In my debut column for the Chronicle of Philanthropy, I made the case that “information that enhances the ability to make smart grants is the real currency in philanthropy.” This is also true in for-profit financial markets. The equations are:
Financial Capital + Superior Knowledge = Profit
Financial Capital + Superior Knowledge = Impact
In other words, being rich doesn’t guarantee that all your investments will be profitable or that all your philanthropic grants will have an impact. Financial resources are only part of the equation. And frankly, financial capital is abundant while superior knowledge is scarce. If you don’t have financial capital, it can feel like it is awfully difficult to come by, but the fact is that when superior knowledge is provable (such as an investment manager who has an outstanding, audited track record or a company that is cash flow positive and growing fast) financial capital comes pouring in. Great investors frequently “close” their funds to new investors because they become worried that they simply do not have enough good investment ideas to deploy all the money.
If the goal is profit and financial capital is abundant, than the trick is to secure superior knowledge. This is well understood in the for-profit world. But in philanthropy, we often celebrate the act of making a grant rather than the generation of impact. This focus elevates the importance of financial capital and makes the size of your endowment or the size of a gift the most important metric and the things that attract media coverage and public celebration.
But if you care about actually making a difference, if you care about impact, then you must recognize that the gift of financial capital is a simple act. It is only when that financial capital is deployed based on superior knowledge that impact can be achieved. Therefore it is the possession of superior knowledge that offers the best opportunity to change the world, make a difference and have an impact.
But here’s where things get special. In the for-profit world, as I pointed out in my column, it doesn’t make sense to share superior knowledge with others. But in philanthropy, the more people who have access to superior knowledge the more impact can be generated and the better off everybody is. This is the big opportunity in philanthropy. If we want to dramatically ramp up the level of impact we achieve, the lever to pull is not convincing people to give more, it is collecting and distributing superior knowledge about how to give.
This is the task before us. This is what I attempt to chronicle on this blog. This is why I constantly bang the drum to encourage foundations to share information with the public.
And at this unique moment in time we are presented with explosive growth in the availability of information via social media tools. This is the moment that it suddenly becomes easy and virtually free for superior knowledge about what works in philanthropy to be broadly distributed.
This is beginning of a Second Great Wave of Philanthropy.