Jeff Bezos is A/B Testing Philanthropy. Here's What He'll Find.
Funders who want to improve the giving process can give social impact organizations breathing room to grow and thrive with these five strategies.
For many years, Amazon Chief Executive Jeff Bezos took heat for his glaring absence in the world of public philanthropy. Then, in 2018, just a year after being named the richest man in the world, Bezos finally made his philanthropic debut.
He began with two major initiatives — and, more interestingly, two radically different approaches to giving. In doing so, Bezos is pitting a traditional, highly structured funding model against a much looser approach that gives social impact organizations free rein.
What this all means is that Jeff Bezos is, in effect, A/B testing philanthropy.
Should philanthropists insist on shorter leashes and greater oversight of the organizations they fund? Or should nonprofits be given a wider berth to do their work independently? Bezos is implicitly asking this very question by funding the two pieces of his initiative in such widely divergent ways.
Here's what we think he'll discover.
The Test: Short-Leash Vs. Long-Leash Funding
Half of the $2 billion Bezos has committed will go toward building early childhood education programs in underserved communities. This portion of the initiative will be managed closely by Bezos himself, who has developed something of a reputation as a micromanager. (It’s a strategy that has apparently served him well, if the success of Amazon and his own personal pocketbook are any indication.)
This hands-on management style is also in keeping with the predominant approach toward philanthropy today. The conventional wisdom is that more oversight makes for safer social impact investments. This is why social impact organizations must often complete exhaustive applications and agree to provide thorough reporting in order to receive even the most paltry grants.
Bezos is already in the process of dispersing the other half of the $2 billion in funding to a number of nonprofit organizations that serve homeless families. And the level of oversight around these major, one-time grants is so low that even the organizations themselves have admitted to feeling bewildered. Bezos reportedly handpicked the first 20 organizations to receive funding based on an advisory board’s expert recommendations. His team approached the organizations out of the blue and asked them to complete a spartan application. The hardest-hitting question? A 500-word description of how the organization would spend $5 million in nearly-no-strings-attached grant money. The funds were delivered in a lump sum with no restrictions and no reporting requirements.
This de facto test is still in process. But we have a hunch about what might happen. Jeff Bezos's career at Amazon, which has effectively disrupted the entire consumer goods ecosystem, proves he’s no stranger to disruption. And we believe he’ll find that the more disruptive path — in this case, “long-leash” philanthropy — is once again the way to go.
More Oversight, Less Impact: The Problem with Short-Leash Philanthropy
Philanthropists and funders are eager to make good investments when it comes to the programs and initiatives they support. They want to know the money they put toward social impact organizations will be used wisely. And they want it to yield the highest possible impact. These are very good and understandable desires. Ones that naturally lead to highly structured giving protocols, restricted funding, and extensive oversight of the organizations that receive money.
The problem is that this short-leash approach has unintended consequences that hamper a nonprofit’s ability to make an impact. Here's why:
- •The vetting and assessment process wastes time and resources. Many funders begin their philanthropic initiatives with an open call for proposals from organizations seeking funding. This process theoretically creates a level playing field. But the grant application process takes an enormous amount of time and resources on the part of NGOs. This investment is especially wasteful for those organizations that don't even get funding in the end. The time and money organizations spend proving they deserve funding would be much better spent actually pursuing the results they exist to achieve. Consider this: 45% of grants cost more to produce than the value of the grant itself.
- •Restricted funding keeps organizations from following their theory of change. Restrictions around funding pull nonprofit organizations in too many directions, causing them to lose focus on their theory of change. In order to perform their work in accordance with the specifications that accompany funding, social impact organizations are often forced to spin up new teams or divisions within the nonprofit. Social impact organizations are most impactful when they stick to their theory of change — not when they are forced to engage in loosely related activities for the sake of pleasing funders.
- •Organizations spend too much time justifying their spend. In the context of short-leash philanthropy, social impact organizations must spend a large percentage of their time justifying their spending and the outcomes of the work they are doing to their funders. What’s more, they are forced to continually prove themselves. Each time a grant runs out, they must re-earn the trust of their funders in order to secure the necessary resources over the long haul. Reporting is important, but it shouldn’t be burdensome.
- •Restricted funding leaves organizations cash-strapped when it comes to general operating expenses. Program-focused or restricted grants don’t cover general operating expenses. This means many organizations must hobble along with unreasonably low funding for overhead as well as communications, campaigns, and impact reporting. These organizations suffer from a lack of capacity that comes from chronic underfunding. They are pressured to keep staff pay unreasonably low, which means they also have a harder time competing for talent. The result? A scarcity mindset (which is rooted in reality) that detracts from their ability to make an impact.
- •Innovation is stifled. The people who are doing the work with boots on the ground often have special insight regarding how they might achieve better results or bigger impact. By dictating the rules of engagement, restricted funding makes it harder for organizations to pursue their most innovative ideas — ideas they would be ready to run with if only they had the money.
Less Oversight, More Impact: Placing Better Funding Bets with Long-Leash Philanthropy
Many funders understand the shortcomings of short-leash philanthropy and chalk them up as necessary evils. But here’s the thing: If you require that much rigor and oversight in order to trust your funding investment is safe, then you aren’t funding the right organizations.
It’s true that Jeff Bezos is taking a risk by funding organizations with so little oversight. It’s a bold approach because it requires trust and, perhaps more to the point, because it requires funders to relinquish some of their control. This doesn’t mean that all forms of vetting, funding restrictions, and reporting should be scrapped entirely. The leash should be lengthened, not tossed out the window.
Funders who find ways to streamline the giving process can give social impact organizations the breathing room they need to grow and thrive. This may mean:
- •Nurturing long-term funding partnerships. Leverage the investment of time and money your vetting process requires by committing to partner with your chosen organizations more deeply and over a longer period of time. This allows you to build trust, and more trust means less oversight. Fund these organizations with unrestricted grants and recurring money with high-level oversight.
- •Diversifying your funding portfolio. What Bezos lacked in terms of the vetting, funding restrictions, and reporting requirements, he made up for by diversifying his funding portfolio. By spreading your investment across multiple organizations, you can more confidently streamline your giving process without increasing your risk of a “bad” investment.
- •Giving big. If you want to make a larger impact, give bigger grants in lump sums. This allows your funding recipients to take the longest strides in the shortest amount of time.
- •Thinking like a venture capitalist. A funder’s job should be more like that of a venture capitalist than a manager. Other than providing funding, your role is to nurture, empower, and support the team on the ground doing the work. Not manage every detail of their day-to-day activities.
- •Taking a holistic approach to giving. Fund organizations in a way that allows them to put the proper resources toward the cost of doing and growing their organization. This should include living wages for the team doing the work as well as a proper communications budget. Under-resourced organizations must flail for funding, which takes focus off their work. Sustainably funded organizations, on the other hand, can afford to keep their eyes on the prize and create more meaningful impact.
Only time will tell whether Jeff Bezos ultimately adopts a short-leash or long-leash approach to giving. In the meantime, his long-awaited entrance to public philanthropy gives funders plenty to chew on.
One thing’s certain: When the richest man in the world starts A/B testing philanthropy, those in the philanthropic and social impact spaces can’t help but take notice.
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