“We’re a nonprofit,” the saying goes. It’s a phrase laden with subtext and is supposed to justify a lot of things, like why a well-meaning organization has embarrassingly bad marketing materials. But saying, “We’re a nonprofit,” doesn’t excuse an organization from competing with every other nonprofit for the same donation dollars. So when did it become okay to think that nonprofit justified poor quality? And what about the nonprofits that do have bigger budgets, better marketing efforts and a broader donor base – where do they fit on the “we’re a nonprofit” scale?
As I was thinking about this strange dichotomy, and the restrictions imposed on the charitable world, I ran across a book by Dan Pallotta called Uncharitable. In it, Dan identifies and deconstructs some of the unhealthy and dysfunctional perceptions that exist about charity.
Pallotta says we have two rulebooks – one for charity and one for the rest of the economic world. He traces this thinking back to the Puritan settlers in America who believed that self-interest was a path to eternal damnation. For them, charity became an economic sanctuary where they could do penance for economic gains. They created two worlds – for profit and not for profit – and everything that worked in the free market was banished in the charitable market. He argues that we still live with this irrational system today, and suggests that these moral restrictions result in systemic discrimination against charitable organizations – which severely limit their effectiveness in five ways:
Compensation – many people have a visceral reaction against people making much money for charitable work. This means charities can’t pay competitive wages, and usually leads the most talented people to the for-profit sector. It essentially forces people to choose between doing well and doing good, or to put off doing good until later in life.
Advertising/marketing – for-profit companies have lots of freedom to market themselves and build demand for their products. But many charities worry about spending their donations on anything other than program delivery. Limited advertising/marketing budgets mean that charities are restricted from effectively building demand for their causes.
Risk – Hollywood studios consistently produce movies that flop, but consider it part of the search for box office success. On the other hand, fear of failure and loss of donor dollars keeps charities from trying bold new ways of generating revenue. As a result, they can’t develop the kind of learning curves that the for-profit sector can.
Long-term investment in revenue development – Pallotta holds up Amazon as a company that focused on building a market presence for six years before paying a return to investors. He doubts that a nonprofit startup would be given the same leniency.
Profit as Incentive for Investors – the for-profit sector can use profit to attract capital. As a result, it gains access to lucrative capital markets that the nonprofit sector can’t approach.
Pallotta says that these restrictions on the charitable sector put it at an extreme disadvantage. Ironically, the rules that seek to give charity a unique and reverential place in the world are “uncharitable” because they restrict its growth and undermine its effectiveness.
Pallotta points out that there is a vast market for altruism. He suggests that humans have a visceral need to help one another, which is as big as our taste for leisure or entertainment or sexy new cars. He argues we should capitalize on this need by using the laws of capitalism to build the charitable sector: Why can Campbell’s make money by producing soup but a soup kitchen can’t?
Pallotta says that if we let the nonprofit sector play by the same rules as the for profit sector, we could solve many of the problems now assigned to government. Allowing the social sector to attract investors by generating a financial return would allow them to generate more capital – exponentially increasing its size and effectiveness. Rather than forcing the redistribution of wealth through taxation and expecting governments to address social needs, this approach would assign the social sector the power and opportunity to do what it does best: solve the world’s most pressing problems.
What do you think? If you found out that your favourite charity was really a social enterprise and designed to turn a profit, would you be more or less likely to support it? If you’re a nonprofit, how have these restrictions affected you? What can be done differently?