Why do the rich give after they exit their ventures?


Entrepreneurs acquire enormous wealth after exiting their businesses through sales, IPOs or liquidation. But what happens after they exit their ventures?

In a study, “After the harvest: A stewardship perspective of entrepreneurship and philanthropy,” in the Journal of Business Venturing (2017), authors Blake D. Mathias, Shelby Solomon and Kristin Madison found 4 key reasons why the rich redistribute their wealth after exiting successful ventures.

  1. Intrinsic motivations: They want to do meaningful work after making large amounts of money.
  2. Identification: The rich want to have a sense of identity and advance a cause they believe in.
  3. Personal power and long-term orientation: They crave for an opportunity to influence future generations.
  4. Stewardship norms: Most feel they have a sense of obligation to give back.

This award winning study analyzed “The Giving Pledge” letters of 99 entrepreneurs and separately conducted in-depth interviews with 19 of them. In 2017, when the study was conducted, there were 142 individuals, 70% of whom were entrepreneurs who had signed on to the “The Giving Pledge.”

Today, there are over 200 individuals from 23 countries who are part of the “The Giving Pledge,” and have committed a majority of their wealth to philanthropy or charitable causes.

The study found that the rich display an innate responsibility to “act as stewards of their communities.”

And, this is very evident in the way latest entrants to “The Giving Pledge” like MacKenzie Bezos have committed to pledging over half of the $36 billion she inherited in Amazon stocks. “I have no doubt that tremendous value comes when people act quickly on the impulse to give. No drive has more positive ripple effects than the desire to be of service,” she says in her Giving Pledge letter.

“In addition to whatever assets life has nurtured in me, I have a disproportionate amount to share,” Bezos adds.

This reminds me of a well cited Princeton study “High income improves evaluation of life but not emotional well being,” that showed the world that anything beyond a $75,000 annual income will not buy you emotional well-being. Authors Daniel Kahneman and Angus Keaton found that emotional well-being rises with income but anything beyond $75,000 is not going to buy you happiness.

However, for those who have made so many more multiples than $75,000, their entrepreneurial exits, often called harvests, trigger their ability to give.

And, social expectation will prompt them to give, be good stewards of society and perhaps buy a little happiness on the way. But one thing is very clear: it is insanely difficult for the mega rich not to give!

Building effective relationships matters


On either side of the Atlantic, the wisdom you get to build relationships with your donors is interesting to learn. This came  true when  Professor Ian Bruce, President, Center for Charity Effectiveness at London’s Cass Business School talked about the theory and practice of building effective relationships.

According to Prof. Bruce, successful relationship building has four components: establishing relationships, strengthening relationships, customer appreciation and relationship strategies. In American terms,  this  means relationship building, stewardship and ongoing donor communications.

You scan your environment to seek out the most influential people interested in your cause. Engage them well, pay close attention to their needs and consider them the most important people in your network. Prof. Bruce advises that you must be ready to talk about the negative things that are  happening at your organization and how you are trying to fix them. What are the pillars that need to be strengthened?

Often, most of us forget the common sense initiatives we need to take to build relationships. This includes reliability (deliver what you promised), responsiveness (give prompt service always), assurance (convey trust and confidence), empathy (a caring attitude), and  always make sure  that you provide the best tangible experience of your assets.

Sometimes, giving up top spots allotted to your  CEO or leadership to high value customers will help strengthen relationships. According to Prof. Bruce, this will help you build financial and social bonding with your high value customer.

His highly acclaimed book “Charity Marketing: Delivering Income, Campaigns and Services,” elaborates on the theory and practice of building effective nonprofit marketing strategies.