My Thoughts on Dan Pallotta’s “The Way We Think About Charity is Dead Wrong”- Summary

I’ve written 5 posts on Dan Pallotta’s “TED Talk”: “The Way We Think About Charity is Dead Wrong” (and of course giving my opinion along the way).  (You can find the video here in case you haven’t seen it:  http://www.ted.com/talkslang/he/dan_pallotta_the_way_we_think_about_charity_is_dead_wrong.html?source=facebook#.UUgVUSeiOi1.facebook ). 
 
So, now it’s time to sum up. Dan’s main 5 points about the non-profit world are: 
 
1) You cannot use money to lure talent away from the for-profit sector
 
2) You cannot advertise on the same scale as the for-profit sector
 
3) You cannot take (economic) risks in pursuit of new donors in the way that the for-profit sector can in pursuit of new investors/clients 
 
4) You don’t have the same amount of time to find donors as the for-profit world has for finding investors/customers
 
5) You do not have a stock market to fund your organization (or the ability to pay profits to your donors, in order to receive risk capital for new ideas) 
 
Dan feels that due to all these points above, the non-profit sector is at an extreme disadvantage to the for-profit sector on every level. He brings a (rather scary) statistic that from 1970-2009, the number of non-profits that grew enough to cross the $50 million dollar annual revenue barrier, is 144. And businesses in the for-profit sector during the same time period? 46,136
 
Dan has a very interesting theory that the whole notion of not being able to make money in a non-profit organization stems back to the Puritans (at least in the US). He felt that, as both Calvinists and capitalists, the Puritans used charity as a way to ease their consciousness about the fact that, due to their capitalist endeavors, they were very successful. And from there comes the idea that one should not make money from a non-profit; non-profit and for-profit are completely separate. (See the video for Dan’s full explanation.) Dan feels that this way of thinking is incorrect, and needs to be changed if non-profit organizations want to succeed. I think it is an interesting point, but there are other main world religions that also encompass the aspect of charity, so I’m not sure that this paradigm can really be applied to the very diverse world-wide non-profit organizations. 
 
Another “dangerous” question, according to Dan, is: “What percentage of my donation goes to the cause, versus overhead?” Dan feels that this is problematic because it makes us feel that overhead is something negative, and not part of the cause. Dan states that overhead IS part of the cause, especially if it contributes to growth. I completely agree with him (as I stated clearly in Part 2 of this series). 
 
Dan asserts that the viewing of overhead as something that detracts from the cause leads to an even bigger problem, which is that charities will forego what they need to grow, in the interest of keeping overhead low. For example, many organizations feel that they should not invest too much in fundraising (i.e. overhead), so that more money will be available for “the cause”. However, Dan states (and I agree with him) that investing in fundraising has the potential to raise more funds. (It seems kind of obvious, but apparently it needs to be said 🙂 ) Dan feels (and again, I agree) that fundraising should be the #1 investment of an NGO, because it is only through fundraising that you have the potential to multiply funds for your cause. 
 
Dan states, very powerfully, that the problem is that we (society) are confusing morality with frugality. People are taught to think that a volunteer-only organization with 5% overhead is morally superior to a professionally run organization with 40% overhead. The point that we are missing is the scale of the organization. A volunteer-only organization might make hundreds of dollars with their 5% investment in overhead, but a professional organization could make millions of dollars with a 40% investment in overhead. 
 
Dan says (and again, I agree- see Part 2 of this series!) that it is an absolutely demoralizing for a non-profit organization to have the objective to “keep its overhead low”. The main goal of an NGO should not be “to keep overhead low”. Those of us who work in the non-profit sector want to change the world, and in order to do that, we need to change our way of thinking. 
 
Dan appeals to the donors, saying that if they want to truly support an organization, they should not ask them what their overhead is, but rather, what are their big-scale dreams and visions, and what resources they need to make these visions come true (regardless of the overhead). This would be a true “generosity of thought”, and would allow the non-profit world to make big, positive changes for the causes they support. 
 
Dan asks that our generation “take responsibility for the thinking that has been handed down to us, revise it, and reinvent the whole way that humanity thinks about these issues”. He feels that this would be a “real social innovation”, and a real contribution to the world. 
 
Well, now that I have written 6 posts about Dan Pallotta’s “TED Talk”, I think it is pretty apparent that I think that he is a great innovator and basically a “rock star” in the non-profit world. 
 
I’d love to hear YOUR opinion on Dan’s ideas and vision. 
 
Chava Ashkenazi
Jerusalem, Israel 
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5 Responses to My Thoughts on Dan Pallotta’s “The Way We Think About Charity is Dead Wrong”- Summary

  1. jonnydegani says:

    The Non Profit sector does have talent – In fact, I’d say that most leading scientists, economists, and great thinkers probably work for Hospitals, Universities and a slew of research labs funded by charitable giving (ie Howard Hughes) and labeled non-profit entities. What he means is that the CEO’s don’t get enough money. First of all, NPO CEOs generally have very high salaries, probably higher than 80%-90% of Americans. Second there is no reason to connect their salaries to those of CEOs in the for-profit sector. He begins by saying that the Non-profit should emulate the business world. But this ins’t true of everything, it should only be true of the good things in the business world. Large paychecks for CEO’s, a fairly recent phenomenon that has a major role in our current economic crisis, should not be copied.

  2. chavaleh1127 says:

    Hi Jon,

    I definitely believe that the non-profit sector has talent (after all, both you and I work in this field! 🙂 )

    When Dan talks about non-profit CEOs not making enough money, I believe (this is my interpretation) that he is using the “example” of the CEO to show how, really everyone in non-profit is making less than in the for-profit sector. I do believe, as Dan said, that we are asked to choose between “doing good for yourself and your family” (i.e. going into the for-profit sector and getting a higher salary) or “doing good for the world” (i.e. going into the non-profit sector knowing that you will earn a lower salary than you would if you worked in the for-profit sector). And, in my opinion, there’s nothing wrong with either choice. Anyone who chooses to go into non-profit knows that they will be making a lower salary than they would in the for-profit world, and it’s a conscious decision.

    I agree with you that it is not the CEOs who necessarily need to be compensated more. A new “friend” of mine who I have met through the world of blogging/LinkedIn, Mazarine Treyz, has a very interesting blog piece called “Are You Encouraging a Culture of Destitution?” (http://www.wildwomanfundraising.com/uncharitable-culture-of-destitution/#axzz2VQAjQdCs) Many of the concepts that she discusses rang true. For example, she describes a scenario in which a woman interviewing for a position in the non-profit field is told that the position pays $12/hour (which would actually be quite generous in the NIS equivalent in Israel! 🙂 ), and the interviewer basically manipulates her into thinking that s/he also makes $12/hour, so why should she (the candidate) deserve more? Mazarine also proposes an interesting idea that the CEO should not make more than 10 times the salary of the lowest-paid employee. I personally think that this is a great way to “distribute the wealth” (if there is “wealth” to be distributed in NGOs! 🙂 ). I think that you will agree with me when I say that fundraising is not accomplished by one person; it is a team effort. Everyone’s contribution is important. That being said, I believe that people should be compensated adequately according to their position/quality of work.

  3. chavaleh1127 says:

    Hi Mazarine,
    Thank you for the links, I will definitely check them out! Your book is excellent too; a “must read” for any woman looking to build a career in fundraising! 🙂

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