When Kevin Starr was put on the board of a foundation set up to honor the memory of his late mentor, the physician and philanthropist Rainer Arnhold, he admits he didn’t know much about philanthropy. Although he’d worked with Arnhold to bring medicine to where it was badly needed in the developing world, Starr’s work was as a doctor, not as a donor. But as managing director of the newly minted Mulago Foundation, he was eager to learn all that he could.
Coming from the world of medicine, where everything is rigorously tested for effectiveness before it ever gets to market, what Starr learned surprised him. He saw a lot of money flowing toward good causes, but very little effort spent trying to figure out whether it was actually going to have a big impact.
“We operate in a dysfunctional market. Often there is no market, in fact,” he said. “We just don’t have a funding environment where resources flow efficiently to organizations that are successful. Funding doesn’t fall on results.”
Mulago aims to be different. It operates more closely to a venture capital firm than a traditional foundation. Like a VC, Mulago is looking to allocate its resources in such a way as to give the best possible return, albeit measured in impact on the causes it supports rather than cash.
Also like a VC, Mulago offers the organizations it works with ongoing support, rather than making the one-time grants that many private foundations favor. So long as an organization keeps performing, Mulago will keep supporting it with unlimited funding.
That’s also led Mulago to ignore the normal grantwriting process, which Starr says is a waste of time. Mulago doesn’t accept applications. Instead, it relies on its network and its judgment to find the opportunities to do the most good.
To date, the company has funded more than 50 social entrepreneurship projects, including VillageReach, LivingGoods, and Root Capital. The foundation had about $154 million in gross assets in 2013, according its most recent IRS filing, and makes about $7 million in grants annually.
Which is all well and good, but it raises an interesting question: How does one know that an organization is going to have an impact?
To determine whether an organization is worth funding, Starr said the nonprofit has developed a deceptively simple test. There are just four short questions, but they all have to be answered with a “yes”:
- Is it needed?
- Does it work?
- Will it be used?
- Will it reach those who need it most?
As with most things that seem simple, there’s a lot of hidden complexity in these questions. Here Starr explains what they mean, and why so many organizations come up with the wrong answer. The following interview has been edited for length and clarity.
When you’re answering your first question, “Is it needed?” you talk a lot about how important it is that a social entrepreneurship organization have a concise mission statement. What are the things that make a good mission statement?
Well, first off, just having one goes a long way. You’d be surprised how many organizations fail to come up with one, or come up with one that’s not specific or which doesn’t point to anything at all important.
That said, having clarity about an outcome and a target population is everything. What we find is that a good mission statement has a clear success or failure statement.
Also, a mission statement is about “what” rather than “how.” Your mission statement might be “Lower the mortality rate for children under 5 in Liberia.” And there are probably a lot of organizations doing that in a number of different ways, but they’re all usefully sharing the same mission statement.
Is answering “Does it work?” a big hurdle that a lot of organizations face? How common is it for someone to come to you with an idea that doesn’t work?
Oh, it happens pretty often. The most common reasons it doesn’t work is they didn’t understand the specifications as well as they thought they did in the first place, or they didn’t know enough about the user.
But it can also be a question of how you define “work.”
I’ll give you an example. There was this thing called the Soccket. It was a soccer ball you kicked around and it stored up the energy and then you could plug in a lamp and have light. And in one sense it works: It does create light.
But I would ask, does it work if it just puts out a few watts of very localized power? What does it mean to work? What is a light for?
Your next question is “Will it be used?” How can you tell if something is going to be used before it’s in the field?
You can’t. I am constantly urging people to take their prototypes into the field to observe them being used for an extended period of time, and then to do that again once they have what they think is a finished product.
A good field trial means you have a good understanding of who will use something. It means you understand how they will use it. That means you know all the ingenious ways they’ll use it wrong, that you’ve seen all the ways people jury-rig and break things. And it means you’ll have done it for however long the lifetime of your product is supposed to be. If you have something that’s supposed to last two years, but you don’t know if people will even still be using it two years from now, you didn’t do a good enough field trial.
That seems very different from the traditional “move fast and break things” ethos of Silicon Valley startups.
Well, that’s an example of a company trying to make money when it’s really still in the R&D stage. They can do it because the stakes are low. Poor people aren’t spending everything they have on it, they can quickly iterate because they’re right in the middle of their target market, and there’s a fundamental behavior of sales that helps guide them to a real market. It’s very different from social entrepreneurship. I mean, even down to something as fundamental as getting your product to your target.
Hence your fourth question: “Will it reach those who need it most?”
Yeah. It’s really three questions: How do you actually get it to where your customers are? What distribution channels do you work with to get it in front of them? And then how do you sell it?
So much of that is just knowing who your real customers are. For example, teams that want to distribute medical devices in the developing world often make the mistake of asking doctors if they would want the thing, and if they would buy the thing.
And of course the doctor will say yeah, but the truth is they don’t buy anything. The customer is actually some guy in an office somewhere that makes that decision for them.
That doesn’t seem that different from a traditional business — you have to know who you’re actually selling to before you can come up with a strategy that works.
Yes. But what makes it that much harder is your customer is often someone with very limited money who’s trying to stretch it out in the most efficient, effective way possible. You’re marketing to people with no disposable income and a lot to lose. It’s basically the most conservative buyer on earth when it comes to spending choices.
And you’re competing with beer. I mean, that sounds a little weird, but I’m using beer here as a metaphor for a lot of things. Because when people get money, it’s true, they spend it on health care, they spend it on better food, they spend it on water, but they also spend it on parties. They spend it on cultural events, entertainment, and celebrations. Even when you’re marketing to poor people, you’re going to have to compete for their attention.