Good Things Wisely: Charitable and social entrepreneurship from the perspective of “effective altruism”.

Konstantin Dzhimbinov, PhD Finance

Senior Partner of Investment banking advisory firm RB Partners

I am sure that most people reading this article, in one way or another, have participated in various charitable and philanthropic projects at least once in their lives. The desire to do something good and useful for other people and the environment is a most important and unique feature of human nature.

I would like to say well in advance that I not only respect all people involved in charity, but I myself have been participating in many similar projects for more than fifteen years, which causes me to feel moved to write this article.

At the same time, I would like to note that in contemporary society, a firm perception has taken root that ‘charity’, ‘philanthropy’, is only done ‘wholeheartedly’, that is, only when people trust each other. We see that in business, everything is tailored to maximize profit, and such important tools as calculating economic efficiency, market analysis, personnel motivation techniques, the return on investments, and so on, are essential.

In my opinion, there is a significant problem behind all of this. Most people do not consider charitable projects in terms of their efficiency, and that is why the tasks they are trying to solve have not been efficiently solved for many years.

Effective Altruism

It is gratifying that this issue of efficiency has been recently gaining more and more understanding among organizations and with people professionally engaged in charitable projects. Only a few years ago was the term ‘effective altruism’ introduced. Followers of this philosophy have striven and continue to strive to take into account all possible causes and opportunities to increase their efficiency in order to choose such solutions that will have the greatest positive impact on solving specific world social problems they wish to address.

Whenever possible, effective altruists also try to select those charitable projects that will get the most value per unit of money spent.

The principles of effective altruism advise you to provide aid in such areas where your help will be most beneficial. For example, if you are a professional in finance, then it is better not be a volunteer distributing food to homeless people at train stations, but to help more effectively in organizing fundraising for the implementation of these projects. In this case, your efficiency will be thousands of times higher than if you were to personally cook and distribute food to the homeless on a daily basis.

As many probably know, non-profit organizations such as GiveWell have recently emerged to assess the effectiveness of charities and focus on effective altruism. These organizations take into account the effectiveness of their chosen programs by comparing the extent to which the desired result is created via the activities of that charitable organization. Effectiveness is measured in the number of lives saved, people recovered, their improved quality of life, etc. against the amount of donated money.

The non-profit organization GiveWell tries to find the most effective charitable projects, analyzes their status and prospects, and compiles a list of the best charitable organizations by these four parameters:

· any evidence that the charitable activity is beneficial;

· cost-effectiveness;

· transparency;

· scalability, i.e. the extent to which the organization is able to make use of more money.

Social Entrepreneurship

Considering the solution of social problems from the perspective of effective altruism, we can objectively approach the analysis of such an important concept as social entrepreneurship, which, according to many experts, brings the solution of these problems to a more effective and systematic level.

If it was not acceptable earlier to associate earning money with altruism, or that ‘you can do good only for free, or that you can do business only for your own benefit’, we see that these two concepts are beginning to converge today. As a result, two goals are achieved: they both benefit society and the income generation. At the same time, which is especially important, this is not just occurring on a one-time basis, but on an ongoing basis.

The experience of many countries shows that it is possible and even necessary to make money on social projects. An example is Genesys Works, an educational program for children from socially disadvantaged families who are taught technological skills, after which they get a job in leading IT corporations that act as project partners and pay for trained qualified personnel. This program started in 2002 with ten students, but today, more than three thousand people are involved in it with the support of over 300 companies. It has long been a profitable and reliable business based on a kind act.

Unfortunately, such projects are still few in number. There are two key problems faced by most social entrepreneurs: the lack of qualified personnel and the lack of funds. It seems to me they are closely related. To attract big money, you need professionals, and to attract professionals, you need money.

Education and knowledge for social enterpreneurs

Unlike business projects, some social entrepreneurs lack continuing education and practical knowledge. If such entrepreneurs could be motivated to continue to train themselves in areas of strategic planning, marketing, building business processes, analyzing business performance and fundraising skills, upgrading their skills would enable them to multiply their efficiency.

It is gratifying to note that foundations, accelerators and other impact investing organizations have already begun to work in some countries over the past few years, providing not only monetary grants, but they have also upgraded professional knowledge, as well as other support for social entrepreneurs.

I am sure that if many wealthy people over the world were to see that their money was not just distributed but began to work effectively and transparently on a permanent basis, solving red hot social problems, and at the same time bringing at least a small profit, then the financing of such projects can increase many times over.

Of course, only a few charitable organizations and social enterprises can afford to employ highly qualified managers, financial experts, lawyers, marketing consultants and other professionals. Certainly, with a company’s annual budget of, for example, one hundred thousand dollars, it would be impossible to hire such personnel. But it should be understood that these professionals can attract hundreds of times more funds for charitable and social projects, as well as creating and managing more of the company’s business processes, ensuring the satisfaction of both investors and sponsors.

Outsourcing highly qualified Specialists and Targeted Assistance

In this regard, it is worth considering the possibility of outsourcing highly qualified specialists for a certain period. There are many well-known legal, marketing, audit and investment firms on the market that also want to help solve acute social problems. Many of them are ready to offer such services at a minimum symbolic price, by providing their specialists to assist charitable organizations or social entrepreneurs for a certain period.

For example, I personally know the story of when one of the Big Four companies audited a large charitable project for symbolic consideration and provided an independent audit opinion, which was a condition required for the investment of significant funds by a major sponsor.

For all people and organizations involved in such projects, it is very important to understand that targeted assistance to those who find themselves in a difficult situation today is very valuable. But it is much more important to eliminate, or at first to significantly reduce, the reasons of their difficult situations.

And this, in turn, can be done only if there is a highly qualified team of like-minded people who see the whole picture and know what and how to do it. The desire to do something good and useful for other people and the environment is a most important and unique feature of human nature. A huge number of people sincerely want to do good things, but in a way that is wise, transparent and effective.