Rethink­ing the way we think

A review of Dan Pallotta’s TED talk, The way we think about char­i­ty is dead wrong.

Written by
Charlie Hulme
May 23, 2014
Dan Pallotta delivers his TED talk.

In a study reported in ‘The Science of Giving’ people were asked to judge which doctor made the better career choice: the one saving 500 lives a year or the one saving 200?

They chose the latter.

What led them to such an illogical conclusion? Well, the first doctor ran a successful practice in Hollywood, earned $700,000 a year, donated $20,000 to Doctors Without Borders and so saved around 500 lives a year. The second worked for Doctors Without Borders, earned $18,000 a year and saved 200 lives. Success was being measured by means rather than end.

Where does this mindset come from?

Deep in the heart of our sector lies a corrosive myth. A myth we’ve inherited and been raised on. A myth we’ve propagated and perpetuated. A myth that’s made us confuse morality with frugality. A myth that makes us question what a charity spends rather than what it achieves. And it’s this myth Dan Pallotta passionately argued against in his recent TED talk.

Dan Pallotta passionately argued against the myth that makes us question what a charity spends rather than what it achieves.

Dan isn’t the first to challenge it, though I don’t know anyone who has done it quite so well. He talks of a belief system that keeps our organisations tiny in the face of massive need, rigidly policed by the question ‘How much of my donation goes to the cause versus overhead?’

Sound familiar? Sound reasonable? Surely the question is massively flawed? Given the choice of supporting two soup kitchens, one spending 10p the other 25p in every pound to make the next pound, we’d choose the first. But these figures tell us nothing. What if the first served rancid soup in a rundown kitchen with unfriendly staff, whilst the second served nutritious soup in a state-of-the- art facility offering additional care? Now where would you donate?

Why haven’t we rejected the premise of the question? Is it because we agree with it ourselves? One glance at the average appeal suggests we do. How many proudly promote how little is spent on ‘overheads’? Very few appear to agree with Adrian Sargeant that ‘…if the best thing we can say about our organisation is how much it costs to raise a pound then that’s a bit sad.’

By unquestioningly accepting the ‘low-cost good, high-cost bad’ mentality we’ve come to think of overheads as bad, grubby and undesirable. So we deny ourselves the same ‘overheads’ the for-profit sector uses for massive growth and nothing really changes.

George Smith once said that if the for-profit sector ran itself the way the not-for-profit does it would have ceased trading. In his talk Dan refers to two rulebooks: one for the profit and one for the nonprofit world. Deeply rooted in the ‘low cost is best’ mindset are five rules, all of which say ‘you can’t…’, that fundamentally undermine our ability to make any lasting difference to the causes we’re supposed to care about.

Rule 1: compensation

You can’t pay competitive salaries.

Financially the for-profit world values my talents far more than the not-for-profit. The not-for-profit world needs my talents far more than the profit. Churchill said ‘We make a living by what we get; we make a life by what we give’. Should we be forced to choose between the two?

Today, aged 35, I earn less than half what I did at age 19 selling advertising space. From time to time I glanced at jobs in the charity sector but quickly dismissed them because of the pay. By my late twenties enough tragedy had hit my life that I reached a vocational tipping point: I’d rather earn less and care about what I do than earn more and not. I’m happy with the choice I made, but why should it have been a choice?

Pay disparity between the two sectors is enormous. According to Pallotta, 10 years after leaving business school the average MBA earns $400,000 a year, the average CEO of a hunger charity earns $84,000. So, if you have the kind of mind that can make your organisation a world leader, and you want to use it to make a difference, you’d better be prepared to take a $300,000 a year pay cut.

So how are we to attract talent? What would the world have looked like if Steve Jobs’ first job after school had been at Save the Children instead of Atari?

Rule 2: advertising and marketing

You can’t advertise on anywhere near the same scale.

UK Giving 2012 reported that 55 per cent of adults in the UK made a donation to a charity in a typical month. That sounds pretty good until you look closer and see that the number of people giving, and how much they give (adjusted for inflation), has remained largely the same for almost a decade. It seems that the same people are giving the same amount every time. Are the rest of the UK’s population mean, selfish and cold, or are we just not reaching them?

The problem isn’t that we don’t advertise it’s where and when we do. Both of which are dictated by one thing: cost. We buy the cheapest media space we can, space that’s cheap for a reason. We reach the same people, with the same message, get the same response and nothing changes. In a recent survey from the NonProfit Finance Fund, 52 per cent of charities said they were unable to meet demand last year; 54 per cent say they won’t be able to meet demand this year.

The catch-22 is that we can’t advertise the good we’ve done because without advertising we haven’t been able to do much good.

How can we wrest market share from the commercial world if we feel ethically constrained from competing for attention on the same scale? All the money we’ve ever raised came because weasked for it. Is it such a radical idea to think that we could significantly increase volume, value and, most of all, the good we do if we asked on a bigger scale?

Rule 3: taking risk on new revenue and ideas

You can’t take risks in the pursuit of new donors.

Think Consulting’s Tony Elischer said ‘If you want to grow faster you have to work at higher levels of risk’, but few of us are listening. Ours is the most risk-averse sector; old ideas are recycled via new channels and we call it ‘innovation’. Imitation would be more accurate, everyone is doing what everyone else does. How many UK charities have a version of Movember or Macmillan’s coffee morning?

If we always do what we’ve always done we’ll always get what we’ve always had. Only now we’ll get less because there’s less to get. Yet the tougher the economic climate gets the more organisations cut their limited innovation budget.

The real adversity we need to overcome is a mindset that prohibits trying new ideas for fear of failure. Inhibit failure then you can’t grow, if you can’t grow you can’t solve anything.

The great George Smith said ‘…the merest adventure, the smallest piece of pioneering will stand out from the crowd.’ Someone will always say ‘you can’t do that’. They are almost always wrong. Novelty is not always a virtue. But innovation is a constant necessity’.

Innovation isn’t expensive by definition. NASA spent millions of dollars inventing a pen that could write in space. The Russians used a pencil.

(For those of you that really want to start innovating take a look at nfpSynergy and Lucy Gower’s ‘Innovation (Still) Rules!’)

Rule 4: time

You can’t take the same amount of time to find new donors.

When Amazon was launched its investors patiently waited six years before they saw a profit. The reward for their patience was fundamentally changing the face of consumer commerce. If our sector ever had the chance to create something as game changing as Amazon it would fold after six months, derided as a wasteful expense, and we would play safe by recycling someone else’s idea (‘Octo-beard’ anyone?)

Unlike the commercial sector, which knows it has to nurture and grow its scale over time, most charities calculate on a one-year return on investment for fear of being seen to be wasteful. What chance does that give any new relationships to develop?

The blame for this unreasonable demand has to be placed on our own doorstep. We’re short term, it’s all about the next appeal, this quarter’s figures. We don’t have the time to build real relationships with those that turned up to help. We’re much too busy to say ‘thank you’. In our rush to squeeze as much as we can out of this project we neglect or insult those who supported the last one. What’s the chance they’ll give to the next one? We’ll worry about that next quarter.

When did we tell ourselves (and the public) that saving the world was a quick fix?

Rule 5: profits to attract risk capital

You can’t pay profits to investors and thereby attract capital for new ideas.

The Nonprofit Finance Fund recently released its annual State of the Sector survey. In no uncertain terms they say that ‘nonprofits need new funding sources and models’.

Why? Because 42 per cent of survey respondents say they do not have the right mix of financial resources to thrive and be effective in the next three years. Not exactly the kind of security you need when you’re trying to change the world. And it gets worse, one in four nonprofits said that they had 30 days or less cash in hand. But it can’t be all bad news; I bet their overheads are really low.

Kevin Schulman of Donor Voice said ‘The sector is in desperate need of markets: debt, equity, mergers and acquisitions markets. In short, it needs buyers and sellers, creditors and equity holders. In the commercial sector these are necessary financial tools for growth.’

Once again our naive ethics have denied us access to the very thing we need to grow. Kevin goes on to say ‘Going out of business should not be the only option for a nonprofit. Merging, acquiring and divesting…is mandatory if real social change, in whatever subsector you may occupy, is ever going to occur”.

Time to rewrite the rulebook

Is there another way to make any real impact on the causes we’re here to fight without tackling the ‘low-cost-is-best’ myth? Surely we’ve conclusively proved that the world can’t be changed on a shoestring? How many times do you hear of a charity winding up because its mission’s been accomplished?

Dan’s impassioned talk threw down the gauntlet for us to take risks and fundamentally change the way the public thinks about changing the world. But before we can change the public’s mind we have to change our own. If we were convinced, we’d be convincing.

We’re neither.

Ours is without a doubt the most risk-averse sector. Yet a recent survey of UK fundraisers said only one third of us believe that’s true in our organisation. Does that mean that the other two thirds believe Dan’s five ‘thou-shalt-not’ myths don’t apply to them? Do they really believe that they’re taking enough risks? How do they expect a return if they don’t make an investment?

Nothing will change if we don’t change ourselves. If we really want to make a difference we should be positively advocating more risk. Who cares how much it costs if we find a cure for, say, cancer or heart disease? Is the chance to be the generation that ends hunger forever really going to be too expensive?

Do we think a donor can’t understand the argument that using their £10 to create £100 that feeds a hundred starving children is better than buying £10 worth of food? Do we believe the other 90 children would willingly sacrifice a meal for the greater good of keeping our costs low?

It’s time we stopped showing people how little we’ve spent and start showing them how much we’ve done. As Dan Pallotta said ‘Our generation does not want its epitaph to read, “We kept charity overhead low.” We want it to read that we changed the world.’

I know that’s why I turn up every day. I hope it’s why you do too.

© Charlie Hulme 2014.

About the author: Charlie Hulme

Charlie Hulme is managing director of DonorVoice. He helps charities uncover what, of all the things they do, improves the strength of relationships  and what is harmful. Partners see a massive improvement in performance, value and retention.

Voted top speaker at the Institute of Fundraising’s National Convention in 2013, he writes frequently for SOFII, 101fundraising, the Institute of Fundraising and many others.

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