Foundations and Nonprofits: A Circle of Learning
March 13, 2013
On Target: Rating & Screening Prospects
March 27, 2013

You, Dan Pallotta, and the Great Nonprofit Debate

3753870273_04c6b6d6ac_zLike so many in the nonprofit sector, I was completely spell bound by the recent Ted Talk by super-fundraiser and activist, Dan Pallotta.  I’ve always admired Dan’s challenge to the nonprofit sector to evolve beyond a culture of poverty, but his arguments in this talk are – from my point of view – irrefutable.

If you haven’t listened to it, do it now:

At the heart of Dan’s argument are five ways in which the nonprofit sector is discriminated against compared to the for profit sector:

1.  Compensation: The nonprofit sector can’t attract the same talent pool as the for-profit sector due to frighteningly low compensation rates.

2.  Advertising and marketing: Nonprofits are highly discourages by spending even a fraction of the money on advertising that the for-profit sector spends.

3.  Taking risk on new revenue ideas: While the for-profit sector is expected to take risks making money and sometimes fail, nonprofits are roundly rejected if they lose money in a new venture.

4.  Time: A for-profit venture can not return profit to its shareholders for years, but nonprofits are expected to perform as soon as they start making money.

5.  Profit to attract risk capital: Nonprofits don’t have any access to capital markets that help them to grow like for-profit companies do.

This discrimination leads to a nonprofit sector that simply doesn’t have the resources to tackle the mammoth social and environmental problems it is up against and unless something changes, it never will.

I’ve lived this in my work in the nonprofit sector for the past 25 years. Even so, my immediate thought was, “Yeah, that’s right.  Someone should do something about that.”

Someone, who?

You know the answer.  It’s up to us.  Whether you are a staff member, donor, Board member, or a fundraising consultant you can do something to change this paradigm.

Fundraising Staff:  You, wonderful staff people, probably think you have the least impact on this potential change.  But nothing could be farther from the truth.

You have a critical role and there are things you can do right now:

  • Know your donor file: be sure that you have the skills and the time to really analyze your file and so that you can see opportunities where investing in fundraising will make more money for your organization in the long term.
  • Bring those opportunities to the table at every budget round: Yes, you might get shot down, but showing your leadership the opportunities they have to invest more money to make more money is crucial.  Be brave!
  • Don’t just advocate for straight fundraising costs.  Be sure to show how investment in communications and marketing can affect the bottom line.
  • Advocate for your self and your staff:  If the pay is dismal, people will leave and the cost of turnover in the nonprofit sector is steep – and quantifiable. Be someone who brings those numbers to the table and show what a talented, long-term staff can accomplish.

Board Members: You can be a real change agent within your own organization and community. Be the one who asks the question, “Are we giving our staff the tools to really make an impact?”

  • Know your fundraising program: Have you really looked at your fundraising strategy?  Do you know where the investment opportunities are?  Do you know what fundraising programs make money and which are sacred cows?
  • Put your business hat on: So many board members operate in the business world, but for some reason when you put them on a Board they loose all memory of the age-old axiom of “it takes money to make money”.  Bring your business head to the table and advocate for long-term investment.
  • Raise a red flag if you see a very small cost of fundraising (under 15%).  Ask the question: Why so low? Why aren’t we investing more in our organization?
  • Push for a discussion of fundraising and communications investment in your strategic planning process.

Donors: This is where the rubber hits the road. You, donors, are already on board. Fundraising results have shown that donors are not nearly as influenced by the rating of charities based on percentage of fundraising or “overhead” to program expenses as the charity “watch dogs” would have us believe.

Foundations and corporations have farther to go.  While a few have loosened up their funding requirements to allow for true investment, most say they want organizations with long-term impact, but yet their funding practices demand short-term returns.

As a donor, you can vote with your money:

  • Give to organizations that are making a real impact on the issues you care about.  See what their plans are for the future.  How are they going to do more? As Dan says, don’t ask about their overhead, ask about the scale of their dreams.
  • Reframe the questions about fundraising expense.  Ask, “What is this organization doing to bring more resources to the table?” and “How is this organization making sure it has the resources it needs to be effective?”
  • Use Guide Star and Charity Navigator with caution.  (And if there is an activist within you, advocate for those “watch dogs” to change their draconian views of “overhead” costs. See Roger Craver’s powerful scolding of Guide Star in this Agitator blog.)
  • Give unrestricted money.  Every restricted dollar is a choke hold on investment for the overall organization. Give to the organization and let it decide where it will have the most impact.

Yes, this will take some faith.  And, indeed, some nonprofit organizations will abuse our trust and spend money on stupid stuff.  But, how are we ever going to solve these BIG social challenges if we continue to force the nonprofit sector into a false economy where investment is bad and inefficiency is good?

There are things we can all do to create the nonprofit world that Dan envisions.  What part are you going to play?


p.s.  And by the way, if there are any fellow consultants reading this blog, you TOO, are a critical piece of this pie.  Are you helping your clients to seize opportunities?


photo by Tambako the Jaguar


  1. Anne Doyle says:

    Thank you for this succinct post that summarizes these issues. I watched Dan Pallotta’s TED talk with my mouth agape…radical thoughts for someone who has learned the “old nonprofit ways” by watching them implemented again and again “the old way.” And yet I am involved with two new nonprofits, GUIDEPOST r and BOHO, both of which try to embrace innovative models of acquiring the necessary resources to address social issues. I will learn more about working with funders in new ways to make change happen!! Thanks again.

  2. Leslie,

    You know I am a “BIG” champion and have a proven track record of eliminating “Poverty Mentality” at nonprofits and creating a culture of well paid staff with all the resources they need to meet the important mission they are trying to address. That said, I actually had an oposite response to Dan’s Ted Talk. I shared the link to Dan’s talk on Facebook with my community of friends along with the following post:

    “Agree and Disagree… I have committed my lifes work to social causes, with hopes of helping NGO’s and the nonprofit sector to be more efficient and effective. Dan’s message rings true with me on many levels, but in my opinion much of what he has to ooffer does not apply to the smaller, community based organizations that make up the majority of the sector and accomplish the majority of its work. To achieve more mission impact sector wide, there is AS BIG a need for lowering overhead through better business practices (efficiency) as there is for disregarding it as a mile marker of success. Also, the number one issue he brings up about paying CEO’s of nonprofits more, sounds dead wrong to me. I did not join this fight for the money. Yes, more pay would result in more folks who think like I do joining the fight. But more effective in getting folks to join the fight would be working to change societal values. I did not choose to make less when I chose a nonprofit career, I chose to make more via a different set of values I had instilled in me. This is a conversation I would like to see taken up on a future TED talk, as it strikes at the heart of why we need a sector called the nonprofit sector to begin with.

    Anywho, just my two cents… We need more Dan’s in the nonprofit sector, but I don’t think that we need nonprofit directors or donors to start thinking that high overhead is ok or that the answer to all our problems is better pay for ED’s. Maybe I am just nit picking, but as someone who walks the talk of running NGO’s more business like and without a poverty mentaility, I found myself frustrated by much of what Dan said.

    • Leslie Allen says:

      Really great points, Keith! I agree there is lots of room for increasing inefficiency in the nonprofit sector and of course, raising compensation won’t be a panacea, but I think the point Dan is trying to make here is that we need to consider these long-held assumptions that truly don’t make any sense. Why is there a double standard?

  3. CausePlanet says:

    Thanks for the great post on “Charity Case,” Leslie. I’ll be curious to read if you have any new thoughts on this topic after our discussion in the Consultant Leadership Forum this morning. Great having you in that group.

    • Leslie Allen says:

      Thanks so much! It’s so interesting to reflect on this blog after our discussion on Dan Pallotta at the Consultant Leadership Forum this morning. I’m not sure I would make any changes, but I would consider what others were saying about the overall structure of philanthropy being broken. I sadly agree, but I think the way to fix it is by taking the small steps I outline in this blog. I’m not sure any larger fix is really possible. What do you think, Cause Planet?

  4. Claire Axelrad says:

    I’m reading the post, agreeing with the post, and even wrote my own post last week on the same topic.

    You’ve summarized Dan’s points nicely here. A culture of investment, where overhead is not seen as the enemy, is hugely lacking within the nonprofit sector. There is definitely a separate rule book for charities that has a chilling effect on risk-taking, social innovation and entrepreneurship. And I could not agree more that, somehow, when board members cross the threshhold of a nonprofit it seems that all their business acumen and wisdom flies out of their heads! Why is that?!

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