Tuesday, January 20, 2015

You Are Dead Wrong About Charity

About a year ago I left a well-paying, executive, salaried, corporate job to focus on my personal businesses instead.

My interests are quite diversified: I am a self-directed equity investor. I co-founded a tech startup. I own/manage a professional services consulting company. This company guides C-suite executives, small business owners and startup founders with good business strategy; we help them organize for growth, securing financing, create exit strategies, and more. My family and I also manage a 501(c)(3) non-profit, inspiring healthier kids, in healthier communities.

My focus today is all about charity. How we think of charitable organizations, charitable giving, and the nonprofit business sector as a whole. My nonprofit has only been my life for the past four months. Fortunately, I ramp up quite quickly in terms of identifying barriers and obstacles to success.

Donors have two primary objectives: (1) they give because they care, are inspired to support a worthy cause, can afford to give, etc.; and/or (2) they donate to charity to reduce their tax liability to the Federal Government, electing to 'do good' instead of feeding a seemingly bottomless, bureaucratic pit. People, who donate for tax purposes, are also people who can obviously afford to give.

I recently presented a startup workshop for nonprofit founders. They share the same challenges as for-profit founders: finding a good partner(s), struggling with positioning statements, achieving product/market fit, gaining traction, securing funding, and more. Surprise?!

Nonprofit founders start their business with an idea that will move the social needle on whatever their cause is. For-profit startups usually create a solution to an existing problem, primarily for the purpose of selling a product/service... for net, new, profitable revenue.

Both typically invest their heart and soul into the business. And they are equally passionate about their concept and/or idea. Absent the aforesaid, none will survive, let alone flourish. Both usually face considerable challenges trying to secure financing for their ideas, product, program, etc. That is understandable, because financing represents other people’s money.

Financing rounds usually start somewhat informally, e.g. via family and friends. As a startup burns cash, it moves up a proverbial ladder as costs (and successes) escalate, perhaps striving to secure angel or institutional investor funding next.

An angel investor is usually a person, investing his or her own cash, like one sees on the TV show the Shark Tank. Venture Capitalists are institutional investors, and typically best suited for securing larger financing rounds.

Foundations are institutional investors that fund charities. Well-managed charitable foundations are often fabulously wealthy. In my local community, just one, smaller, regional foundation has almost $200 million in Assets Under Management (“AUM”).

During the last financial year, they awarded nearly $9 million in grants and scholarships to deserving recipients. Great job! But, they had also received more than $5 million in gifts. Their charitable giving outflow was therefore only around $4 million, or about 2% of total AUM. Underwhelming?

Foundations invest AUM in much the same manner as other investors. In my example above, the Foundation’s 2014 gains would therefore have been about $20 million because the market returned about 10% to investors last year. Meaning, they only shared about 20% of their total gains.

Now, when nonprofits apply to a foundation for grant funding, they are rightfully, very diligently reviewed and investigated. This entails making sure that they are properly registered and in good standing with the IRS; that they have ongoing engagement in community projects with good social impact, measurable outputs and outcomes; that the nonprofit’s founders/managers/employees/board have the capability to deliver, etc.

Then, assuming all hurdles had been traversed successfully, small grant amounts may be awarded… sometimes $25,000, usually much less.

But, here is the rub: people expect nonprofits to be small. We also expect them to spend all their revenue on projects, rather than any on ongoing operational expenses, like salaries. In fact, some people get upset when charities spend too much of their revenue on their operational expenses.

But, a registered charity is a corporation with an independent board of directors (required), an executive management team, employees and volunteers. And corporations have to generate income to pay expenses, because otherwise it will go out of business. A nonprofit is also at a disadvantage in terms of attracting talented employees, because they cannot be seen paying market-related salaries.

If a nonprofit is very successful, like Wounded Warrior Project, people may not object to $300 million in revenue, but may well object to $220 million in annual expenses. Not to mention $60 million spent annually on media (TV advertising).

You may even think your local school’s bake sale represents a better charitable cause than Wounded Warrior Project. If this were true, it is because you have been programmed to believe that 100% of contributions earmarked for any charitable cause is better than having a charity spend 20% of its income on operational costs.

This, you need to unlearn because it is simply dead wrong! The bake sale may generate $300, while Wounded Warrior Project generates $300 million. The charity can then spend tens of millions of dollars supporting wounded Veterans in many different ways. In addition, they generate enough revenue to support other local, smaller charities in the work they do, e.g. helping Veterans with job placement, housing requirements, family services, etc.

We should applaud Mothers Against Drunk Driving (MADD), annual revenue around $33 million. But, you may proclaim, "They spend so much on building awareness for their cause!" How else should they go about sharing a great message that helps to prevent stupid people from drinking and driving? Oh yeah, and the fact that they supported more than 51,000 victims of drunk/drugged driving crashes in 2013… is a cherry on top of the awesome work they do.

Strong, well-organized, financially sustainable, and well-managed charities step into often thankless roles as the protectors of people in need, where governmental agencies often cannot deliver with similar efficiency, speed and efficacy. If you understand what I am sharing… then find your preferred cause… and donate!

Follow Rudi on Twitter @rudibest for useful #startup informational tweets.

Sunday, January 18, 2015

Global Warming In A Climate Of Change

Most scientists agree on climate change. Initially, many scientists agreed on global warming, which evolved into climate change.

Some skeptics and naysayers counter the widely accepted science. For example, offering that the earth cools and warms cyclically anyway, regardless of human interaction. Of course, historical evidence exists for this hypothesis. A salient point worth exploring is human impact, vis-à-vis our actual contribution to changing the temperature/climate of our temporary home, this little planet.

This post is not intended to support arguments for or against climate change. Rather, it is intended to encourage thought, debate and education… and perhaps even amuse.

There are about 1 billion cars on the planet today. Did you know? Or, you could ask, “What does that matter?” And then, most people know that there are about 7+ billion people on the planet.

So, as a result of my being the self-appointed president of Isaac Newton’s Florida Fan Club, or simply a Newtonian wannabe, or at least a fan of all things Newton other than his hairstyle… I thought to dig a little deeper.

My first ‘discovery’ is actually a reminder of how stupid I would be without Google. Now, some people who know me may offer that I possess stupidity regardless of Google, but at the very least I am capable of investigative search.

Oh yeah, 1 billion cars. I was distracted for a minute. And 7 billion people. Maybe it would be okay to just use rounding for illustrative purposes? As in, there are about seven people for every one car on the planet.

Now, according to my Google research efforts and analysis, I discovered that the ratio of people to cars in the USA is about 1.3:1, and in China, 6.75:1.

These ratios above probably make sense of human wealth and population distribution, and would elevate US car owners right to the top of the list of people most accused and/or presumed guilty of contributing to climate change.

Or global warming. Or whatever you would prefer. I do not really care about the naming convention. As long as we can just discuss it, become informed, and better educated about important matters.

I thought that I should avoid Mickey Mouse opinions and only focus on Mouse instead. So, I went to the US Environmental Protection Agency’s website and found this calculation:
It would be okay to ignore the formula but not the result.

The average vehicle emits 4.7 metric tons of CO2 annually. Sounds like plenty huh? Well it is. And because there are more than 1 billion vehicles globally emitting almost 5 metric tons per vehicle, I thought I would continue rounding the numbers… and just call it 5 billion tons of CO2 emitted by vehicles.

5 Billion tons can also be called 5 gigatons. You are welcome.

As a next step in my scientific discovery, I thought to explore other things that emit CO2. I chose not to pick on your pets or livestock. People get upset when you criticize their cats, dogs or cows. I specifically excluded cow emissions from my superficial research. Some people consider a cow to be a sacred animal. Others consider a cow to be source of dairy, steak, leather, etc.

So, I decided to pick a fight with us instead. As in, people. You know… the billions of little soft-celled, carbon machines that breathe in oxygen, and emit CO2. Also, we do this 24/7, unlike cars that spend most of their lives idle, parked, and not running. When your car’s engine is not running, I would assume your human engine is still ticking, and that you are still living, breathing? At least, I hope so, for everyone’s sake!

So, how about the 7 billion humans roaming planet earth? The website "Information Is Beautiful" (and several others) calculates total human emissions to be about 37 gigatons. I know, right?!

I was going to use human CO2 emissions data from SkepticalScience, but that would have been inappropriate because I am neither a Science skeptic, nor a climate change naysayer or denier. In fact, quite the contrary. When presented evidence that contradicts my current beliefs, I can pivot in seconds! In fact, people should prefer evidence to pseudoscience.

So, I am not arguing for or against climate change, but simply providing facts.

There are too many people on earth. I have done the math. More people than whatever relevance you could possibly attach to owning a Prius, or Tesla. Never mind solar panels! Although, I am confident that you meant well when you made those socially respectable, caring, CAPEX investments. And, presumably, any/all good deeds still matter.

I have yet to arrive at a solution for the problem that I have unfortunately identified. This will trouble me endlessly. My DNA compels me to find simple solutions to complex problems. So, if you are able to assist, please share your thoughts.

In the meantime, maybe you can plan a visit to your parents? I am sure they miss you. When you make the road trip, take the V8 roadster. Because, you now know that your parents helped cause this climate change problem... by having you!