# Stuff That Matters: Non-profit to For-profit

I’m planning to publish a series of “Stuff that Matters” posts over the next couple of months, each exploring a particular industry or opportunity in detail, including such areas as education, health care, open government, energy, disaster response, security, manufacturing, supply chain management, and many more. But before I do that, I wanted my next posts, after the Work on Stuff that Matters: First Principles piece I wrote a couple of weeks ago, to share a couple of stories that illustrate the economic impact of work on stuff that matters.

When they hear the idealism of “stuff that matters”, many people immediately think of non-profits. This is not entirely inappropriate. The heart of my message is that work on stuff that matters is a great hedge in down times: even if there isn’t a huge monetary payoff, you’ve done something that needs doing. And it’s certainly true that non-profit enterprises are often a good way to tackle hard problems that the marketplace doesn’t seem to be addressing.

But I want to make clear that I’m not just talking about charity work. I’m talking about the creation of real economic value. There are huge opportunities for entrepreneurs in solving hard problems, and in so doing creating new markets that can be exploited not just by themselves but by those that follow in their footsteps.

# Online Financial Statements for Public Companies

The first story I want to tell is an unusual high tech success story. It is the story of an entrepreneur who created a huge market and set the stage for a big part of the modern financial world, via a non-profit project that he eventually donated to the U.S. government!

It was 1993. The world was just waking up to the commercial potential of the internet, but it was still largely a market of enthusiasts, people who were putting information online for the love of it.

Carl Malamud had a big idea: we, the people of the United States, were paying for a lot of great data to be collected, but we had very bad access to it. In fact, the government was providing the data to “value added resellers” who charged a pretty penny for public access. As Carl himself tells the story:

In the summer of 1993, I was helping my friends at Sun Microsystems give a demonstration of the Internet to the Subcommittee on Telecommunications and Finance of the U.S. House of Representatives….

After the demonstration, Chairman Edward J. Markey, came up to me and wondered if I could look into something that was bugging him. His subcommittee had responsibility not only for the telecommunications industry, but also for oversight of the Securities and Exchange Commission. A bunch of Nader’s Raiders had been sending in petitions to the subcommittee asking why the SEC filings weren’t available on the Internet. The initial reaction from the SEC was that the reason the data wasn’t on the Internet was that it was technically impossible, and that even if the data were available the only people interested in SEC fillings were Wall Street Fatcats and they didn’t really need subsidized access to data they were willing to pay for.

If something is technically impossible, I get interested. I looked at the EDGAR system and decided it was worth taking a crack at it. Our first cut at the problem was to try and work with the SEC. Chairman Markey’s Chief of Staff asked the SEC to come in and discuss the idea of giving us the data and letting us put together an Internet site. There was a bit of pushback, to say the least.

The problem was the 70’s era data processing system that the SEC had put in place in the late 80’s. The deal was that EDGAR was way too rough for consumers to digest. It needed, to speak the MIS lingo of the time, “value-add.” Who would add value? Well, the SEC had cut a contract with a data wholesaler who would add value. The wholesaler, in turn, would sell to information retailers who would add even more value. Then, the information would be sold on the retail information market to the Wall Street crowd who had an interest in the data. Obviously, if we gave away all this information on the Internet, it would subvert our entire Free Enterprise System.

In that meeting with the SEC and the Chairman’s staff, my favorite moment was when we got to the question of why in the world people would want to see EDGAR data. I maintained that the Internet was full of lots of people—students, journalists, senior citizen investors—who were dying for access to this data. The SEC felt that only a few people would want to see EDGAR documents, and besides the Internet (or “the ARPANET” as they kept referring to it) “didn’t have the right kind of people.”

Now, this was a cheap shot, and I understood that what they meant was “there weren’t a lot of people, just a few researchers,” but I couldn’t resist.

“The right kind of people?” I said, rising up in my chair. “I think the American people are the right kind of people.”

So much for the idea of working cooperatively.

Carl got a donation of hardware from Sun, a small grant from the National Science Foundation, bought a dump of the SEC data, and together with a couple of other visionary hackers, built a free Edgar online service that went online in January 1994, starting first with ftp access, and eventually creating a web front end.

Carl and his compatriots ran the service for 18 months, garnering 50,000 daily visitors (a big number in those early days!), proving the point that there was public demand. But, Carl continues:

Our goal, however, wasn’t to be in the database business. Our goal was to have the SEC serve their own data on the Internet. After we built up our user base, I decided it was time to force the issue. That’s when the fireworks began. When users visited our EDGAR system in August 1995, they got an interesting message:

Click here they did! One of the lessons I’ve learned from building Internet services is that when people get something for free, they want their money’s worth.

Just by coincidence, the SEC had scheduled an EDGAR Technology Conference for August 14, 1995. We weren’t invited, natch, but felt that it was a public meeting and it might be fun to attend. The purpose of the conference was to look at the question of filing EDGAR documents, not necessarily the question of disseminating EDGAR documents, but I suspected that our announcement on the Internet EDGAR service might skew the agenda.

I have to say that my faith in government was restored after this. The commissioners of the SEC had clearly not been aware of the issue, but there is nothing like pieces in the Wall Street Journal and 15,000 messages to the Chairman to raise the profile of an issue. We were called in to meet the commissioners and the Chief of Staff to explain what it would take to run an EDGAR service. The new head of MIS at the SEC, Mike Bartell, turned out to be a real live wire and he volunteered to have the SEC run the service.

After a bit of checking with the congressional oversight committees, the SEC said they were ready to go. We loaded a couple of computers in the back of a station wagon and drove down to SEC headquarters and set them up a system. On October 1, the day we had said we would terminate our service, the SEC was fully operational.

The point of this story is threefold:

1. Non-profit activity can raise the floor, enabling new kinds of commercial activity. By proving the demand for public access to financial filings, Carl’s project contributed to the world we take for granted today, where sites like finance.yahoo.com and finance.google.com provide to the general public information that was once only available (at high price) to a small population of Wall Street insiders. I’m not saying that without Carl, E*trade and its ilk would never have sprung up, but there’s a reasonable chance that his work made possible more than one entrepreneurial fortune.

For even more graphic examples, consider the internet itself, and open source software, neither of which began with the profit motive, yet created huge commercial ecosystems. Look carefully at the world of non-profits, and you’ll see a shopping list of opportunities for entrepreneurs to build on. I’m particularly excited about opportunities in health care, disaster relief, and energy, all of which are ripe for transformation by new technology.

2. There’s a huge opportunity for hackers (read: people with good computer skills) to help along the ambitious agenda of the current administration to create a more open, responsive government. (I’ll address some of the most interesting current projects in a later post specifically on the government opportunity.)

3. A small number of very technical people can often accomplish tasks that large, existing players consider too difficult, or prohibitively expensive. I’ll be returning to this topic in future posts.

# Taking a Venture Capital Approach to Scientific Research

The second story is a report on a meeting I had a couple of weeks ago with Andy Rachleff, a former partner at Benchmark Capital, who has been working on the idea of how to inject more entrepreneurial energy into cancer research, and Lorraine Egan, the director of the Damon Runyon Cancer Research Foundation, who has become his partner in disruption.

Here’s a recent NBC video in which Andy and Lorraine explain what they are up to:

Lorraine also sent me some notes after our meeting, which she has given me permission to reproduce. She asks why we aren’t making more progress in the war on cancer, and answers:

There are a lot of reasons, but the one Damon Runyon is focusing on is the failure to invest in the high risk/high reward ideas of early career investigators. The thinking behind the Damon Runyon-Rachleff Innovation Award is that young people are the most likely to have bold, transformative ideas and the passion and drive to pursue them. They need “venture capital,” but they are not getting it. In fact, they are encouraged to think small.

The scientific community, it turns out, is risk averse and conservative. The National Institutes of Health, with a current budget of $29 billion, funds incremental research rather than new ideas. In fact, only .5% of its budget is specifically committed to new ideas. The culture of biomedical research has evolved into one where researchers focus on singles rather than home runs; where “elegant science” that can be published in journals is the key to success, rather than development of ways to actually prevent, diagnose or cure disease. Additionally, the NIH strongly favors senior scientists. The average age for scientists receiving their first independent grant from the NIH is now a startling 42 for PhDs and 43 for MDs or MD/PhDs. That flies in the face of what we’ve learned about youth and innovation from the information technology revolution. To try to address this problem, each year Damon Runyon is giving out the Damon Runyon Rachleff Innovation Awards, each$450,000 over three years, to young scientists pursuing high risk, potentially breakthrough research. This year’s winners are doing research on early detection of ovarian and lung cancer, bone marrow transplant safety, and discovery of new genetic markers for cancer.

Now, here’s the point that’s relevant to this post. If any of these folks make real breakthroughs, there will be a big payoff. Much as is the case with traditional venture capital, investing in breakthrough research may lead nowhere, but the successes can pay for an awful lot of failures.

# Where We Need Breakthroughs

I’ll be writing followup posts on each of these areas, but I thought I’d outline just a few of the high-potential areas where tackling big problems (problems perhaps now mainly tackled by governments and non-profits) will lead to enormous payoffs:

• Health care. Most developed countries have an aging population. If health care costs aren’t to go through the roof, we need real breakthroughs in reducing the costs of health care – health care delivery, diagnostic procedures, and overhead. There may be some systemic reforms that could reduce costs, but how about breakthroughs in actual technology? (I hope to write soon about a fascinating meeting I had with one entrepreneur who is working on a new diagnostic approach that could replace a $25,000 procedure with one costing 20% as much.) Meanwhile, developing countries will soon be consuming much more health care. If it’s as badly managed and expensive as ours, ouch! And in third-world countries, unmet health needs are a huge drag on the potential of those countries’ peoples to participate in the world economy. • Energy. New forms of renewable energy, energy-efficient materials, smart devices that use energy more efficiently (think hyper-miling for your house, office, and factory, not to mention a smart grid, are all going to be fertile ground for new fortunes to be made by people doing work that matters. • Reinventing Regulation and Risk Rating. With the intellectual bankruptcy of ratings agencies like Moody’s and Standard & Poors, there’s a crying need for new tools for financial transparency. What can we learn from reputation systems on the net, from anti-spam efforts, and other kinds of automated detection of malfeasance and breakdown? • Education. Our educational system needs to be reinvented. Why are we still using 19th century methods in the 21st century? When will we take the best practices of self-starters and apply them to general education? When will we take the opportunity of networking to build educational communities of interest and peer learning? How can we take better advantage of the net’s ability to deliver information at lower cost and to customize learning paths? There are many more examples. I hope to write in detail about each of these areas, with pointers to startups doing breakthrough work. I’d love your input and ideas. If you have a startup that is working on stuff that matters, or know of one, use the comments to put it on my radar. Thanks. tags: • http://kevincurryblogspot.com Kevin Curry Most underrated takeaway quote: “Our goal, however, wasn’t to be in the database business. Our goal was to have the SEC serve their own data on the Internet.” In other words, I see tremendous value in “simply” taking the data we have already available for mass consumption and actually opening it up (freeing it from proprietary and domain-specific applications) for mass consumption. The mental image that sums this up and inspires me is the journey from a “couple of servers in the back of a station wagon” to what we now know as modern, online financial reporting. I’ll be watching for the promised follow-up to: “3. A small number of very technical people can often accomplish tasks that large, existing players consider too difficult, or prohibitively expensive. I’ll be returning to this topic in future posts.” That has both health insurance and government bureaucracy solutions written all over it. Although, I’m nervous, at 38, that I a may approaching over-the-hill and the end of my usefulness. :^) • Dennis Linnell Regarding the need for breakthroughs in health care — Though the US is a leader in medical technology, our health care system is grossly dysfunctional. You have your finger on the pulse when you write, “Meanwhile, developing countries will soon be consuming much more health care. If it’s as badly managed and expensive as ours, ouch!” Breakthroughs in management, as opposed to technology, may hold the key. Here’s an eye-opening letter to the editor of The Economist, Jan 22, 2009 issue: “SIR – Michael Moore’s claim that Cuba has a better health-care system than the United States is not as “ridiculous” as you think (“Health screen”, January 10th). The United States was ranked 37th in the latest report on health care from the World Health Organisation, whereas Cuba ranked 39th. I suspect there is little difference between being placed 37th and 39th. However, when productivity is factored in Cuba’s health-care system does indeed seem to be more effective than America’s. America spends 15% of GDP on health care (which works out at$6,700 per person in 2006 dollars) while Cuba spends 8% ($360 per person). Most businesses would consider themselves better than their competitors if they delivered an equivalent product or service at one-twentieth the cost. Kenneth McLeod, Chair, Department of bioengineering, Binghamton University” http://www.economist.com/opinion/displaystory.cfm?story_id=12970732 How did we get ourselves into such a shameful situation? Is it possible that technology is actually making US health care less efficient? • http://www.ClimateFoundation.org Brian Von Herzen In working on stuff that matters, a key element is to find scalable solutions that use capital markets to scale globally. In energy sustainability, that means monetizing carbon. On environmental issues, it means offering near- and long-term solutions to stakeholders that can finance the scaling. The challenge and the opportunity is to enable a Silicon Valley style of venture culture around solving critical climate, economic and environmental issues in an entrepreneurial way. So many aspects of government (like the SEC example) are resistant to entrepreneurial efforts, whether profit or non. Why should it take Carl, in the example above, 2 years of his life to get SEC to adopt an EDGAR approach? And why has it taken another 15 years for the SEC to adopt XBRL technology to standardize reports in a database? That’s about 13 years too long, and only demonstrates that you can take a horse to water but not get him to drink. The SEC should have been funding XBRL in 1996, and here it is, 2009 and adoption will only be required 13 years later for companies$5 billion and greater. This pace of progress is truly glacial, and needs to be accelerated by public funds going to entrepreneurial operations like Carl’s. Otherwise we will be condemned to repeat history.

Tim – Please check out http://www.buythechange.com, a for-profit startup that’s leveraging capitalism to enrich communities (stuff that matters).

buythechange is a social commerce network that helps people buy and sell with friends and neighbors and it contributes 1/3 of member fees to local non-profits, as chosen by each member.

We just launched in early beta in the Twin Cities, MN. I’m co-founder and CEO and would love to hear your thoughts. Thanks.

• http://www.mymeemz.com Alex Tolley

There were (and are) huge vested interests in keeping public data private and reselling it for a profit. This phenomenon is not unique to the US either. It probaby has become more of a problem in both the US and the UK as they both have had a similar attitude to “starving the government beast”, forcing their respective agencies to raise funds through private means. naturally this leads to a conflict of interest, where public funded data collection is not disseminated to the public even when it could be, cheaply.

The funding of healthcare breakthroughs does not seem so innovative to me. VC money has been funding biotech since the 1970’s, with some success. Many of these startups have been very innovative. I do agree that the NIH has become very conservative. Since scientists need research grants to do their work, it is quite natural that they will offer proposals that will best meet NIH guidelines. The solution is not to bypass the NIH, but to change the NIH. Offer a larger piece of the pie for new, blue sky, research and the scientists will come upo with the proposals. It is worth noting that Aubrey deGrey’s rather radical ideas for anti-aging needed private funding, mostly from the usual suspects – the aging wealthy.

US healthcare is a broken system, as anyone with experience other countries knows. A major culprit is the “fee for service” system. Does it not strike anyone as wasteful that each physician visit is commenced with the mandatory weight, blood pressure and pulse readings done by a nurse. We each can provide a larger and better sample of data on our own with bathroom scales and low cost blood pressure machines. And let’s not get started on the utter waste of filling in personal and insurance data by hand for every medical office, instead of just using a smart card, or better still, obviating the need with universal healthcare.

Education is another example of vested interests. Sometimes I get the sense that children are hostages to these interests. Try getting any information on actual teaching costs versus total costs for your local school district. It’s opaque.

But a real opportunity exists in adult education. Imagine if you could get a qualification by studying free online course ware and passing a series a exams to prove you understood the material. How low could educational costs go and how widely would knowledge spread?

• http://lmframework.com David Semeria

One thing that has always bothered me is how the for-profit and non-profit worlds seem unable to overlap. I can’t understand why we have to make this binary choice. Wouldn’t it be nice if you could start up a company that was 75% commercial and 25% charitable, for example.

I’ve been working for some time on a software licensing system which does just that. It allows commercial and charitable interests to co-exist on the same platform.

Hopefully, it will be the first of many such initiatives.

• http://www.wiziq.com/ Gurjinder Singh Brar

“Our educational system needs to be reinvented. Why are we still using 19th century methods in the 21st century?” Yes Tim I agree with you. http://www.wiziq.com/ has same goals (just started; trying to achieve). WiZiQ is providing free web based virtual classroom ( http://www.wiziq.com/Virtual_Classroom.aspx ) to teachers and students to collaborate online (eliminating travel time & cost), free educational tutorials and practice exams for learners (created by teacher for their learners or all learners interested in that topic).

For “build educational communities of interest and peer learning” – WiZiQ is enabling this by practice exams (also some other features like teacher search, member search based on interest is there). {Learners can share practice exams with their friends and compare their scores with friends and discuss that topic using Virtual Classroom} – I think this is enabling peer learning in community of similar interest learners.

Now our all algorithms are focusing on how students can find a better teacher on WiZiQ, teacher recommended educational content (teacher can upload all type of file formats in virtual classroom and share it with their students) and enabling peer learning with practice exams created by teachers, and generating online teaching business opportunity for teachers. Means we are trying to add value in academic as well as real learning of students which adds value in their career.

But we are still far away from our real goal, “Online learning for every human being (child, student or professional) at lowest possible cost”. Wish us All the Best. Thank You

A good beginning, Tim, though for a rarity you’re thinking too small in some areas, and too narrowly in others. I look forward to the upcoming posts.

On nonprofit vs. for-profit:

O’Reilly has historically been a responsible for-profit, but it’s somewhat exceptional. The non-profit world serves different needs than the for-profit, though there is, indeed, great overlap.

But take a look at, for example, scientific publishing — in the post-WWII economy, most nonprofit scientific journals were bought up by a handful of for-profit publishers who, over the following decades, began to ratchet up the prices far beyond what institutional libraries could afford, producing a dramatic shift in library resource use; an increasing share of nonprofit money went to for-profit scholarly publishing. One could argue that \$50,000 a year is a fair price for a really important specialty journal, but it’s not an argument that fits into the “stuff that matters” meme.

In that case, rapacious for-profit cherry-picking decreased the means that nonprofit publishers had to fund their other, less profitable work in the humanities, the social sciences, or the sciences themselves.

For-profit takeover of formerly nonprofit work can also describe what has happened with Blackwater and the privatization of the military in general — higher costs, less accountability, and unintended consequences.

I’ve worked in nonprofit publishing for nearly 25 years, and while I recognize the need for a risk-reward economy, some care needs to be taken to acknowledge that the “public good” rarely is super-profitable. It can be sustainable, but is rarely profitable.

On breakthroughs:

That said, over the years I’ve frequently worked gratis for a year or more on related side-projects — “stuff that matters” projects that I hoped would end up being profitable, even fabulously so.

But my goals have changed over time. For the last 18 months my main side project is with my oldest bestest friend, which has been changing my entire thinking on “what *really* matters,” and what “breakthroughs” we need in the next decade.

For more than a year we’ve been documenting and recording stories on the great unravelling of our livable world, and trying to make fun of it. Climate chaos is a thread, just as ocean acidification, and overfishing, and resource depletion, and pharma-laced water supplies, and dead zones, and the toxic plastic gumbo twice the size of Texas gyring in the Pacific. It’s the heavy metals we’ve been spewing willy-nilly out of coal plants, the persistent toxic runoff from our cities and farms, and the debt of poison we’re bequeathing to our children.

We’ve been trying to work out a way of making these stories funny, because otherwise nobody wants to know about the jellyfish swarms, the orcas sickening from salmon poisoned with PCBs and flame retardant, the collapse of bats in the Northeast, and the precipitous loss of biomass from the oceans.

*These* are the problems that truly must be addressed. *These* are the problems that Really Matter. Our little project is a stab at trying to nudge some momentum.

Healthcare? Well, it’s important, just like Education. Reform of risk/reward regulation? Also important.

But they are not the problems to which I want to find non-profit *and* for-profit solutions.

We’ve been doing the project as part of our burden of responsibility, I suppose — and of course hope to find some ways down the road to “profit” from it, in the sense of making it sustainable, rather than a continuing out-of-pocket donation to the greater good.

But it’s not because of a false sense of “charity” that we’re doing it. We’re doing it because it’s the stuff that truly matters, in the short term *and* the long.

I got a bit carried away — but I hope you broaden the targets you’ll be addressing to include a recognition that there are Really Big Juicy Gnarly problems that don’t have an easy profit motive behind them — just the survival motive.

• http://tim.oreilly.com/ Tim O'Reilly

Bill Gates’ annual letter on the work of the Gates Foundation is a great read on the issues being tackled by one of the biggest non-profits. Worth reading.

• Lorrie LeJeune

Tim: I’m really glad to see education as one of your four bullet points. From bioinformatics books to OpenWetWare you know I’ve always been on a bit of a crusade to help people understand and learn about science. Science education really matters to me and at Nature Education I think I’ve found something that could really have an impact in a 21st century way.

Take a look at http://www.nature.com/scitable, which is our online library of science content and social learning tools. It has three characteristics not often found in combination and that I think are critical to the future of educational publishing: 1) it’s online, 2) it’s authoritative and reliable, and 3) it’s open to everyone. The social learning tools include virtual classrooms, learning paths through the material, and “ask the experts”, and all are aimed at helping science students and teachers make the most of the content. We’re still in the early days and there’s plenty of evolution to come, but we’re seeing an enthusiastic response right out of the starting gates. And Nature’s backing means we have the resources to get it right.

• Andrew

Regarding: “Why are we still using 19th century methods in the 21st century?”

I don’t want to be pedantic, but I thought I’d point out that being a century or more old doesn’t automatically make a method obsolete.

Consider: the wheelbarrow was invented how long ago? Why are we still using them? Because they work.

In particular, many of the educational “methods” that fail to work were adopted fairly recently.

• http://aweblander.blogspot.com/ Sumit Roy

Hi Tim,

Thanks for this post. This is really a great initiative to collaborate internet usage to Non Profit procedures.

It would be great to utilise our internet prowess much like Carl Malamud did to attend to the most grave and alarming issue of our times. Global Warming.

Looking forward for your future posts.

Sumit Roy

• http://www.debatewise.com David Crane

I’m working on a non-profit called Debatewise.com. We’re creating a Wikipedia for debate, an encyclopedia of opinions if you will, something people unsure of an issue can refer to when they want to make up their mind.

As it happens, what we’re doing turns out to be a bit of a peer learning environment. Our content creation comes mostly from students in, or about to attend, university. They seem to really enjoy sharing what they know and increasing their knowledge by learning from others. They’re open and inquiring and enjoy the idea of leaving their mark on the world in this way. They’re also very comfortable with technology and into using wikis, not that that’s news.

Ours is and always will be a non-profit. However, at some point we hope to start generating revenue from the site. All money above operating costs will be donated to charities and we’ll allow our members to decide which ones they are. We hope this will further engage people with the idea and give them another reason to visit and contribute to us.

• http://www.webappwednesday.com Michael R. Bernstein

Andrew, why don’t you want to be pedantic? It is perfectly appropriate in this context. ;-)

Regarding the 19th century origins of the US educational system, I still find John Taylor Gattos’ “Underground History of American Education” to be one of the best books on the subject: http://www.johntaylorgatto.com/underground/

• http://www.facilitatingchange.org/ Christine Prefontaine

Tim – Thanks for your tweet about http://www.buythechange.com back on February 1. You concluded it with the simple yet spot-on statement that “Local matters”. In the nearly two months since then we have intensified our local focus and just released a Twitter App http://www.localtweeps.com with the aim of localizing the Twittersphere.

By mapping Twitter profiles and content to ZIP codes, Localtweeps encourages local connections and local information sharing. We’ll help you find local tweeps, get found locally and report geographic Twitter activity and content trends.