How to think About What a Business is

Early in my life an adult who was to become instrumental to my career suggested that advertisements for medicines were really about selling the illness!  I am not certain how old I was at the time, but I was in elementary school.  I have thought about that thesis more than a few times. It played a role in my studying economics in college.  When I look back at that suggestion, it informs my thinking of what an education is supposed to provide; a shove on the back about learning to think critically.  

Referring to a different elementary school recollection we were asked to make contributions to The March of Dimes.  The March of Dimes was a charitable organization that collected money to fund research to find a cure for polio, a dreaded disease in those years. Polio was uniquely dangerous to children — a legitimate scare to elementary school kids. Of course, polio was subsequently eradicated, so what about The March of Dimes.  I don’t pretend to really know how the officers and directors felt about having the disease cured, but it was clearly a fact that the cure put The March of Dimes out of business.  If it was it to be a one-trick pony, its assets would have to be distributed, perhaps to other nonprofit organizations, but not to the officers and directors.  The March of Dimes had a very high profile and a well thought of “brand”.  No doubt, the officers and directors – twenty-three individuals today having governing authority for the corporation — thought it too valuable to be dissolved. No doubt they considered the situation in a business-like manner.  Their conclusion was to stay in business and fund a new cause.  The March of Dimes now funds research and aid programs benefitting mothers’ and babies’ health.  “We believe that every baby deserves the best possible start.  Unfortunately, not all babies get one.  We are changing that” is how the nonprofit organization presents itself to the public today.

The March of Dimes is a business, just as it was eighty years ago when it started.  It gathers money for the purpose of spending it on caring for expectant mothers and babies and pre-mature newborn’s health.  It provides some good for those beneficiaries.  Turning to its internal affairs, it reports having three million volunteers who seek donations amounting to more than 150 million dollars a year at the current rate. Salaries and compensation expense represent about 46% of revenues, grants to research hospitals and other charitable organizations use another 22% of revenue and all other expenses claim 36% of revenues.  This means that all the revenue from contributors is entirely spent.  Nevertheless, the corporation has $36 million of publicly traded investment securities, $11 million placed with a trustee (possibly for health or pension benefits) and accrued pension and healthcare benefits of about $60 million.  The accumulated cost of buildings and equipment owned by The March of Dimes is over $50 million.

I use The March of Dimes as an example of a respectable, legal and widely known charitable organization that is regulated by Federal and State governments.  This type of business is very easy to create, requires minimum amounts of capital and can reach “going-concern” status in a reasonably short time.  It is a business capable of making a nice living for a small-size staff in the usual business model.  A more risky “win big or go broke” approach is to keep abreast of social media and fund campaigns – marches, publicity, public acceptance – on a big subject while still in their infancy.  Examples of success are the Women’s March, #Metoo, Occupy Wall Street, et al.  The charity-as-a-business field is so large as to have a shortage of  worthwhile objects.  One really dreadful business identifies people and organizations which the “charitable” organization accuses of exercising or promoting hatred.  It then publicizes the accused’ names, ostensibly to drive them out of business as a “public good”.   Do not compare the remarks in this paragraph with the operation of The Salvation Army, Catholic Charities, Pacific Legal Foundation, Institute for Justice or churches, synagogues, mosques;  all worthy of public support.  Companies that collect and distribute “the news” are a variation on the theme.  In order to be successful today, news companies have to understand who its audience is, and then pander exclusively to that audience. It is no longer possible for the news media to give all sides on what it reports; most listeners are only interested in hearing good of what they already believe, and want vilification of the opposition.  This phenomenon of human nature is known as “confirmation bias”.  We all have it.                                                                                  November 12, 2019