Do any charities know what they’re doing?
We think so. In fact, we’re banking on it. GiveWell’s mission is to help steer capital and foster dialogue, and that’s it. We plan to give grants the same way we’ve given our personal donations: look for charities that already have proven, effective, scalable ways of helping people – charities that already know what they’re doing – and give them money. No consulting, no expertise, no program development, and no restrictions. Money.
For-profit sector readers are probably bored right now and wondering whether I’m going to say anything, but I bet the same isn’t true of nonprofit sector readers. From everything I’ve seen, our model of grantmaking is the exception, not the rule. Foundations don’t fund charities, they fund projects; they design programs and agendas, then look for organizations that fit into them; they design project-specific budgets, then make sure each of “their” dollars goes where it’s supposed to.
Part of it may be that foundations consider themselves experts in their fields, and they think they know more than the charities they fund. And they might be right … but that isn’t how we think of ourselves. We have a lot of options, so we demand a ton of information from charities, and we demand that they engage our questions and suggestions intelligently – but in the end, they know way more about their work than we do, and they should be the ones to decide how they do it. The donor’s role is to fund it.
It seems clear to me that this is would be a disastrous strategy if we didn’t pick our charities carefully. Hey – that’s exactly how it works today, with the lion’s share of charitable capital coming from people who have no access to good information (though at least they can get irrelevant financial data and nonsensical metrics).
But imagine if we actually put in the due diligence, and find the charities that already have smart, experienced, passionate people with proven, effective, scalable methods for helping people. Imagine if we find the organizations that have it all except money. At that point, it’s moot how much of our dollar is going to “overhead,” or anything else – sometimes overhead is necessary and sometimes it isn’t, and good people will make those decisions better than we can. At that point, it’s unnecessary for us to “keep the charities in line,” because they’ll keep themselves in line or lose next time around. Accountability, transparency, and competition are harsher taskmasters than any contract can be.
When we find what we’re looking for, we’re looking at an alley-oop … all we have to do is throw them the ball. That’s going to be easier and more effective than doing the driving ourselves.
Comments
What about start-up charities, which, like you, might have a great idea and have done a lot of research but are simply lacking funds for the moment? Are you going to hold off until you can evaluate how efficiently they spend the little funding they do get? Or are you going to take a chance based on the information they provide and hope that they are actually competent to implement their plan, knowing that your donation will do the most good at that point (although the good, in this case, would be for the charity)?
Startups have other avenues for raising capital, including both foundations and personal connections (and those are what we’re trying to take advantage of for our own funding as well).
We won’t be the only funder in the world, and we can’t and won’t do it all, especially in our first year. We’re focusing on adding value in a way that no one else is: finding what’s proven, effective, and scalable, and supporting it with total openness.
Hi Holden,
I’m not quite sure where this thought fits with your posts, but it feels important to me. It relates to the proportion of a charity’s money that is spent on admin and fundraising, and the proportion spent on programs. This is your straw ratio, I think.
My view is that the world needs charities that spend almost everything on programs (high straw ratio?) AND IT ALSO NEEDS charities that spend relatively more on fundraising (lower straw ratio).
The penny dropped for me when my husband said one more time that he liked to support MCC (a Mennonite charity) because everything went to programs. At the same time I read that some charities found it worthwhile to pay backpackers on a commission basis to intercept people in the street and sign them up. The charity got 50% of the amount donated. In my husband’s view this was an inefficient charity and he would not want to give to it. But, apparently these street intercepts are particularly successful at getting donations from young males – a group that is commonly under-represented amongst donors.
I realised that MCC doesn’t have to spend any money on fundraising because the money just funnels in through church networks.
We need a variety of charities, with a variety of fundraising methods, and a range of straw ratios, because different donors respond to different overtures. 50% of something is better than 100% of nothing.
Does this mean ‘straw ratio’ is irrelevant? I don’t think so. There must be a zone of inefficiency below which it becomes less effective. I wonder how one would develop guidelines for that?!!
This suggests that your assessments may not be applicable to charities that put extra resources into gathering donations from hard-to-reach donors. Not many charities have a mainline connection to a community of givers like the Mennonite church.
How will your assessment process take account of this? Perhaps it should be recognised in your guidelines? Perhaps it already is.
Thanks for providing this open forum for thinking about these issues.
Gillian
I think you bring up good arguments that we haven’t already covered for why the Straw Ratio can be misleading. Regarding fundraising expenses, I would think a charity can spend as much money as it wants on fundraising as long as it brings in more – the bigger concern is when it spends important people’s time on it, and that’s where you have to be careful. But your “backpackers” example is a perfect example of where a perfectly reasonable expenditure would appear inefficient to someone using Straw Ratio-type methodology.
What’s unclear to me is why you *don’t* think the Straw Ratio is irrelevant. We think it is, by and large (may be useful in weeding out flagrant crooks, but it’s no good in distinguishing mediocre charities from excellent ones). We think that trying to understand a charity using its Form 990 is trying to get blood from a stone, and that rather than insist on making something out of the information that’s easy to get, we need to get the more complex, difficult-to-obtain – but relevant – information about what charities actually do and what the evidence is that it works.
OK, I think I see more clearly. You are saying that Straw Ratio is irrelevant as long as fundraising generates more than it costs, when all costs are taken into account. Once you check for this, then you evaluate the program by looking at how effectively the net funds are spent on programs.
That makes sense to me.
I had a go at evaluating my favourite charity, the School of St Jude, using a three step approach.
* Is it appropriate? Does it it fill a real need?
* Is it effective? Does it get good results?
* Is it efficient? Does it makes maximum use of its resources?
It was easy to find evidence on the first two points, but harder on the third.
You can check out my attempt here.
http://schoolstjude.blogspot.com/2007/05/wheres-evidence.html
The third point is really what GiveWell is about — distinguishing those charities that are using their resources to the best advantage. I think you are probably well on the way towards developing a pro forma for gathering the relevant information.
Have you looked at the kinds of program evaluation done for international agencies like USAID? Have you talked with Evaluation specialists? The American Evaluation Association is the professional organisation for evaluators. They have all kinds of neat tools like the Hierarchy of Outcomes framework, and they distinguish between Process Evaluation (how well it does it), Outcome Evaluation (what results it gets) and so forth. Their website is http://www.eval.org/
Cheers
Gillian
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