Companies giving away a percentage of their profits to charity is the result of two trends converging: nonprofits becoming more commercial, and fully commercial businesses seeking to have a social impact. But deciding to give 50% is the perfect result, according to futurist Ross Dawson.
“We have for-profit organisations, which increasingly are trying to have a social impact, and we have not-for-profits legislated to reinvest all their profits,” says Dawson.
“But there is incredible power in the model of giving away 50%.”
The runaway success of Who Gives a Crap
The most well-known example is toilet paper success story Who Gives a Crap, which in 2020 donated more than US$4 million to help build toilets in the developing world.
In a podcast interview Who Gives a Crap co-founder and CEO Simon Griffiths said the owners always wanted impact to be core to their business, but they landed on 50% for a few key reasons. It allowed the organisation to generate enough cashflow to keep the business alive while also making large donations at the end of each financial year.
“It also gave us the benefit of being able to have equity in the business,” says Griffiths, something a nonprofit is unable to offer.
“We thought it would allow us to grow more than twice as quickly than we could if we were a nonprofit…we could potentially sell equity to get capital into the business to help us grow, but it also allowed us to incentivise staff who in the early days are often joining us on a lower salary than what they may be able to earn somewhere else.”
Griffiths hopes the company’s model will inspire other business owners seeking to solve big social problems.
“We believe that if we’re going to go about solving these huge social problems we have to show there’s a business model that will be able to work and attract investment from investors and entrepreneurs who are interested in creating impact but also want to create a financial return for themselves.
“If we can show that’s possible with our business model that’s how we’ll attract tens of thousands, hundreds of thousands more entrepreneurs into the space, which is ultimately going to create the impact necessary to solve these massive social issues that we have globally.”
Radical transparency in action
Dawson says it’s a form of transparency which engages customers in understanding truly how much an organisation is supporting the community. And it exposes exactly how much profit, even if private, a company is making.
“Those that say in vague terms they give away part of their profits or revenues, it’s often fractional, whereas a commitment of 50% means you know how much is going to go to the communities in need and it’s written into the company’s constitution.”
The model is seen in a variety of businesses, from small organisations like Goodwill Wine, to US investment management firm Bridgeway Capital, which has more than US$7.5 billion in assets under management.
Bridgeway Capital founder John Montgomery says it was naive to pick 50% when he started the firm in 1993, but “it’s ten times more powerful than I believed at the time”.
Why? Because the firm is able to attract more people to work for it and keep them for longer.
Campaign-based donations also work
Social enterprise The Good Beer Company based its launch on a specific product being linked to a specific cause. In 2015 the company crowdfunded its way into existence with its maiden product the “Great Barrier Beer” and a commitment to donate 50% of profits made on the beer to the Australian Marine Conservation Society.
Today the company has a diverse offering of beers for multiple causes. It has since shifted away from 50% of profits to 10% of sales.
“There are any number of possible variations in how much companies contribute to worthwhile causes. The most common are 0% and 100%. But there does seem to be a kind of magic to giving 50%, perfectly balanced between the two extremes,” says Dawson.