Laura’s Response to Dan Pallotta

Oh, Dan Pallotta… How I love what you have to say – and how troubled am I by the conclusions you draw!   For those who have read his first breakout work Uncharitable, you will recognize the introduction to this work in the 2013 TED talk that got so much play in Bob’s and my in-box.  Watching Dan Pallotta at work live gave me much of that same heady rush as when I first read that book:  here is someone saying out loud that the ill-conceived and misplaced vow of poverty that not-for-profit organizations are required to take is hampering social innovation!  Whoopee!

But, I thought, surely he will have moved beyond the conclusions he drew from what

was a devastating – and ultimately fatal – blow to his AIDS Ride organization?  He will have a more nuanced response to that now, right?  You can see in the video itself how choked up he still becomes by the memory of laying off his 350 employees.  I am entirely sympathetic and quite touched by how personally he still takes this moment in his life; how could he not?  However, I think this is where he’s got a blind spot that unnecessarily weakens his

argument about unleashing the social capital necessary to truly transform the world.

Let’s work through it:

Blackbaud Online Giving Trends by Sector

  • Are there some social challenges that defy monetizing?  Are there some problems that business will never find a financial advantage – or enough of a financial advantage in ameliorating?  Yup.  Check.  Totally agree.
  • Is the public pillorying of not-for-profit leadership compensation not only misguided but downright hypocritical, especially in light of recent for-profit debacles?  Oh yeah.  (I actually would like to intensify that agreement with a slightly more profane word, but not on the blog.)
  • Is the devotion to irresponsible expectations for overhead keeping many organizations ineffective and impoverished?  Yes, oh yes.
  • Should not-for-profit organizations have greater leeway in advertising and marketing?  Maybe.  But here is where things start to go off the rails for me.  I have found that the social sector is more complicit in this one, often seeking to move into advertising without a clear goal or measurable outcomes for “increased visibility”.  And, this point begins to unpack Dan’s prejudice within the not-for-profit sector:  huge money is only unleashed through wide-spread, grassroots fundraising.  Perhaps because of his brave movement in this arena, organizations that rely on grassroots fundraising (think American Cancer Society, Susan G. Komen For the Cure, other organizations that do walks, etc…) do have a visible marketing presence that doesn’t occur at 4am on public access TV.
  • Following on this fear of moving boldly into the marketing space, Dan also identifies an aversion to taking risk on new ideas.  Again, here’s a place where we could agree.  But we don’t.  Dan identifies the problem as an aversion to risky fundraising ideas.  That is not the problem.  The core problem is an aversion to planning and underwriting risky, innovative solutions to problems.  

He is right in recognizing that the same principles of venture capital need to apply to social innovation:  “risk capital”, investors with patience for a longer time horizon, ability and tolerance for trying and failing and trying again to solve social problems.  If the solutions were easy, we would have found them already.  Trite.  True.  But the challenge holding us back from solving these problems doesn’t lie in the fact that we don’t raise money for them in the right way.  Early attempts at crowdfunding not withstanding, social venture capital comes from a few, very rich, bold people at a much greater rate than it does.  Maybe funding from a broad swath of society will be the answer in the future, but it’s not now.  New ideas in the for-profit realm are started and nurtured by a few venture capitalists.  Why would the NFP market work differently?

Innovation in the social sector comes when leadership and bold investors team up to develop new ideas grounded in data and measurable outcomes, agree that the ability to fail is equally useful as succeeding in solving problems and that investing in the ability to go to scale in the impact realm (which may or may not include costly fundraising programs) is what really matters.

This also takes apart Dan Pallotta’s belief that “bigger is better” in all instances.  Is becoming a $50M+ organization the root to solving all problems?  Not necessarily.  Some problems may require big, centralized investment: diseases, social policy movements.  (But I think we can argue on that point too…)  Other problems are best solved at the local level, but small but appropriately well-capitalized organizations who know their market, know their community, know the issues they need to solve intimately and are nimble enough to be able to address that.   Or put another way, is the only beer we need brewed by Miller and Budweiser?  No way.  Keep my microbrews – and my micro-organizations – safe (and delicious.)

Agree?  Disagree?  I’d love to hear.

2 thoughts on “Laura’s Response to Dan Pallotta

  1. You’re both right. Dan is primarily addressing funding issues so looks at funding innovation and risk. You keep a mission focus which we must all do. However, innovative solutions to problems are more likely to happen when your donor base supports innovative funding. It’s not either/or, it’s both/and.

    Dan does seem to have a bigger is better focus and that is not necessarily bad. Innovative solutions like collective impact models allow organizations of all sizes to participate but funding a backbone organization is the challenge that also requires innovation.

    • Nora – You make a good point about “bigger is better” – big problems do require aggressive, thorough-going solutions. I agree that stronger incentive to collaborate – big and small organizations, each playing to their own strengths and “niche” – is key. Translating that into much larger investment is the challenge. I’m frustrated each year by the lack of even one $5M gift to the social service sector year after year after year, reported in the Chronicle of Philanthropy. Why do you think that happens?

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