There is no reason why a nonprofit should be making less money than for-profit companies…other than the stigma that holds it back from doing so. In order to increase your donations and mission success, you have to understand the reason for this roadblock and how a small mind shift can change everything.
In his TED Talk, “The way we think about charity is dead wrong,” Dan Pallotta explores the unfair disadvantage nonprofits have compared to the rest of the economic world. He states that we have a belief system that discriminates against and consistently keeps nonprofits small. Perhaps, if we can change this belief system, we can allow nonprofits to have a fighting chance in our economy.
1. Nonprofit Compensation
In contrast to for-profit companies, the more money you make as a nonprofit, the more negatively people react to it.
Pallota offers a very stark illustration:
“…You want to make 50 million dollars selling violent video games to kids, go for it. We’ll put you on the cover of Wired magazine. But you want to make half a million dollars trying to cure kids of malaria, and you’re considered a parasite yourself.”
2. Advertising and Marketing
People take issue with donating money that does not go directly to the needy. Consumer brands are allowed—and encouraged—to spend money on advertising and marketing. Nonprofits, however, are told to keep it to a minimum.
Since the 1970s, nonprofits have remained stuck at 2% of GDP. If we allow consumer brands to market, but not nonprofits, they will never be able to take market share away from other sectors.
3. Nonprofit Innovation
Nonprofits are reluctant to attempt any new and daring ideas for fear of ruining their reputations by not providing return on investment to their beneficiaries.
“…when you prohibit failure, you kill innovation. If you kill innovation in fundraising, you can’t raise more revenue; if you can’t raise more revenue, you can’t grow; and if you can’t grow, you can’t possibly solve large social problems.”
People allot more patience to for-profit companies to take the years they need to build market dominance before any money goes back to the investors. A nonprofit can never take the same amount of time before any money goes to the needy or risk its end.
5. Profits and Overhead
Donors perceive overhead costs as a negative, even though they are imperative to the nonprofit’s growth.
“…we have it precisely backwards, and we should be investing more money, not less, in fundraising, because fundraising is the one thing that has the potential to multiply the amount of money available for the cause that we care about so deeply.”
Confusing Nonprofit Morality with Frugality
Our society’s views on what is “morally superior” holds nonprofits back from netting a much greater sum for their causes. A bake sale with 5% overhead seems to provide a better return than (and is therefore morally superior to) a professional fundraising enterprise with 40% overhead, because of the slice of the pie consumed by the costs. But when we compare the two, we are missing the most significant information: the size of the pies generated.
Pallotta believes in the importance of investing in your nonprofit’s scale. He had a very successful fundraising organization which suddenly and traumatically had to let go of all 350 of their employees. Their sponsors had pulled out when the media negatively covered their decisions to invest in recruitment, customer service, and advertising. Overhead had been demonized despite its necessity and the incredible success it produced ($194 million dollars for breast cancer research). As a result, the following year’s breast cancer research funding went down by $60 million dollars.