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Rethinking Overhead: Joining the Conversation


The 2013 TED Talk, “Dan Pallotta: The way we think about charity is dead wrong,” has created quite a buzz. Since becoming available on youtube in March, the 18 minute speech has been viewed over 2 million times. I was viewer 2,764,382.

What in the world of nonprofits could create such a frenzy? Money.

Money is an emotional subject. Hollywood is full of stories about who has money, who doesn’t, and who is trying to get it. We also tend to voice strong opinions about who is entitled to have money and what they should do with it. The flip side of this (and often only addressed in hushed voices) is the subject of who should not have money and what they must not do with the money they have.

At first glance, one may wonder what this has to do with charities. Actually, our philosophic views about money significantly impact nonprofit organizations. More precisely, our views about money impact how much money those working with charities should have, what charities should do with the money they obtain, and how they may do this.

Society has different rules and expectations for for-profit and nonprofits. For-profit businesses are expected to mass wealth whenever possible and use whatever tools are necessary to help them achieve this. Actions taken to promote growth and strength within a for-profit business are considered to be responsible actions and are encouraged.

Palotta points out that the public has different expectations for nonprofits. Activities that divert funds away from immediate act of providing services are discouraged or downright forbidden, even when the diversion would ultimately increase the overall funding available for services.

He gives five specific areas in which nonprofit organizations are limited: compensation, advertising and marketing, risks that nonprofits should take in finding new ways to increase revenue, the time in which projects should show returns, and the ability to attract investors. He explains the reasons given for the limitations and the origins for the limitations. He also explains why this reasoning must stop.

According to Palotta, each one of these areas are tools for growth. By placing restrictions on these 5 crucial areas, we are also restricting the ability of nonprofits to grow and achieve the effectiveness and efficiency brought about by scale.

Palotta makes a strong case that is difficult to ignore. He cites specific examples in which large salaries have attracted people who have, in turn, greatly increased funding and services for their organization. He details how the inability to share stories, increase awareness, and inform the public of the impact of nonprofit organizations has restricted the amount of support received by others. He explains how fear of losing credibility forces organizations to repeat fundraising activities that produce only moderate results rather than try new, but riskier activities that could have significantly greater results. He shows how nonprofits feel the pressure to focus on immediate results, rather than establishing programs that take time to build. Finally, he points out how the inability to provide monetary profits to investors impacts the ability of nonprofit organizations to obtain funds needed to grow.

The statistics provided were impressive. For decades, only 2 % of the national GDP is related to charitable giving. Increasing this to 3% would generate another $150 billion- enough, according to many experts, to make significant progress in actually tackling some societal issues.

He also points out how the restrictions placed on nonprofit organizations have kept them from keeping pace with growth within the for-profit sector. During the last 40 years, over 46,000 for-profit businesses increased their annual revenue to the cross the $50 million threshold. During the same time period, only 144 nonprofits accomplished the same. Only 144.

It makes one pause and think. And that, I believe, is his main purpose. His short, 18 minute speech was jam packed with information, examples, and ideas- all designed to promote further discussion and, perhaps, even action. Check it out. Talk about it. Argue.

Most of all, ask yourself, “Does achieving real societal change first require society to change?”

Competition versus Coordination: Why Working Together is Important

NonprofitFlorida is based on two concepts:

• A strong network of resources benefits the entire community.

• The synergy created by nonprofit organizations that work together results in a stronger, more comprehensive network than when organizations work in isolation.

When I showed the first drafts of this website to several colleagues, I received mixed responses. Most reacted with immediate excitement. However, a few asked, “Aren’t all nonprofits in competition with each other? Why would I want to help my competition?”

A great question.

A lot has been written about the need for nonprofits to adapt to for-profit business realities, and competition is one of those realities. In his book, Successful Marketing Strategies for Nonprofit Organization, Barry McLeish details how nonprofits compete in four key areas of business: price, the quality of programs or technology, quality of support services, and the positioning of their products within the market place.

David La Piana and Michaela Hayes’ series, The Sustainable Nonprofit also addresses competition among nonprofits, this time from the viewpoint of vying for limited resources.

Each of these concerns are valid. So, the question remains. If nonprofits are competitors, why should nonprofits work together?

The answer lies in the subtle but critical difference between for-profit and nonprofit organizations and the impact of non-customer support on nonprofit organizations.

The financial success of for-profit organizations is based primarily on the customers who purchase their products or services. However, nonprofit organizations rely heavily on community support to be effective, efficient, and sustainable.

Let’s take the example of the Buy Here Super Store and the We Can Help nonprofit organization.

In the case of the Buy Here Super Store, profits are based on its number of customers, volume of sales, and the profit margin of its sales. Yes, there are other factors that are important: zoning and tax laws, fuel prices, and community acceptance of its stores, but these factors are not considered to be primary. The Buy Here Superstore does not expect non-customers to be concerned with their sustainability, send donations to the store to increase its profits, or bequest large sums of money to the business in their wills.

The We Can Help nonprofit organization, however, is a different story. The fees charged by We Can Help, if any, typically will not cover the full cost of providing its goods and services. In order to provide these goods and services, support from other sources must be obtained. Such support comes from a variety of sources: monetary and in-kind donations, volunteerism, community advocacy, and favorable laws and legislation. Often, this comes from those who support the overall mission of the organization, but who are not actual customers/clients. The public supports nonprofit organizations because their missions are focused on doing Public Good, and they wish to support this Public Good.

So what does this have to do with the idea of Nonprofit Cooperation?

Public support is complex and changeable. It can shrink or expand. It can also be influenced. The existence and size of Public Support within a community is largely based on the community’s expectation of Civic Engagement and the strength of its Culture of Giving.

According to Bernardino Casadei’s article, Culture of Giving and Civic Engagement “Civic engagement can be defined as the activities that people, individually or in a group, are doing to shape the common good, not because they are forced by someone else or out of economic interest, but because they believe it is right.”

Public Support and Civic Engagement are concepts fostered by a community’s Culture of Giving. Communities with strong Cultures of Giving emphasize the belief that giving is the right thing to do. They highlight the actions of others, the tradition of giving, and the impact of giving on the community. Communities with strong Cultures of Giving also provide motivation, opportunities, and support for others who wish to be part of the giving community.

However, Cultures of Giving do not happen on their own. They require specific actions in order to be created. They require nurturing to survive. And, most importantly, they require recognition and reinforcement in order to grow

Casdei states, “The role of the charitable sector is to provide the social infrastructure that can help each to identify the opportunities, find his/her own way to give a contribution in shaping the common good, support him/her when the challenges are too difficult, and to take care of all the bureaucratic and technical requirements that one needs to face in order to operate in our society.”

When nonprofit organizations work in cooperation, they can provide the information, tools, and support needed to strengthen the Culture of Giving and level of Civic Engagement and Public Support throughout the entire community.

Together, they can work to remove common bureaucratic and technical barriers. They can create stories that show how the actions, clientele, and beneficiaries of organizations intertwine. They can step beyond the silos of individual organizations and created a comprehensive picture of the needs and the overall impact of giving within the community.

Yes, competition among nonprofits is a reality, but effective business plans also recognize the importance of cooperation. By working together, nonprofit organizations can influence the actions of the entire community. This, in turn, can increase the overall pool of resources and support from which all nonprofits may draw. Through cooperation and coordinated efforts, both individual agencies and the broader network of nonprofits organizations can become stronger.