Why everything you think about the way charities should operate is wrong

What if our expectations are the very things that are holding charities back from from having an even more meaningful impact on the world?

Activist and fundraiser Dan Pallotta’s TED talk explores the way we all think about nonprofit organizations and the expectations we have of the people who run them.

“These social problems are massive in scale, our organizations are tiny up against them and we have a belief system that keeps them tiny.

Dan says that we have two rule books that we hold companies accountable to: one for the nonprofit sector and one for the rest of the economic world. The problem with this is that nonprofits are thus discriminated against in five different ways, which Dan explores in his talk.

1. Compensation

The first problem is compensation, which is a huge incentive for smart people to work in big, profitable companies. MBA graduates have to choose between the mutually exclusive options of providing for their family or providing for the world, since the compensation is drastically lower for an equal position in a nonprofit company.

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2. Advertising and marketing

Charitable giving has apparently been steady in the U.S. at 2% of the GDP since the 1970s. Dan makes the point that without marketing, nonprofits have little chance of increasing their market share. And yet, as a general rule we are reluctant to approve of nonprofits spending money on advertising.

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3. Taking risks on new revenue ideas

For nonprofits, the idea of taking a risk on a new venture that may not have a huge return is almost professional suicide. Dan contrasts this with the fact that a company like Disney can spend millions on a new film that flops, and we accept that with no questions asked.


“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.”

4. Time

Dan uses Amazon as an example of a company that was able to spend six years building scale to achieve market dominance. For nonprofits, however, a return (in the form of putting money into the cause) is expected almost immediately.

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5. Using profit to attract risk capital

Lastly, Dan points out that nonprofits are discriminated against for using profit to attract risk capital. This means the majority of risk capital available goes to for-profit companies, which further inhibits the potential for growth in nonprofits.

“We’re dealing with social problems that are massive in scale and our organizations can’t generate any scale. All of the scale goes to Coca-Cola and Burger King.”

Dan also explores two of the many problems with our current belief that charities must keep overheads low:

  1. This leads to the belief that overheads are bad, and are not part of the cause. We see overheads as enemies of the cause.
  2. This forces charities to forego what they need to grow, in order to keep overheads low.

While this makes sense if we imagine the money a charity has to distribute as being a pie that’s hit its max, Dan shows that if we allow a nonprofit to use our money for overheads, this can lead to a growth in money for the cause as well, and ultimately the entire pie becomes bigger.

Dan’s talk is less than 20 minutes, and I’d highly recommend watching the whole video. He eloquently examines some of the beliefs that we all take for granted, and how much bigger an impact nonprofits could have if we change our thinking.

If you work at a nonprofit, tell us how you get around the standard beliefs that nonprofits shouldn’t operate like for-profit companies. What do you do to increase the growth of your nonprofit without turning off your donators? Leave us a comment below with your thoughts.