Jeff Raikes First Annual Letter from Gates Foundation

Jeff Raikes is the new CEO of the Bill & Melinda Gates Foundation. Yesterday, the Gates Foundation annual report came out which included Raikes opening letter. I found the first part of the letter a fascinating way to think about the applicability of the “market” analogy in philanthropy. Here’s what Raikes had to say (all emphasis mine):

Before joining the foundation in September 2008, I spent my career in business, most of it at Microsoft. As I was making the transition, I asked many people for advice. Over and over again, I heard a similar refrain: that the biggest difference between business and philanthropy is that in business, the market tells you exactly how you’re doing. In philanthropy, most people said, there is no market.

Jeff Raikes, CEO, Bill & Melinda Gates FoundationGradually, I started to take some issue with this idea. Without a doubt, businesses do get pure market feedback in many cases. Costco generates a detailed sales report every single day. 

But there is more than one kind of business. When your work involves researching and developing new products and services, you can’t always get real-time information about what’s working and what isn’t. For example, I joined the team that created Microsoft Office in 1981, and we didn’t really turn the corner for 13 years. It took even longer for our work on tablet PCs to bear fruit and, 20 years later, it’s still not clear where that technology is going to end up.

In short, in a business like software, sometimes you have to invest in innovations that don’t reach the market for a decade or more. In those instances, you rely on the other tools at your disposal to determine if the potential reward is worth the risk. You do your homework before you take on a project. You gather feedback from others with experience and good judgment. You use whatever interim data are available to measure progress as rigorously as you can.

Foundations are in a similar position. Often, finding the best ways to help people improve their lives takes many years of research and experimentation. But businesses are obligated to pursue financial returns, which don’t always coincide with social returns. Governments’ ability to undertake socially beneficial research is sometimes limited by political considerations. Foundations, in contrast, have more freedom to innovate in pursuit of social returns.

Because we’re taking risks, we have to accept the likelihood that some of our grants and strategies aren’t going to get the results we expected. As Warren Buffett has pointed out, if some of our grants don’t fail, that means we’re not taking enough risks.

At the same time, we have to accept a series of responsibilities—setting clear priorities, using data effectively, relying on others’ expertise—to make sure we’re making the most effective grants and devising the best strategies we can. At the Gates Foundation, we work especially hard to engage a wide network of partners who bring diverse perspectives to the work we’re doing together. I’ve spent a fair amount of my time over the past nine months getting to know our partners throughout the world. As a foundation, we depend on their willingness to challenge us when they disagree with our approach. In the end, this ongoing conversation will enable all of us to increase the impact we’re having.

Gotta love that last sentence!