I disagree with him, but there's merit in what he says. Let me give you an example.
I had coffee in an NGO-operated cafe in Siem Riep, Cambodia. All profits went to running a small school for 10 kids.
I did the quick math on a napkin, and realized they were doing far worse as an NGO/charity than they would be to help people as a for-profit business.
Observe: With a 20% net profit after all expenses (which I think they had, if not higher), they'd be able to have enough of a downpayment to open a second cafe within less than a year. A year after that, they'd have 4-5 cafes opened. In three years total, they could be around 8-12 cafes.
At that point, they'd be producing 12 times as much income. They'd also be employing 12 times as many people, and working in a cafe is a really good job in Cambodia. (Air conditioning, pleasant working conditions, friendly client base, regular hours, not dangerous - unlike most Cambodian work).
But by paying it all out right away, they have much less impact. What they're doing is good, yes, but they might be being a little shortsighted if their goal is to do the greatest good. Currently, they were employing 10 people or so (plus the people who did construction, installation, painting, decoration of the cafe, etc) If they reinvested profits for 4 years, they could be employing 120 people who all get better wages and working conditions who can help their families, and they'd be generating 12 times as much in profit. At that point, if they started getting 1/10th of what they were making to charity, they'd be giving more than they are with one cafe.
Consider that. As a charity, they operate one location, employ 10 people, and educate 10 children. If they ran it as a business, in only four years they could run 12 locations, employ 120 people, and with only a fraction of their profits could educate 12 children. Plus, they'd still have the other 90% of profits to open more cafes, or other businesses, or to help more people, or to open hospitals, or whatever. I've heard similar critiques from a local Khmer businessman and an Indian engineer/restaurant owner I met there. NGO's, while well intentioned, might be stifling development in Cambodia. Maybe. At the very least, running that cafe for-profit and reinvesting profits would've produced a hell of a lot more good very quickly.
I agree with you, but here is something to keep in mind:
It could be that the fact they donate all their profits to teaching children, might be sole reason why this cafe is profitable in the first place.
If this was run as a regular business, people would not have such an incentive go there. The same goes for a non-profit which has a goal that is not plainly visible.
> I did the quick math on a napkin, and realized they were doing far worse as an NGO/charity than they would be to help people as a for-profit business.
You're making the assumption that creating jobs is better than providing access to education. This may be true in the short term, but probably not in the long term if access to education in that area is a problem. I would say that given that investment in education takes years to pay off anyway it is probably a good plan to invest sooner rather than later. However without knowing more about the specific case it's impossible to say either way.
I'm purely speculating on a hypothetical situation here, but from the point of view of the NGO it may make more sense to invest in education. Creating 120 jobs is no doubt a good thing, but if what is needed most in the area is a school, then investing in more jobs is not doing the greatest good. Creating jobs where the workforce is uneducated is not going to improve the standard of living greatly in that area over an extended period of time. Providing the means for the next generation to obtain better jobs or have the education necessary to start their own businesses might. Maybe the NGO is playing the long game?
Also if they make a success of this model, running a cafe to fund a school, and prove that they can make it work then it will probably be easier for them to get access to funds to replicate that success elsewhere. This could easily have longer term benefits than creating a small amount of jobs. Not to mention that this model doesn't have to be replicated by that NGO.
You haven't made an argument against an NGO operated cafe, you've made an argument against an NGO operated cafe that pays out all its earnings.
Also, assuming that they have any sort of tax or cost advantage (if only from people willing to donate time/effort), for the same amount of business they have more money to put towards their purpose, be it for investment in more cafes or for educating more students now.
> You haven't made an argument against an NGO operated cafe, you've made an argument against an NGO operated cafe that pays out all its earnings.
Ah, there were some unstated assumptions in my post.
1. NGO leadership are usually from a different talent pool and background than business leadership.
2. Business leadership tend to outperform NGO leadership at growing a business.
This leads to the idea that a cafe operated for charity might produce less good than a cafe operated for business, as described above. I think it was definitely true in that specific case. Whether the NGO could've run in a more expansive, business-like fashion? I don't know. I'm inclined to guess no, but I'd be open to being pleasantly surprised.
I had coffee in an NGO-operated cafe in Siem Riep, Cambodia. All profits went to running a small school for 10 kids.
I did the quick math on a napkin, and realized they were doing far worse as an NGO/charity than they would be to help people as a for-profit business.
Observe: With a 20% net profit after all expenses (which I think they had, if not higher), they'd be able to have enough of a downpayment to open a second cafe within less than a year. A year after that, they'd have 4-5 cafes opened. In three years total, they could be around 8-12 cafes.
At that point, they'd be producing 12 times as much income. They'd also be employing 12 times as many people, and working in a cafe is a really good job in Cambodia. (Air conditioning, pleasant working conditions, friendly client base, regular hours, not dangerous - unlike most Cambodian work).
But by paying it all out right away, they have much less impact. What they're doing is good, yes, but they might be being a little shortsighted if their goal is to do the greatest good. Currently, they were employing 10 people or so (plus the people who did construction, installation, painting, decoration of the cafe, etc) If they reinvested profits for 4 years, they could be employing 120 people who all get better wages and working conditions who can help their families, and they'd be generating 12 times as much in profit. At that point, if they started getting 1/10th of what they were making to charity, they'd be giving more than they are with one cafe.
Consider that. As a charity, they operate one location, employ 10 people, and educate 10 children. If they ran it as a business, in only four years they could run 12 locations, employ 120 people, and with only a fraction of their profits could educate 12 children. Plus, they'd still have the other 90% of profits to open more cafes, or other businesses, or to help more people, or to open hospitals, or whatever. I've heard similar critiques from a local Khmer businessman and an Indian engineer/restaurant owner I met there. NGO's, while well intentioned, might be stifling development in Cambodia. Maybe. At the very least, running that cafe for-profit and reinvesting profits would've produced a hell of a lot more good very quickly.