Every year in June I get solicitations from friends participating in the Ride to Conquer Cancer, the fundraising cycle from Vancouver to Seattle. Their heartfelt emotion is always moving – stories of parents, children and friends who have suffered and died from cancer, as my mother did.
But I balked at contributing to all but a few close friends when I heard that between a quarter and a third of the $50 million raised over the past five years goes to support the race, not to “conquer cancer.”
Like many people, I’ve long been a believer in low overhead for charities, ensuring that funds raised go to needy people, not to bloated bureaucracies. If my donation is almost as much about supporting a fun ride to Seattle as curing cancer, I’m not interested.
Then I – along with almost two million others – discovered Dan Palotta’s powerful TED talk: “The Way We Think About Charity is Dead Wrong.”
Palotta organized AIDSRides and 60-mile three-day breast cancer walks for nine years. In 2002, his organization raised $71 million for breast cancer, after expenses.
“And then we went out of business, suddenly and traumatically,” he recounts.
His 350 employees all lost their jobs.
What happened? His key sponsor, smarting from media reports that 40% of the proceeds of his rides were spent on recruitment, customer service and “the magic of the experience” pulled out and opted to organize the ride on its own, at a lower cost.
The result was that net income for cancer research went down by 84%, or $60 million in one year.
“This is what happens when we confuse morality with frugality,” cautions Palotta. “We’ve all been taught that the bake sale with 5% overhead is morally superior to the professional fundraising enterprise with 40% overhead, but we’re missing the most important piece of information, which is, what is the actual size of these pies? What if the bake sale only netted $71 for charity because it made no investment in its scale and the professional fundraising enterprise netted $71 million because it did? Now, which pie would we prefer, and which pie do we think people who are hungry would prefer?”
Palotta was able to attract 182,000 donor-participants to raise $581 million over nine years because he bought full-page ads in the New York Times and primetime radio and TV commercial.
“Do you know how many people we would have gotten if we put up flyers in the laundromat?” he asks.
The same limited thinking applies to executive compensation. Why do we reward leaders in the for-profit sector based on the value they produce, but not in the sector that helps needy people?
“You want to make $50 million selling violent video games to kids, go for it. We’ll put you on the cover of Wired magazine. But if you want to make half-a-million dollars trying to cure kids of malaria, you’re considered a parasite.”
Similarly, private-sector companies are encouraged to innovate and experiment, even if their new ideas fail or take a long time to go cash-positive. But non-profits are expected to deliver immediately – or they’re not worth supporting.
“When you prohibit failure, you kill innovation.” Palotta notes. “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.”
What’s the result? Massive-scale social problems may be in the hands of non-profits to solve, but between 1970-2009, only 144 U.S. non-profits managed to gross more than $50 million. In the private sector, 46,136 companies did.
When people talk about applying private-sector discipline to the non-profit sector, what it really needs is private-sector opportunities. •
