David Goldberg, CEO & Founder at Founders Pledge, on how we can build big, profitable companies that don’t leave the world worse off than how we found it.
At first glance, TOMS Shoes are a praiseworthy example for how businesses can do social good. The idea is simple: buy one pair of shoes and the company donates another to a less fortunate child in a developing country. But, dig a little deeper and, as TOMS discovered last year, making a positive impact on the world requires more than just good intention and can even mean perpetuating or missing the bigger problem. Studies found that not only were free pairs of shoes a highly inefficient way of providing negligible benefit to the children’s lives, the scheme was also having an adverse impact on local markets that relied on the trade of their community.
Having a set of values beyond just making money is good for business.
It’s stories like this that David Goldberg hopes to help others avoid. His initiative, Founders Pledge, provides an easy way for entrepreneurs to give back. The pledge is a legally binding commitment to donate a minimum percentage of any proceeds on a company’s exit to charity. Goldberg’s team don’t just provide the legal framework to make it happen, but tirelessly crunch data to advise on where their money can have the greatest social impact. But, it's not all about giving away cash. “Just don’t be a dick,” says Goldberg. “Having a set of values beyond just making money is good for business.”
Some people take a lifetime to work out money doesn't buy happiness. Goldberg, 34, figured it out at 19. Born in California into a “normalish but kind of poor” family, at 16 he resolved to make as much money as he could as quickly as possible. He talked his way into the CEO’s office at a private bank and landed a position in secondary markets. By 18 he had the archetypal badges of success - the car, the watch, the clothes - but also an overbearing sense of claustrophobia that accompanied that lifestyle. He moved on to start his own venture - an LA-based film studio - which he watched crumble in just 12 months but by 25, having moved to Europe, he had turned his struggle at finding a place to live in Berlin into a successful real estate business, selling the company in 2008. “I made enough money that I wanted to give money away,” he says. “I wanted to give to poverty and education and entrepreneurship.”
In search of how he could be effective in his own philanthropy, Goldberg wanted to understand the world of charity. What makes them tick, what it costs for them to do what they do and what kind of return he could expect on his investment. “When I dug into it, I found the sector, with its history of mistakes and what seemed to me like unrigorous processes, difficult to get behind,” he says. Finding that, in many cases, there was no solid proof of a causal relationship between inputs and outputs, it felt like a gamble. He had no idea if the money was actually going to help anyone, and he decided he would figure out better ways to have systemic change in the world. “I didn’t want to waste money, so I didn’t give.”
Fast forward, and Goldberg is midway through a PHD program in International Relations at Cambridge University. One evening, he came across two TED talks that he credits with changing his life. One was by AIDSRide Founder Dan Pallotta who spoke about the misguided way in which people evaluate charities and another by Code for America’s Jennifer Pahlka who demonstrates the immense social potential of entrepreneurship technology. “The next day I gave my notice and I quit,” he says.
With his studies behind him, and in hot pursuit of how he could have an impact, Goldberg found himself in London among a network of technology entrepreneurs known as Founders Forum. They had invited him to run a program to support social entrepreneurs. But, as it turns out, it can be a challenge to develop a commercial fire in the bellies of deeply charitable people. So in the end, he turned the idea on its head. Founders Pledge started in private beta in March 2015 and launched publicly just three months later. The aim was to enable talented entrepreneurs building hugely valuable companies to have a positive impact on society, even if no obvious social benefit could be derived from the existence of the company at face value. “We help people who are focused and cut throat and gritty and building the future to actually start thinking about what their purpose is.”
Early backers included members of Founders Forum Jonnie Goodwin and Brent Hoberman as well as Facebook billionaire Dustin Moskovitz and his wife Cari Tuna’s Good Ventures foundation. At the time of writing, there are more than 1100 pledges from 27 countries totalling $396 million (£294 million). The collective worth of the 900 companies whose founders have pledged is north of $161 billion (£122 billion), and they include WeWork’s Miguel McKelvey, the cofounder of Blockchain, Nicolas Cary, founder of Unruly, Sarah Wood, and cofounder of Google Deepmind, Mustafa Suleyman.
It's really hard to have impact as an afterthought.
Goldberg and his team at Founders Pledge help align founders with social responsibility, but their members’ pledge are only fulfilled if and when they have a successful exit. But what about when they’re in the thick of running their company? What can they do now to demonstrate they care about more than just the bottom line? “It's really hard to have impact as an afterthought and hard in the sense that it's easy to start to do things that have potential impact but it's really difficult to do it meaningfully,” he says. “But, if you're in the process of building something you can take into account what you want your role in the world to be. Do you just want to deliver food? Or do you want to have a model that creates real value in the world every time you deliver that one thing?”
As the millennial generation gain more spending power and become an increasingly pervasive force in the working world, it's critical businesses tap into their values. A high priority? Aligning themselves with brands that have a purpose beyond turning a profit. To attract and retain the best and brightest, it pays dividends to think about social and environmental impact. “It creates more bought in and engaged employees who are willing to work for less for longer and churn less frequently,” he says. “The best businesses are the ones that understand that and build culture that employees can wrap their fingers and minds around.”
But how? From the get go, clearly define your goals, he says. “When framing what business success looks like, explicitly account for social and environmental impact.The cost of doing business is more than just what sits on your P&L,” he explains, and encourages companies to “internalise their externalities”, to ensure that, at the very least, their business has zero negative impact on the world, even if no clear net positive.
True commitment to sustainability can go hand in hand with business growth.
An obvious area to address, Goldberg stresses, is the supply chain. “It sounds tricky, and it can be, but it is possible to think about where your supplies are coming from, even as a small business,” he says, referencing drinks company Innocent who, very early on in their journey, pioneered the first bottle made from 100 percent recycled sources. “This may be an exceptional example, but it shows how true commitment to sustainability can go hand in hand with business growth.” A guiding principle, Goldberg suggests, is to look for suppliers for whom you are (or have the potential to be) very important, and recognise that this gives you leverage over their business practices. You can demand they pay their staff a living wage, dispose of waste responsibly and source their materials ethically, for example. “If your business profits were made while harming the planet and its people, donating a portion of said profits can’t exonerate the business”.
Lastly, share what you have! “Solving the really big challenges of our time requires large scale coordination between humanitarian organisations, governments, scientists, and academics.” Companies create value from what they learn, and can share knowledge, data and technologies with those who desperately need it to solve pressing global issues. Goldberg and his team regularly give talks relevant to their business and the topics they research. “At Founders Pledge we have a pretty particular view about charity and how to approach ‘giving back’ and that's something that I think is quite valuable,” he says.
At the end of the day, it all boils down to one key thing: internalising externalities. “The cost of doing business is everything that you do internally plus the things that are resultant from your business on the world,” says Goldberg. “Think about how you can actively not be causing harm.”
But, he concedes that none of this is easy. In fact, Founders Pledge exists because he believes that, for many entrepreneurs, the biggest social impact will be had through making a lot of money and giving a lot of it away in an informed and evidence-driven way. Does that mean they can blindly run their businesses without guilt knowing they can pay for any harm they cause later? Goldberg insists we all have a daily responsibility to ensure we cover the social costs of doing business. In his view, it’s simple: “just don’t be a dick”.