GiveDirectly is a non-profit that uses a mobile payment platform to give money directly to the worlds poorest people. They recently spun out a for-profit software company called The Segovia, and claim to have a sufficiently large head start in the space of providing direct cash transfers to the unbanked in emerging markets. A World Economic Forum report estimates that government cash transfers to the unbanked in emerging markets are nearing $550 billion.
Are successful start-ups initially synonymous with non-profits?
Many start-ups seem to make something people want, without worrying about the money. This makes sense from a design perspective: if you’re small, your only advantage is charming your users. Once you get larger, and people are hooked, you don’t have to worry as much about being good. Its easier (cheaper) to not have to incessantly please your users. So as a company grows, it shifts towards profit incentives. Some start-ups pursue this progression as a strategic investment: their short lived benevolence is meant only to help get upwind of enormous revenues by focusing on maximizing valuable growth. From this view, a company’s youth is inversely proportional to the degree that they exploit users. The idea to “not be evil” is packed with longer-run financial incentives.
Some start-ups though try to sustain their prioritization of their social purpose; as they grow, they don’t focus on not being evil, but on being good. This can exist in the form of the above example, where a non-profit (GiveDirectly) decouples from their for-profit application (The Segovia). This can also exist in the form of a BCorp: a financial venture with a social purpose.
Non-profit vs B-Corp
When speaking generally about the comparison of non-profits to B-Corps, financial incentives are the central theme. There are two sides to this. The first side is that non-profit employees constrain themselves to only investing further into the company (for example, no equity in a non-profit start-up). This focuses the financial incentives of the group towards the growth of the company. However, on the other side of the coin, capitalism is successful for a reason. Individual financial incentives (such as equity in a start-up) are very large motivators.
An additional theme is related to two different markets: what is financially viable (or even profitable), and what is needed. B-Corps are the conjunction of these two markets, and thus won’t have the ability to meet certain needs.
However, Non-profits, B-Corps, and ‘benevolent’ start-ups have a lot of functional benefits in common…
Paul Graham points out three productive effects of value alignment in a start-up: (1) a more durable morale, (2) others want to help you more, and (3) you can create an authentic compass to steer your company. I think these benefits are hopeful because the alternative is that success only comes from the competitive advantages gained by undercutting values.
Morale alone is so important in start-up culture that it is almost enough to determine success. This is because low morale causes you to stop working, and therefor die.
However, if you feel like you are really helping people, you’ll keep working even when your start-up seems doomed.
“If you’re really committed and your startup is cheap to run, you become very hard to kill. And practically all startups, even the most successful, come close to death at some point. So if doing good for people gives you a sense of mission that makes you harder to kill, that alone more than compensates for whatever you lose by not choosing a more selfish project.”
Being good makes others want to help you: investors, other companies, but most importantly: future employees.
“I think everyone knows now that good hackers are much better than mediocre ones. If you can attract the best hackers to work for you, as Google has, you have a big advantage. And the very best hackers tend to be idealistic. They’re not desperate for a job. They can work wherever they want. So most want to work on things that will make the world better.”
Being good helps you make decisions because it guides you towards unconditionally doing whatever’s best for your users. “You can hold onto this like a rope in a hurricane, and it will save you if anything can.”
“Being good is a particularly useful strategy for making decisions in complex situations because it’s stateless. It’s like telling the truth. The trouble with lying is that you have to remember everything you’ve said in the past to make sure you don’t contradict yourself. If you tell the truth you don’t have to remember anything, and that’s a really useful property in domains where things happen fast.”
Its a powerful notion that design can save the world through a viable business strategy.
“The problem with most trustafarians is that they either have a bogus political agenda or are feebly executed. Most explicitly, benevolent projects don’t hold themselves sufficiently accountable. They act as if having good intentions were enough to guarantee good effects.”
All quotes from “be good” by Paul Graham