Title and Link: The way we think about charity is dead wrong
Presenter: Dan Pallotta invented the multi-day charitable event industry with the AIDS Rides and Breast Cancer 3-Days
I watched this interesting TedTalk a couple of months ago and recently stumbled onto it again. It really changed my point of view about how people think of charities or NGOs (Non-Governmental Organizations).
Key Points – He starts off discussing how the rules for charities are somehow different from the rest of the world.
1. They aren’t allowed to want to make money, and this is based a lot on our history (Puritan capitalists = extreme profit making…. but taught self-interest was morally irresponsible and would send you to hell… therefore charity was penance for this). Dan talks about how ironic it is that we praise people for becoming rich doing awful things but hate people who get rich trying to do great things that could save the world. This takes away a lot of the incentive for successful people to want to work in the non-profit sector and create innovative new ideas.
2. Companies should spend as much as possible on advertising if it’s profitable but charities should avoid these “overhead costs” as much as possible. People don’t want their donations given to ads… but they don’t realize that the ads could generate even more money.
3. Taking risks to create new ideas… Prohibiting failure = no innovations = not solving social problems.
4. Time… Amazon took 6 years to become profitable because it needed to grow and become a market leader, but charities need every event to raise money or it will be deemed an unnecessary expense.
5. Profit for capital – Charities don’t have access to the huge venture capital market, and therefore find it difficult to grow or expand.
So, what percentage goes to cause goes to overhead…? As if it is not part of the cause. But that’s not true if you look at economics and realize that the charity pie isn’t as large as it can be. By fundraising you can expand the pie, so even if you’re using a larger slice as a percentage in overhead, you’re still giving more money to the people in need overall.
The two diagrams (above – top) show the lesson that overhead should not always be measured in percentage. For example… a bake sale could only have 5% overheard but only raises $71 whereas a large organization using 40% of the money for overhead could generate millions of dollars for the same charity. In the long run, millions of dollars will help a lot more people.
However Dan Pallotta group was crucified by the media for using so much money for “customer service and recruitment.” However without this money, they wouldn’t have had runners, been able to get sponsors, or get nearly as many donations. You can see by the diagram (above – bottom) that even though a lot was spent, hundreds of millions of dollars were raised to fight cancer.
Final Thoughts – So where does this leave us? Well I don’t think that we should never look at how a charity allocates its resources, in fact I think we should look even more closely. If it spends tons of money on advertising but that is why it has such good events and makes lots of money then I think that’s great. We should support the organizations that are trying hard, getting results and that follow our own personal ethics. Donate or volunteer with organizations you think are making a difference in an area you care about and I think it’ll work out.