The way we think about charity is dead wrong | Dan Pallotta
Summary
TLDRDan Pallotta challenges the traditional views on charity and nonprofit work, arguing that societal norms and misconceptions about overhead costs hinder the sector's potential for innovation and growth. He advocates for a shift in mindset to embrace the scale of dreams and the investment in fundraising to significantly increase the impact on social issues, rather than focusing on minimizing expenses.
Takeaways
- 🏳️🌈 The speaker identifies as a gay father of triplets, framing this as a form of social innovation and entrepreneurship.
- 🤔 He challenges the audience to consider the role of the nonprofit sector in effecting global change, suggesting that it's often overlooked in favor of business solutions.
- 💡 The speaker argues that while business can uplift the majority, it often leaves behind the most disadvantaged, highlighting the need for social business and nonprofits.
- 🚫 He points out the 'apartheid' between the nonprofit and for-profit sectors, with different rules that put nonprofits at a disadvantage, particularly in areas like compensation and marketing.
- 💰 The speaker criticizes the societal aversion to high compensation in the nonprofit sector, suggesting it discourages top talent from joining and thus limits the sector's impact.
- 📈 He emphasizes the importance of investing in growth, using fundraising as an example of how overhead can be essential for expanding the scale and effectiveness of charitable efforts.
- 🚫 The speaker decries the Puritan-originated belief system that equates charity with frugality, arguing it hampers the sector's ability to innovate and grow.
- 🤝 He encourages a shift in perspective from focusing on low overhead to encouraging and supporting the scale of dreams within the nonprofit sector.
- 💬 The speaker warns against the dangerous question of 'what percentage of my donation goes to the cause?' as it misrepresents the value of overhead in growth and innovation.
- 📊 He provides examples of how investment in fundraising can drastically increase the amount of money available for causes, contradicting the common belief that all donations should go directly to the cause.
- 🌐 The speaker envisions a change in societal attitudes towards charity that would allow the nonprofit sector to play a significant role in global change, emphasizing the need for a 'generosity of thought'.
Q & A
What does the speaker identify as the most socially innovative and entrepreneurial thing he has done?
-The speaker identifies being gay and fathering triplets as the most socially innovative and entrepreneurial thing he has done.
What is the speaker's main argument about the nonprofit sector's role in changing the world?
-The speaker argues that the nonprofit sector has a crucial role in changing the world, especially for the most disadvantaged, and that it should be a serious part of the conversation about social change.
Why does the speaker believe that the current approach to charity is undermining the causes we love?
-The speaker believes that the current approach to charity is undermining causes because it keeps nonprofit organizations small and ineffective against massive social problems due to outdated beliefs and practices.
What is the 'apartheid' the speaker refers to, and how does it affect the nonprofit sector?
-The 'apartheid' refers to the separate rulebooks for the nonprofit sector and the for-profit sector, which discriminates against nonprofits in areas like compensation, advertising, risk-taking, time to achieve results, and access to capital markets.
How does the speaker view the relationship between compensation in the for-profit sector and the nonprofit sector?
-The speaker criticizes the double standard where high compensation in the for-profit sector is accepted, but high earnings in the nonprofit sector are frowned upon, despite the potential for greater social impact.
What is the speaker's perspective on the importance of advertising and marketing for charities?
-The speaker believes that advertising and marketing are crucial for charities to grow and achieve greater impact, and criticizes the current attitude that discourages spending donations on these areas.
Why does the speaker argue that the fear of failure in the nonprofit sector is detrimental?
-The speaker argues that the fear of failure prevents nonprofits from taking risks and innovating in their fundraising efforts, which in turn limits their ability to raise more revenue and solve large social problems.
What is the speaker's view on the concept of 'overhead' in the context of charitable giving?
-The speaker criticizes the focus on low overhead as misguided, arguing that overhead is essential for growth and that it should be invested in to expand the scale of charitable efforts and increase their impact.
How does the speaker use the example of the AIDSRides and breast cancer three-day walks to illustrate his point about investment in growth?
-The speaker uses these examples to show how initial investments in growth and fundraising can be multiplied many times over, leading to significantly more funds for causes compared to not investing in such efforts.
What is the speaker's suggestion for how we should evaluate charities?
-The speaker suggests that instead of focusing on the rate of overhead, we should evaluate charities based on the scale of their dreams, their progress towards these dreams, and the resources they need to achieve them.
What is the speaker's vision for the potential impact of changing our approach to charitable giving?
-The speaker envisions that by changing our approach to charitable giving, we could significantly increase the funds available for social causes, particularly health and human services, leading to real social innovation and change.
Outlines
👨👧👦 Personal Experience with Social Innovation
The speaker, Joseph Geni, introduces himself and shares a personal anecdote about being a gay father of triplets. He humorously discusses the reactions he receives about his family and segues into the topic of social innovation and entrepreneurship. He emphasizes the importance of charity and the nonprofit sector in addressing social issues that business cannot solve, such as providing care and love for the developmentally disabled. He argues that philanthropy is crucial for those whom the market leaves behind and advocates for a world that works for everyone, stressing the essential role of the nonprofit sector in achieving this vision.
💰 Compensation Disparity in Nonprofits
Geni discusses the disparity in compensation between the for-profit and nonprofit sectors, highlighting how this creates a significant obstacle for nonprofits to attract talent. He compares the lucrative salaries of business professionals with the modest earnings of nonprofit leaders, illustrating how this drives talented individuals away from charitable work. Geni explains that the societal attitude towards money in charity, where high earnings are frowned upon, contributes to this issue. He argues that this mindset prevents the nonprofit sector from attracting the best minds, which is essential for solving large-scale social problems.
📢 Challenges in Advertising and Risk-Taking for Nonprofits
Geni addresses the challenges nonprofits face in advertising and taking risks. He points out that while businesses are encouraged to spend heavily on advertising, nonprofits are criticized for doing the same. This limits their ability to raise funds and grow. He provides examples from his experience with large fundraising events that raised significant amounts of money through strategic advertising. Geni also discusses the reluctance of nonprofits to take risks due to fear of failure and public scrutiny, which stifles innovation and growth. He emphasizes that this cautious approach prevents nonprofits from achieving the scale needed to address major social issues.
⏳ Time and Profit Constraints in Nonprofits
Geni explores the constraints on time and profit in the nonprofit sector. He compares the patience investors have with for-profit companies, like Amazon, which took years to become profitable, with the immediate results expected from nonprofits. He argues that nonprofits need the freedom to invest in long-term growth without the pressure to deliver immediate results. Additionally, he highlights the inability of nonprofits to offer profits to attract investment, unlike the for-profit sector, which further limits their growth potential. Geni stresses that these constraints put nonprofits at a severe disadvantage in solving large social problems.
📈 Impact of Overhead and Investment in Growth
Geni challenges the traditional view that low overhead in charities is inherently good. He explains that overhead costs, such as fundraising expenses, are necessary for growth and achieving scale. By investing in these areas, charities can multiply their funds and make a more significant impact. Geni provides examples of successful fundraising campaigns that generated substantial returns on investment. He criticizes the media and public for focusing on overhead costs without considering the overall effectiveness and scale of a charity's work. Geni advocates for a new way of thinking that values investment in growth to solve social problems effectively.
🏆 Generosity of Thought and Nonprofit Sector's Potential
Geni concludes by urging a shift in how society views and supports the nonprofit sector. He calls for a focus on the scale of nonprofits' ambitions and their progress towards achieving them, rather than fixating on overhead costs. Geni envisions a future where the nonprofit sector can play a massive role in addressing social issues if it is allowed to invest in growth and innovation. He emphasizes the need for a generosity of thought that enables nonprofits to dream big and make substantial changes. Geni hopes that future generations will be remembered for transforming how humanity tackles social challenges, fostering a world where no one is left behind.
Mindmap
Keywords
💡Social Innovation
💡Social Entrepreneurship
💡Nonprofit Sector
💡Philanthropy
💡Compensation
💡Advertising and Marketing
💡Risk
💡Overhead
💡Profit
💡Scale
💡GDP
Highlights
The speaker humorously introduces himself as a gay father of triplets, framing it as his most socially innovative act.
He challenges the audience's belief in the nonprofit sector's role in changing the world and questions its effectiveness.
The speaker argues that while business can drive humanity forward, it often leaves behind the most disadvantaged.
He emphasizes the importance of the nonprofit sector and philanthropy as the 'market for love' for those without a market.
The speaker points out the failure of charities to significantly impact issues like breast cancer, homelessness, and poverty due to scale and systemic beliefs.
He describes the 'apartheid' between the nonprofit and for-profit sectors, highlighting five areas of discrimination.
The speaker criticizes the taboo against high compensation in the nonprofit sector, suggesting it deters talent.
He presents a comparison of compensation between for-profit and nonprofit sectors, showing a significant disparity.
The speaker discusses the reluctance of nonprofits to invest in advertising due to societal attitudes.
He shares his experience creating large-scale charity events that leveraged advertising to raise substantial funds.
The speaker argues against the belief that fundraising overhead is a negative, using examples to show its potential for growth.
He criticizes the Puritan origins of the current nonprofit ideology and its impact on modern charity practices.
The speaker challenges the common question about the percentage of donations going to overhead versus the cause.
He provides examples of successful fundraising investments that multiplied initial capital significantly for charitable causes.
The speaker recounts the downfall of his organization due to media scrutiny over 'overhead' investments in growth.
He calls for a shift in perspective from focusing on low overhead to encouraging large-scale dreams and investments in growth.
The speaker envisions a legacy of changing the world by rethinking and reinventing the approach to social innovation.
He concludes with a powerful message urging the audience to consider the scale of a charity's dreams rather than just overhead costs.
Transcripts
Translator: Joseph Geni Reviewer: Morton Bast
I want to talk about social innovation
and social entrepreneurship.
I happen to have triplets.
They're little. They're five years old.
Sometimes I tell people I have triplets. They say, "Really? How many?"
(Laughter)
Here's a picture of the kids -- that's Sage, and Annalisa and Rider.
Now, I also happen to be gay.
Being gay and fathering triplets is by far
the most socially innovative, socially entrepreneurial thing
I have ever done.
(Laughter)
(Applause)
The real social innovation I want to talk about involves charity.
I want to talk about how the things we've been taught to think
about giving and about charity
and about the nonprofit sector,
are actually undermining the causes we love,
and our profound yearning to change the world.
But before I do that, I want to ask if we even believe
that the nonprofit sector has any serious role to play
in changing the world.
A lot of people say now that business will lift up the developing economies,
and social business will take care of the rest.
And I do believe that business will move the great mass of humanity forward.
But it always leaves behind that 10 percent or more
that is most disadvantaged or unlucky.
And social business needs markets,
and there are some issues for which you just can't develop
the kind of money measures that you need for a market.
I sit on the board of a center for the developmentally disabled,
and these people want laughter
and compassion and they want love.
How do you monetize that?
And that's where the nonprofit sector and philanthropy come in.
Philanthropy is the market for love.
It is the market for all those people
for whom there is no other market coming.
And so if we really want, like Buckminster Fuller said,
a world that works for everyone,
with no one and nothing left out,
then the nonprofit sector has to be
a serious part of the conversation.
But it doesn't seem to be working.
Why have our breast cancer charities not come close
to finding a cure for breast cancer,
or our homeless charities not come close
to ending homelessness in any major city?
Why has poverty remained stuck
at 12 percent of the U.S. population for 40 years?
And the answer is,
these social problems are massive in scale,
our organizations are tiny up against them,
and we have a belief system that keeps them tiny.
We have two rulebooks.
We have one for the nonprofit sector,
and one for the rest of the economic world.
It's an apartheid, and it discriminates
against the nonprofit sector in five different areas,
the first being compensation.
So in the for-profit sector, the more value you produce,
the more money you can make.
But we don't like nonprofits to use money
to incentivize people to produce more in social service.
We have a visceral reaction to the idea that anyone
would make very much money helping other people.
Interestingly, we don't have a visceral reaction
to the notion that people would make a lot of money
not helping other people.
You know, you want to make 50 million dollars
selling violent video games to kids, go for it.
We'll put you on the cover of Wired magazine.
But you want to make half a million dollars
trying to cure kids of malaria,
and you're considered a parasite yourself.
(Applause)
And we think of this as our system of ethics,
but what we don't realize is that this system
has a powerful side effect, which is:
It gives a really stark, mutually exclusive choice
between doing very well for yourself and your family
or doing good for the world,
to the brightest minds coming out of our best universities,
and sends tens of thousands of people
who could make a huge difference in the nonprofit sector,
marching every year directly into the for-profit sector
because they're not willing to make that kind of lifelong economic sacrifice.
Businessweek did a survey, looked at the compensation packages
for MBAs 10 years out of business school.
And the median compensation for a Stanford MBA,
with bonus, at the age of 38, was 400,000 dollars.
Meanwhile, for the same year, the average salary
for the CEO of a $5 million-plus medical charity in the U.S.
was 232,000 dollars, and for a hunger charity, 84,000 dollars.
Now, there's no way you're going to get a lot of people
with $400,000 talent to make a $316,000 sacrifice every year
to become the CEO of a hunger charity.
Some people say, "Well, that's just because those MBA types are greedy."
Not necessarily. They might be smart.
It's cheaper for that person to donate
100,000 dollars every year to the hunger charity;
save 50,000 dollars on their taxes --
so still be roughly 270,000 dollars a year ahead of the game --
now be called a philanthropist because they donated
100,000 dollars to charity;
probably sit on the board of the hunger charity;
indeed, probably supervise the poor SOB
who decided to become the CEO of the hunger charity;
(Laughter)
and have a lifetime of this kind of power and influence
and popular praise still ahead of them.
The second area of discrimination is advertising and marketing.
So we tell the for-profit sector, "Spend, spend, spend on advertising,
until the last dollar no longer produces a penny of value."
But we don't like to see our donations spent on advertising in charity.
Our attitude is, "Well, look, if you can get the advertising donated,
you know, to air at four o'clock in the morning, I'm okay with that.
But I don't want my donation spent on advertising,
I want it go to the needy."
As if the money invested in advertising
could not bring in dramatically greater sums of money
to serve the needy.
In the 1990s, my company created
the long-distance AIDSRide bicycle journeys,
and the 60 mile-long breast cancer three-day walks,
and over the course of nine years,
we had 182,000 ordinary heroes participate,
and they raised a total of 581 million dollars.
(Applause)
They raised more money more quickly for these causes
than any events in history,
all based on the idea that people are weary
of being asked to do the least they can possibly do.
People are yearning to measure the full distance of their potential
on behalf of the causes that they care about deeply.
But they have to be asked.
We got that many people to participate
by buying full-page ads in The New York Times,
in The Boston Globe, in prime time radio and TV advertising.
Do you know how many people we would've gotten
if we put up fliers in the laundromat?
Charitable giving has remained stuck in the U.S., at two percent of GDP,
ever since we started measuring it in the 1970s.
That's an important fact, because it tells us
that in 40 years, the nonprofit sector
has not been able to wrestle any market share
away from the for-profit sector.
And if you think about it, how could one sector
possibly take market share away from another sector
if it isn't really allowed to market?
And if we tell the consumer brands,
"You may advertise all the benefits of your product,"
but we tell charities, "You cannot advertise all the good that you do,"
where do we think the consumer dollars are going to flow?
The third area of discrimination is the taking of risk
in pursuit of new ideas for generating revenue.
So Disney can make a new $200 million movie that flops,
and nobody calls the attorney general.
But you do a little $1 million community fundraiser for the poor,
and it doesn't produce a 75 percent profit to the cause in the first 12 months,
and your character is called into question.
So nonprofits are really reluctant to attempt any brave,
daring, giant-scale new fundraising endeavors,
for fear that if the thing fails,
their reputations will be dragged through the mud.
Well, you and I know
when you prohibit failure, you kill innovation.
If you kill innovation in fundraising, you can't raise more revenue;
if you can't raise more revenue, you can't grow;
and if you can't grow, you can't possibly solve large social problems.
The fourth area is time.
So Amazon went for six years without returning any profit to investors,
and people had patience.
They knew that there was a long-term objective down the line,
of building market dominance.
But if a nonprofit organization ever had a dream
of building magnificent scale that required that for six years,
no money was going to go to the needy,
it was all going to be invested in building this scale,
we would expect a crucifixion.
The last area is profit itself.
So the for-profit sector can pay people profits
in order to attract their capital for their new ideas,
but you can't pay profits in a nonprofit sector,
so the for-profit sector has a lock
on the multi-trillion-dollar capital markets,
and the nonprofit sector is starved for growth and risk and idea capital.
Well, you put those five things together --
you can't use money to lure talent away from the for-profit sector;
you can't advertise on anywhere near the scale
the for-profit sector does for new customers;
you can't take the kinds of risks in pursuit of those customers
that the for-profit sector takes;
you don't have the same amount of time to find them as the for-profit sector;
and you don't have a stock market with which to fund any of this,
even if you could do it in the first place --
and you've just put the nonprofit sector
at an extreme disadvantage to the for-profit sector,
on every level.
If we have any doubts about the effects of this separate rule book,
this statistic is sobering:
From 1970 to 2009,
the number of nonprofits that really grew,
that crossed the $50 million annual revenue barrier,
is 144.
In the same time, the number of for-profits that crossed it
is 46,136.
So we're dealing with social problems that are massive in scale,
and our organizations can't generate any scale.
All of the scale goes to Coca-Cola and Burger King.
So why do we think this way?
Well, like most fanatical dogma in America,
these ideas come from old Puritan beliefs.
The Puritans came here for religious reasons, or so they said,
but they also came here because they wanted to make a lot of money.
They were pious people,
but they were also really aggressive capitalists,
and they were accused of extreme forms of profit-making tendencies,
compared to the other colonists.
But at the same time, the Puritans were Calvinists,
so they were taught literally to hate themselves.
They were taught that self-interest was a raging sea
that was a sure path to eternal damnation.
This created a real problem for these people.
Here they've come all the way across the Atlantic to make all this money,
but making all this money will get you sent directly to Hell.
What were they to do about this?
Well, charity became their answer.
It became this economic sanctuary,
where they could do penance for their profit-making tendencies --
at five cents on the dollar.
So of course, how could you make money in charity
if charity was your penance for making money?
Financial incentive was exiled from the realm of helping others,
so that it could thrive in the area of making money for yourself,
and in 400 years, nothing has intervened
to say, "That's counterproductive and that's unfair."
Now, this ideology gets policed by this one very dangerous question,
which is, "What percentage of my donation goes to the cause versus overhead?"
There are a lot of problems with this question.
I'm going to just focus on two.
First, it makes us think that overhead is a negative,
that it is somehow not part of the cause.
But it absolutely is, especially if it's being used for growth.
Now, this idea that overhead is somehow an enemy of the cause
creates this second, much larger problem,
which is, it forces organizations to go without the overhead things
they really need to grow,
in the interest of keeping overhead low.
So we've all been taught that charities should spend
as little as possible on overhead things like fundraising
under the theory that, well, the less money you spend on fundraising,
the more money there is available for the cause.
Well, that's true if it's a depressing world
in which this pie cannot be made any bigger.
But if it's a logical world in which investment in fundraising
actually raises more funds and makes the pie bigger,
then we have it precisely backwards,
and we should be investing more money, not less, in fundraising,
because fundraising is the one thing
that has the potential to multiply the amount of money
available for the cause that we care about so deeply.
I'll give you two examples.
We launched the AIDSRides
with an initial investment of 50,000 dollars in risk capital.
Within nine years, we had multiplied that 1,982 times,
into 108 million dollars after all expenses, for AIDS services.
We launched the breast cancer three-days
with an initial investment of 350,000 dollars in risk capital.
Within just five years, we had multiplied that 554 times,
into 194 million dollars after all expenses,
for breast cancer research.
Now, if you were a philanthropist really interested in breast cancer,
what would make more sense:
go out and find the most innovative researcher in the world
and give her 350,000 dollars for research,
or give her fundraising department the 350,000 dollars
to multiply it into 194 million dollars for breast cancer research?
2002 was our most successful year ever.
We netted for breast cancer alone, that year alone,
71 million dollars after all expenses.
And then we went out of business,
suddenly and traumatically.
Why? Well, the short story is, our sponsors split on us.
They wanted to distance themselves from us
because we were being crucified in the media
for investing 40 percent of the gross in recruitment
and customer service and the magic of the experience,
and there is no accounting terminology to describe
that kind of investment in growth and in the future,
other than this demonic label of "overhead."
So on one day, all 350 of our great employees
lost their jobs ...
because they were labeled "overhead."
Our sponsor went and tried the events on their own.
The overhead went up.
Net income for breast cancer research went down by 84 percent,
or 60 million dollars, in one year.
This is what happens when we confuse morality with frugality.
We've all been taught that the bake sale with five percent overhead
is morally superior to the professional fundraising enterprise
with 40 percent overhead,
but we're missing the most important piece of information, which is:
What is the actual size of these pies?
Who cares if the bake sale only has five percent overhead if it's tiny?
What if the bake sale only netted 71 dollars for charity
because it made no investment in its scale
and the professional fundraising enterprise netted
71 million dollars because it did?
Now which pie would we prefer,
and which pie do we think people who are hungry would prefer?
Here's how all of this impacts the big picture.
I said that charitable giving is two percent of GDP in the United States.
That's about 300 billion dollars a year.
But only about 20 percent of that, or 60 billion dollars,
goes to health and human services causes.
The rest goes to religion and higher education and hospitals,
and that 60 billion dollars is not nearly enough
to tackle these problems.
But if we could move charitable giving from two percent of GDP,
up just one step to three percent of GDP, by investing in that growth,
that would be an extra 150 billion dollars a year in contributions,
and if that money could go disproportionately
to health and human services charities,
because those were the ones we encouraged to invest in their growth,
that would represent a tripling of contributions to that sector.
Now we're talking scale.
Now we're talking the potential for real change.
But it's never going to happen by forcing these organizations
to lower their horizons
to the demoralizing objective of keeping their overhead low.
Our generation does not want its epitaph to read,
"We kept charity overhead low."
(Laughter)
(Applause)
We want it to read that we changed the world,
and that part of the way we did that
was by changing the way we think about these things.
So the next time you're looking at a charity,
don't ask about the rate of their overhead.
Ask about the scale of their dreams,
their Apple-, Google-, Amazon-scale dreams,
how they measure their progress toward those dreams,
and what resources they need to make them come true,
regardless of what the overhead is.
Who cares what the overhead is
if these problems are actually getting solved?
If we can have that kind of generosity --
a generosity of thought --
then the non-profit sector can play a massive role
in changing the world for all those citizens
most desperately in need of it to change.
And if that can be our generation's enduring legacy --
that we took responsibility
for the thinking that had been handed down to us,
that we revisited it, we revised it,
and we reinvented the whole way humanity thinks about changing things,
forever, for everyone --
well, I thought I would let the kids sum up what that would be.
Annalisa Smith-Pallotta: That would be
Sage Smith-Pallotta: a real social
Rider Smith-Pallotta: innovation.
Dan Pallotta: Thank you very much.
Thank you.
(Applause)
Thank you.
(Applause)
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