Dan Pallotta: Think About a Charity's Dreams, Not Their Overhead

Dan Pallotta's work brought the practice of four-figure philanthropy within the reach of the average citizen who had never raised money for charity before in their lives. 182,000 people of all shapes, sizes, and backgrounds participated in these inspiring, often grueling, long-distance events that raised $582 million in nine years - more money raised more quickly for these causes than any private event operation in history. Three million people donated to the events. 

Then, he faced issues because of how things are currently structured for non-profits. Dan spoke on the TED 2013 stage this year and below are a mish mash of my notes from his talk.

He notes that there are many discriminatory issues that the philanthropy industry faces today:  

1. Salaries: the median compensation for a Stanford MBA is $400K, but for a medical charity, it is roughly $232K. For a hunger charity, it is about half of that. You can’t get people to do that year after year and take that kind of financial hit when in the for profit world, you can yield so much more.

2. Marketing and Advertising: He says, "we don’t like to see our donations spent on advertising and marketing." It has remained at 2% of GDP in the United States and hasn’t grown. How can it grow if you’re not allowed to market?

3. Taking Risk on New Revenue Ideas: If you don’t produce 75% return in the first year, then a non-profit's reputation goes through the mud. You kill innovation because of fear for failure.

4. Time: Amazon didn’t produce profits for years and yet we had patience, yet the rules are different for a non-profit.

5. Profits: You can’t pay profits in the non-profit sector. He says, "you don’t have a stock market to fund any of this like you can in the for profit sector. From 1970 to 2009, we were dealing with social problems which were massive in scale but things still didn't grow to help them over that time and they're still not beyond the 2% mark.

Dan says, "this dogma comes from puritan beliefs. The Puritans were Calvinists so they were taught to hate themselves and self-interest was a path to damnation. Making a lot of money was a way to send them to hell so charities were created to deal with that."

In 400 years, nothing has intervened to say that this approach is counter-productive and unfair.

He remarks, "it makes us think that overhead is not part of the cause, particularly if its being used for cause. This belief that overhead is the enemy means that people are reluctant to contribute. The notion is that the less you spend on growth of the non-profit, more can go to the cause."

Fundraising has been stagnant. He shares his own failure which was the result of this broken, out-dated system, "we made $71 million in 2002, our best year and then we went out of business since we reinvested 40% back into the organization. So in one day, 350 of our employees lost their jobs because they were labeled overhead.”

He asserts that this is what happens when we confuse morality with frugality.

How this all impacts the bigger picture? If we could move charitable giving from 2% of GDP to 3% by investing in that growth, that would be an extra $150 billion extra in contributions. He says, "it’s never going to happen by forcing these organizations by demoralizing organizations to keep the overhead low. We need to change the game."

As for advice, he offers, "Think about the scale of an organization's dreams, not their overhead and how they measure the progress towards their dream. Who cares what the overhead is if these problems are getting solved?"

His mission is to change the way the world thinks about these issues and suggests that this needs to be our endearing legacy....that we in fact took responsibility for the legacy that has been handed down to us and change the way we think about philanthropy, so real problems can be solved, changing the scale dramatically.

Photo credits: sunyocc.edu (hands) and Dan's shot from his site.