When was the last time you donated money to charity? If you are like the average person, it has been a while. There is good news though, it isn’t entirely your fault.

Charities are an outdated and ineffective model in today’s world, and not for the reasons you may think. It isn’t the bureaucracy, it isn’t the overhead costs… it is the public perception.

The way we humans view charities is completely broken. Let me explain.

The double standard

Charities and nonprofits suffer from incredible biases, making them ineffective. When you (or I) donate money, we want those funds to be used serving the people/cause. We don’t want our hard-earned dollars covering organizational expenses. We want to feed kids in Africa, save the polar bears, fight the AIDs epidemic etc…

We often think of ourselves as rational creatures. This could not be further from the truth — a fact that is readily apparent when we contrast the public perception/beliefs about for-profit and not-for-profit entities.

It is taken for granted that corporates care only about bottom line numbers. Rules are broken, limits are pushed, consciences are clouded all in pursuit of profit. This is the game Wall Street plays and by and large, we accept it. That is the way the world works.

“My shareholders expect me to make the most profit. That’s the ugly, dirty truth” — Martin Shkreli, Former hedge fund manager, convicted felon

This is the complete antithesis of our view on charity. Whereas companies MUST make money, nonprofits MUST actively avoid appearing to do so. Anything not done to directly impact the cause is heresy, punishable by public damnation and decreased donations.

Just do a google search. Lists of the most efficient and inefficient nonprofits appear everywhere. It seems efficiency is everything… it isn’t.

The efficiency error

Efficiency is the wrong metric by which to measure good. This should be inherently obvious but as we increase scale, our basic assumptions backfire.

An example:

Ever bought anything in bulk? The price per unit decreases as you buy more — a small example of economies of scale. And as the scale grows, so do the savings. Hence why $5 might buy you a burger and fries for a homeless guy but donating just $1 to the Atlanta Food Bank can provide four meals for someone in need. A single dollar gets multiplied 9x due to their efficiencies, infrastructure and partnerships.

This is the problem with traditional views on charity. We only donate to the charities with the lowest possible overhead. The higher the administrative costs, the more we avoid (and often despise) the organizations in question — they feel corrupt.

But statistics such as these mean nothing. Results are what matter most and yet we forget this when it comes to charity/nonprofit work.

There is an incredibly articulate Ted Talk on the topic, I recommend watching before you continue.

The question

Is it time to kill the word charity once and for all? The expectations associated with nonprofits create stigmas that stifle progress. And to be honest, charities are in some sense completely broken. The need to continually raise funds handicaps the organization from their true mission.

Instead consider the alternative, a benefit corporation or business for good. Aligning economic incentives with social impact is the challenge of the 21st century. Humanity has many problems facing it and little to no economic incentives to solve them.

As a species, how do we tackle large societal problems like climate change, starvation, lack of clean water, fake news, political polarization and the many many challenges of our day?

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Aligning incentives

As we become more aware of our human flaws and the extremization inherent in digital advertising and social media, it becomes increasingly obvious we need alternatives. Unfortunately, the alternatives aren’t easy (more on why below).

For instance, these issues are far less prevalent in China than in the West. This is economic incentives 101. China media companies monetize primarily via services or subscriptions, not ads. They are not tied to attention or clicks. Consumers pay for the value they receive, rather than being the product for sale.

The trouble is, Americans expect everything to be free. And unlearning social norms takes time, money and incentives.

Plus it takes innovators…

Two interesting experiments

There are three business models that could possibly replace advertising: donations, subscriptions or blockchain-based usage systems.

As blockchain is relatively new and as yet unproven for media/content/entertainment (really for anything other than speculation and money transfer), I would like to focus on donations and subscriptions.

Two of the best podcasts I listen to are Waking Up with @Sam Harris and Exponent with Ben Thompson and James Allworth. Both are extremely high quality and experts in their fields and both chose different ways to monetize — yet both are successful.

Donation-based businesses

Notice how the word charity and nonprofit are curiously absent. Theoretically, these could be one in the same, but placing the focus on making money rather than on charity creates a situation where listeners feel perfectly comfortable “donating,” ie paying, for the content they consume.

And should Sam Harris make millions off his podcast, every listener is 100% okay with it.

That’s the difference perception can make. As of March 24th, 2018, Sam Harris’ Patreon has 8,786 backers — regular folks who felt inclined to “donate” to the cause, ie the business of being a creator. And these are by no means the only individuals supporting Harris. He actively encourages listeners to donate to the show (any amount) via his website (not Patreon), which sets listeners up on a recurring payment.

Based on comparable Patreon ranked creators (Harris is #10, #131 overall in iTunes), the Waking Up podcast probably brings in $30–40k/mo via Patreon (likely double if you consider donations via samharris.org)

But while a donations based business can be uncomfortable, he regularly says something to the effect of:

“If you want to support what I’m doing here, building a business/community without advertising to have interesting conversations in a completely independent way, please consider donating on my site — even a cup of coffee counts. But if you have to think whether you can afford an extra Starbucks each month, please do not donate. I want to make this accessible for everyone and let those most able and willing to continue to support me.”

NOTE: According to Harris, approximately ⅓ of 1% of listeners support the show. If we assume ½ of his support comes via Patreon and ½ via samharris.org, that means roughly 5.2M unique individuals have listened to his podcast at one point or another.

This model which Patreon somewhat pioneered/popularized is gaining steam with independent content creators. Those questioning the sustainability of a model like this need only look to the list of the top 50 Patreon creators (by support) — where 72% earn more than $20,000 per month and at least one is breaking $1.2M/yr.

That said, the lone creator model is yet to be truly tried for wide-scale content creation. While Wikipedia has succeeded with open source information and individual donations, it is not yet proven whether large media companies (or platforms) could succeed in this way.

Subscription businesses

Ben Thompson, on the other hand, takes a different approach. While the Exponent podcast has ads, Stratechery, his main site is 100% subscription-driven. Readers pay $100/yr (or $10/mo) for access to the daily updates.

How do you get people to pay? Quality.

Ben is arguably the top tech analyst today, providing more insight into the tech industry than a dozen other newsletters combined. This is my goal as a writer and thought leader, to be “the guy” — I have a ways to go.

“Ben Thompson’s Stratechery is usually the smartest thing I read all day, and the first thing I open in my inbox each morning.” — Mike Arrington, Partner CrunchFund, Founder TechCrunch and Daily Update subscriber

And while there is some free content on Ben’s site, the bulk is insider-only.

Guess what, it is working. As of February 2nd, 2015, Ben’s one man blog was bringing in $200k/yr (Source). I can only assume it has drastically increased since. Content and quality sell, again showing that subscriptions can be a viable business model.

Unlike the New York Times and many such sites which have optional paywalls, Stratechery employs uses insider-only exclusive content to motivate monetization.

This works for Thompson’s tech insights and analysis but could be devastating for a news organization. When the people NEED to know, the people need to know. As such it makes sense for news sites and “public good” companies to focus on a donation-based model (as many do). Increasing “donations” isn’t the same as increasing eyeballs however — it requires a complete overhaul of KPIs (key performance indicators) and compensation — shaking the modern media to its core.

And so, a question worth contemplating is what the future holds? Are we headed towards a world of microbloggers and subscriptions or donations or will the old world model of staffed journalists/writers succeed without robbing the world of its morals (ie advertising and clickbait)? Only time will tell.

Closing thoughts

This has been a long-winded and roundabout examination of the broken business models of today. Despite the unexpected twists and turns, however, I hope this article leaves you wanting more and questioning some of the basic assumptions of the business world. Failure to align business model with vision creates unnecessary (and often impossibly strong) friction — ever tried to drag a donkey?

Why are things the way they are? What does it mean for your business (and/or nonprofit)? Where do we go from here?

The world can go two very different ways…

“The best way to predict the future is to invent it.” — Theodore Hook

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