TLDR: The shortest version of this argument is very simple: your expectations for an organization should be higher where their budget and staff size are higher. In other words, we should have different expectations for a 20-person organization with a $1.5 million budget than a 2-person $150,000 budget organization.
While this seems pretty clear in the abstract, I find that people tend not to update nearly enough on this when they should. For example, I often see people comparing the total research output of two organizations, yet when I ask about it, they will not know the yearly budget or staff size of either. This is a big problem. As a movement, we want to support efficient and effective organizations, not just organizations that are the biggest, most salient or currently the highest funded.
Budgets and staff
When considering how impressive an organization's output is, one useful framing is the following:
1) What has this organization accomplished over the year (perhaps pulling this information from an annual report)
2) How much budget and how many staff would I expect the organization to need to do what they are presently doing.”
It is easy to then look up an organization’s budget or staff size and adjust your conclusions accordingly. If the budget and staff size are much lower than expected, you end up being impressed with the organization. On the flip side, if the organization and its budget are much higher than expected, it makes sense to be less impressed with the organization. Budgets are often public or findable, as are the organization's activities over the last year, so it is quite possible to compare them.
To pick on my own organization as an example, you could think about the actions and activities of Charity Entrepreneurship/AIM over the last year. Most significantly, we’ve launched ~13 charities, built out our 2 other new programs (grantmaking and research training), and laid the foundations for a fourth program (our Founding to Give incubator launching early next year).
Intuitively, what might you expect a reasonable budget and/or staff size to be in order to accomplish this work? You do not need to have an amazing sense of organizational budgets to do at least a rough estimate. I am pretty sure that if AIM/CE achieved these outcomes with an annual budget of $100k, everyone would (rightfully) think that is an amazing deal, and perhaps one that is too good to be true. On the other side, if it cost us $20 million, I expect people would generally (again rightfully) be a lot less excited.
Comparative size
Another way to get a sense of this is to look at comparative size. If you have a bunch of donation options you are considering, you can map out their comparative size and think about how they directly trade-off.
For example, let’s take a hypothetical funding proposal I receive for something costing $450k. I know the average seed grant for the CE incubated charities is about ~$150k. This means that a useful way of assessing the value of the funding proposal is to think of this as the equivalent of three seed grants. Thinking about the proposal in this way is crucial: it’s easy to compare two funding applications 1:1, or at least not adequately scale expectations with the scale of difference in funding ask. If I was not careful, I think my default would be to compare that $450k application 1:1 vs one of the seed grants when this is not the accurate point of comparison at all. This is true even if I am only covering a portion of the funding, as the net funding is still typically pulled from sources that fund other promising projects. This difference in expectation can be even more dramatic with organizations that have budgets that are different by orders of magnitude.
In theory, organizations with ~2x the budget should produce about ~2x the output. There are, of course, reasons in practice to believe that output does not scale quite so linearly with increases in resources. However, these reasons crucially fall on both sides of our possible expectations, suggesting a linear increase in outputs is a reasonable base expectation. Perhaps cofounder staff tend to be stronger than later hires, thus resulting in less output per budget with bigger organizations. On the flip side, principles of specialisation and economies of scale from the for-profit world suggest we might expect growth in outputs to outpace increases in budget size.
Why this matters
Personally, I tend to find that smaller organizations are effectively penalized by people not really having a sense of what the costs of a given organization are in comparison to each other, or not adequately factoring in this information when comparing outputs.
Grantmakers and donors being more sensitive to organizational size could lead to a more effective marketplace for donations. I’d expect people's exact judgments on how growth output and resources correlate will vary a lot depending on breadth vs depth intuitions and several other such differences. Regardless, having more direct comparisons and explicit consideration of resources relative to impact should lead to more informed donation choices.
P.s. If you found this interesting, you may want to check out Ambitious Impact's Impactful Grantmaking Training Program or our Charity Start-Up Incubation Program.
This is an important argument and makes a lot of sense.
"I'd say there's a decent number of highly effective charities with very valuable IP that are too leveraged on the output of very few staff members."
I agree with this, apart from the word "too". I've got no issue with a few talented people carrying an organisation - I think that's just how both charity and business often work for a long long time. How much of Apple's value was in Jobs and Wosniacki even after they were worth billions? How much of their current value is still a legacy of the style and philosophy they built?
This next statement though I think makes sense in theory and I agree to some extent. But I've seen the opposite happen most of the time.
"Increased cost effectiveness over time usually comes from investment in quality assets (I'd include staff costs as assets - for management accounting purposes not for external financial reporting purposes)."
I think this is more the case in the business world as incentives are unfortunately so cooked in the charity world that as organisations grow , it's hard to avoid very poorly performing staff getting paid way too much and for too long. We need to invest in staff to grow an organisation, and it's probably just the right thing to do by our fellow human, but unfortunately I'm not convinced it always makes us more cost effective. I would be interested to hear what examples your have of charities that you think have become clearly more cost effective through investing unusually heavily in staff? Although this might be an unfair question so it's hard to separate that it out.
Often as well I've seen in my org in UgAnda, if I invest heavily in good staff (which we do) they are more likely to get a higher paying job in the NGO or government sector so often the investment doesn't pay off for us. I've seen a number of cases too not in our org where super talented staff were funded for extra study which then directly enabled them to get a better paying job somewhere else. It's complicated. In Western EA orgs where you might have the luxury of relying partly on value alignment this situation might be very different. There's loyalty here but often more to to individual people than a value structure or org.
In my experience with NGOs, staff salaries and "investment" in staff usually end up increasing often to the detriment of the cost effectiveness of the org. Again I'm not saying it's the wrong thing to do. Just observing.