There are oh-so-many things to say about Dan Pallotta and his talk at TED. The essential point of his presentation is that the nonprofit sector is at a disadvantage to the for profit sector because of the way we – as a society – think about nonprofits and charity. Some of the many points he makes we can dismiss right off the bat. For instance, his point that nonprofits can’t share profit to attract risk capital…. Well, yeah, they’re nonprofits. And that means that they don’t have to pay taxes. And that means that they can’t act exactly like a for-profit unless they plan on paying those taxes.
Many people have talked to me about Dan’s idea of paying top executives in the nonprofit arena more. I won’t spend too much time on this either; this piece in the Stanford Social Innovation Review Blog makes some interesting points. What I would point out is that many for-profit companies pay their top talent huge amounts of money and just as often as not they prove to be just as mediocre as the rest of us. I think Dan exaggerates the impact that a single person can have on a nonprofit institution.
What I do think is really interesting about Dan’s talk is how we are much more tolerant of risk and long-term capacity building in the for profit world than we are in the nonprofit. Venture philanthropy is all the rage these days but the funny thing about it is that most venture philanthropy works and acts exactly like traditional philanthropy. Yes, there is more of an emphasis on clear and measurable outcomes within a defined period of time. However, I would argue major investors in an organization have always wanted this. What’s maybe changed is that lower-level investors now expect the same thing.
But aside for a demand for clear social outcomes, venture philanthropy still generally acts very differently then venture capital. Major investments in fundraising and other capacity building is still exceptionally rare even though such investments can leverage a great deal more.
Patience on social returns that take longer than a couple of years is also a rare exception rather than the rule. And then there is the complicity of nonprofits themselves. We so rarely dream as big as we need to. I was talking with a self-identified venture philanthropist recently that wants to fund riskier ventures and wants to encourage fellow philanthropists to do the same and I remember thinking to myself, “Would we believe a funder if they told us they were OK with failure?” I’m guessing we wouldn’t. I’m guessing that we would be thinking that if we want to have a chance at additional funding and a career going forward, we’d better show some concrete results pretty fast. So we play it safe. Privately, we all dream big but we seldom put it out there for funders to ponder.
So I agree with Dan wholeheartedly that our societal mentality holds the nonprofit sector back. He’s very much right in saying frugality does not equal morality. But, as Laura points out, money invested in marketing is only a means to an end. The true output is the kind of social impact we have. Sometimes that requires a lot of dollars, sometimes it doesn’t. At times we may need to invest a lot in our marketing and fundraising but over time we are ultimately better off investing in our mission and its outcomes. Many, many nonprofits (if not that vast majority) are able to keep their fundraising costs below $0.25 on the dollar and still be highly effective. The fact of the matter is Dan’s organization engaged in the least efficient form of fundraising out there: event fundraising. And while his cause lent itself to that model, most other causes don’t require this and can get a much better return on their dollars. Even Dan’s organization could have done so by leveraging the people his walks attracted for major donor dollars instead of relying on a few big sponsors that left his organization fatally vulnerable.
Ultimately, I’m glad that Dan is raising these ideas. It’s important that we talk about the respective roles of the for profit and nonprofit world. And perhaps those people most in a position to be helpful will start to think of nonprofits differently and change the landscape. But in the meantime, the nonprofit sector remains a market place just as the for profit sector does. Efficiency does matter. Diversity of revenue does matter. Social return on investment is our ultimate metric, not dollars raised. As Dan points out himself, ours in the market of love and you can’t measure that in money raised.