this perspective, the best EA nonprofit ideas are weird and non-central examples of value-producing ideas—they’re ideas that produce a lot of value but you can’t get anyone to pay for.
Under some ethical theories, the vast majority of stakeholders (nonhuman animals, future persons) are unable to pay in any meaningful sense. Are you more positive about nonprofit entrepreneurship for organizations that serve these stakeholders?
Fair question, and your comment elsewhere (about the narrow slice being the only slice that exists if the market is efficient) was enlightening.
However: my philosophy for startups is that I would nearly always take a different approach to solving these sorts of problems in the world. I would prefer to start Beyond Meat, and try to solve the nonhuman animals problem in an oblique way, instead of attacking it directly by starting a nonprofit. And I think a lot of entrepreneurs think like this as well: look at Elon Musk’s startup strategy—he tends to go for something which has a business/profitability angle from the first version, but with a big long-term mission (Tesla Roadster, early non-reusable SpaceX rockets). And as Ben writes elsewhere, I think the startup market is highly and obviously inefficient, so efficient market considerations are not very relevant.
Thanks! Beyond Meat and SpaceX are great examples.
Hmm. This argument seems like it only works if there are no market failures (i.e. ideas where it’s possible to capture a decent fraction of the value created), and it seems like most nonprofits address some sort of market failure? (e.g. “people do not understand the benefits of vitamin-fortified food,” “vaccination has strong positive externalities”...)
Yeah, that seems right to me, and is a good model that predicts the existing nonprofit startup ideas! My point is that it seems like a very narrow slice of all value-producing ideas.
To the extent that markets are efficient, that narrow slice is the only slice available (since the ways of creating value for which you can easily be paid have already been exploited).
(This is one reason why I personally am usually more excited about nonprofit startups: the low hanging fruit is usually picked in the for-profit world, but there’s a lot more remaining in the nonprofit space.)
Agree that if you put a lot of weight on the efficient market hypothesis, then starting a company looks bad and probably isn’t worth it. Personally, I don’t think markets are efficient enough for this to be a dominant consideration (see e.g. my response here for partial justification; not sure it’s possible to give a convincing full justification since it seems like a pretty deep worldview divergence between us and the more modest-epistemology-focused wing of the EA movement).
That makes sense, thanks!
I agree with most of what Lincoln said and would also plug Why and how to start a for-profit company serving emerging markets as material on this, if you haven’t read it yet :)
Can you elaborate on the “various reasons” that people argue for-profit entrepreneurship is less promising than nonprofit entrepreneurship or provide any pointers on reading material? I haven’t run across these arguments.
Thank you both for your thoughtful answers.
To clarify, I don’t have a strong opinion on this comparison myself, and would love to hear more points of view on this. Sadly I’m not aware of any reading materials on this topic, but have heard the following arguments made in one on one conversations:
For-profit entrepreneurship has built-in incentives that already cause many entrepreneurs to try and implement any promising opportunities. As a result, we’d expect it to be drastically less neglected, or at least drastically less neglected relative to nonprofit opportunities that are similar in how promising they are. This can affect both our estimate of how much we’d expect to find good opportunities still lying around, and also how we’d estimate our counterfactual impact (as if we hadn’t implemented a profitable intervention, there’s higher likelihood someone else would).
The specific cause areas that the EA movement currently sees as the most promising—including global poverty and health, animal welfare, and the longterm future—all serve recipients who (to different degrees) are incapable of significantly funding such work. This could be seen as directly related to the first point, but even if the first point is false, one could still argue that it just happens to be the case that the most promising cause areas are not a good fit for for-profit entrepreneurship. I think the case here applies more strongly to animals and future people (who clearly can’t pay for services), but to a lesser extent can also apply to the extremely poor who can pay only very little.
For-profit organizations may produce incentives that make it unlikely to make the decisions that will end up producing enormous impact (in the EA sense of that term). One variation of this argument is that the revenue/growth needs tend to always come first (I can’t do any good if I don’t exist), which means there ends up being little freedom to optimize for impact. Another variation argues that even if one could optimize for impact, these incentives alongside the environment can cause significant value drift, and many people following this path will end up not doing so.
Finally, I’ve also heard from several people the claim that today EA has an immense amount of funding, and if you’re a competent person founding a charity that works according to EA principles it is incredibly easy to get non-trivial amounts of funding. This is not necessarily an argument for nonprofits, but this potentially somewhat mitigates what is perhaps the strongest argument against nonprofits—access to capital. Somewhat like point 2, this is a more circumstantial argument than an inherent.
Finally, the fact that I listed arguments in favor of nonprofit entrepreneurship over for-profit entrepreneurship may give the impression that this is my opinion, so I want to clarify again that it is not and I am highly uncertain about this topic.
Cool! With the understanding that these aren’t your opinions, I’m going to engage with them anyway bc I think they’re interesting. I think for all four of these I agree that they directionally push toward for-profits being less good, but that people overestimate the magnitude of the effect.
Despite the built-in incentives, I think “which companies get built” is still pretty contingent and random based on which people try to do things. For instance, it’s been obvious that M-Pesa had an amazing business in Kenya since ~2012, but it still hasn’t had equally successful copycats, let alone people trying to improve it, in other countries. If the market were really efficient here I think something like Wave would be 4+ years further along in its trajectory.
Similarly, this is directionally correct but easy to overweight—there are still for-profit companies working in all of these spaces that seem likely to have very large impacts (Wave, Impossible Foods, Beyond Meat, SpaceX, OpenAI...)
This is definitely a risk, and something that we worry about at Wave. That said:
In many cases, revenue/growth and impact are highly correlated. In the examples I can think of where they aren’t, it mostly involves monopolies doing anticompetitive or user-hostile things.
In the monopoly case, many monopolies seem to have wide freedom of action and are still controlled by founders (e.g. Google, Facebook) and their decisions are often driven as much by internal dynamics as external incentives. Uncertain here, but it seems likely that if these companies thought more like EA’s they would produce more impact.
I think “nontrivial” for a nonprofit is trivial for a successful for-profit :) Wave has raised tens of millions of dollars in equity and hundreds of millions in debt, and we’re likely to raise 10x+ more in success cases. We definitely could not have raised nearly this much as a nonprofit. Same with eg OpenAI which got $1b in nonprofit commitments but still had to become (capped) for-profit in order to grow.
If you look at OpenAI’s annual filings, it looks like the $1b did not materialize.
Which annual filings? Presumably the investment went to the for-profit component.
$1B commitment attributed to Musk early on is different from the later Microsoft investment. The former went away despite the media hoopla.
Was there a $1bn commitment attributed to Musk? The OpenAI wikipedia article says: “The organization was founded in San Francisco in 2015 by Sam Altman, Reid Hoffman, Jessica Livingston, Elon Musk, Ilya Sutskever, Peter Thiel and others,[8][1][9] who collectively pledged US$1 billion.”
Well Musk was the richest, who notably pulled out and then the money seems mostly not to have manifested. I haven’t seen a public breakdown of commitments those sorts of statements were based on.
Semafor reporting confirms your view. They say Musk promised $1bn and gave $100mn before pulling out.