What the first lessons you learn when starting a new business?
Never jump in blind.
Whether it’s a business idea, and investment opportunity, or a strategic decision: You wouldn’t go all in simply because it sounds right, or feels right. Right?
You could have an idea that you hope will fill a gap in the market, or you may be asked to invest in a start-up with a awesome founding story, but you wouldn't go all in based on gut feeling alone. I'll bet your first instict would be to look for data to back up your decision.
Smart investors = Smart products
A charitable donation actually isn't all that different from an investment. While you’re not looking for a financial return, the basic principles transfer actually quite well: Be diligent and self-reflective in thinking about how your contributions can have an impact. Support your decision with data.
This isn’t just important in that it affects the impact of your individual donation. It contributes to a larger ecosystem of best practices.
Charities allocate a significant portion of their budget to securing future income, competing for funding with other organisations in the same space. This means donors are in a privileged position to influence the way charities operate.
Whichever qualities donors ask for, charities will compete on. If donors ask for glossy brochures, charities will compete in that area, and spend their budget accordingly. If donors ask for impact assessment, charities will allocate resources there instead.
The difference between charities and startups
Look for charities that are dynamic.
You know how start-ups often spend years trialling and adjusting their product searching for proof of market fit? One of the successful startups most distinctive qualities is the ability to gather feedback, adjust, re-iterate, and go back to gathering feedback.
Why should philanthropic work be all that different?
Unfortunately, the charity sector doesn't yet have quite the same benchmark as the startup world when it comes to truthfully evaluating performance and learning from mistakes.
Again, donors have outsized influence here. When you support organisations that are committed to impact evaluation and willing to admit to and learn from their mistakes, you contribute to a growing movement of start-up like and effective charities.
Diversifying your philnthropy
Social problems are complex; everything from structural bias and data blindspot, to lack of resources in charities and charity evaluators, adds up to an undeniably limited knowledge base.
So while we promote being data-driven, we don't recommend equating volume of data to level of effectiveness: in order to truly understand a social problem and identify effective solutions, interpretation is key, and data should be approached with a critical eye.
For some donors, it's useful to approach philanthropy as a portfolio of investments. You'll want to be driven by evidence across the board, but might you also want a *diversified* portfolio.
When approaching an area with really extensive evidence available, impactful and low risk interventions are your best bet. In areas with more uncertainty, you may want to supplement low-risk investments with some proportion of high-risk, high-reward opportunities, for instance investing into research to identify future solutions.
Sound like a lot of work? It can be. That’s why we’re here.
We can help you with all the legwork of these assessments, so that you can make your decisions as effectively and confidently as possible.
To learn about how the Founders Pledge research team evaluates charities and identifies the most effective ones, have a look through our methodology page.
Originally published on 1 April 2017