When you give money to charity do you know what happens to your donation? In return for our donations we hear stories. Stories are important but do stories accurately portray the lives of the global poor? The most important skill in running a charitable organization is story telling. That is a problem because if we give to an organization that digs wells we want to know that they are the best in the world in doing what they say they are doing. We don't want story tellers, we want practitioners.
Being on the ground in Africa you realize very quickly that the stories we here in the US are often gross exaggerations of the truth. If all the stories of "incredible, sustainable, transformational change" that we hear were true, then Africa would be a very different place. As a result we have become cynical about everything we hear. We want to believe in the stories we hear but we have been burned many times before:
- Red Cross used $500 Million to build 6 homes in Haiti
- Micro loans don't reduce poverty
- An estimated 80% of orphans have at least one living parent
- Shoes donations don't help the poor and create dependency
Once charity is spent the money is gone and it is difficult to evaluate the impact of that donation. If you have seen the TedTalk by Dan Pallota - "The Way We Think About Charity Is Dead Wrong" Dan tears apart to focus we have on overhead. Any organization or company needs good people to succeed and as Dan points out our focus on overhead is problematic. BUT it exists because we are trying to find some way to evaluate the quality of charity. This is the key point Dan misses. Overhead is a poor metric but what is the alternative? We want to make sure our money is put to good use. That is entirely reasonable.
The fundamental problem is that there isn't a feedback loop in charity. If you buy a product from Apple, Apple can tell you it's great but once you start using it you will know whether it is great or not. Charity doesn't work that way. The person giving the money is different than the person who receives the act of charity. As long as the person giving thinks they are doing something "good" they keep giving. But they don't know with certainty. We trust but we also want to verify.
The organization's focus soon becomes making sure donors feel they are doing something good rather than making sure good is being done. The problem isn't with the people who work for charities but in the incentives of charity itself. Incredible people are involved in work all around the world but they are often working with bad information and the rate of learning is very slow because the leaders are all telling stories rather than being in the field.
Investing doesn't have the same pitfalls. In business, the person who receives a product or service is the same as the person paying for it. If the customer does not like the product or service that business fails and the investors lose money.
Now let's be clear. Charity is important and should continue. Business won't solve everything. Charity and business are simply tools we can use to enrich the lives of others. When it comes to Africa we are only using one of these tools. The status quo isn't acceptable. Something needs to change. Keep giving. But we need to break the mindset that giving is the only way to help people.
Investing allows us at Venture to know what is working and what doesn't. It puts the risk on ourselves. Not on the people in Uganda. If our investments don't work, we lose money. Our incentive is to fund successful local businesses in Uganda so that we earn our profit back and create jobs for Ugandans in the process. You, our customer, also want our investments to be successful because you want to create jobs for Ugandans. Also, if our investments are successful that means there is no cost to pass on to you.
Therefore it is best for everyone involved that we invest wisely to increase the benefits to Ugandans and limit the costs to you. Our incentives are aligned to learn and continue to adapt to what is best for the community we serve in Uganda. Venture exists not because we want to impact Uganda but because YOU do. We believe our unique business model of investing rather than giving yields the best solution to help you create the change you want to see in the world. Let all the other social impact companies continue to tell their stories. We have stories too but our stories are built on substance, not emotion.