I was very fortunate to have taken part in an early screening of the movie Uncharitable with my local AFP chapter last week. The movie will “officially” debut this fall and it addresses the concept of nonprofit overhead. Some prospects and donors erroneously believe that any overhead is too much overhead. I don’t believe that this attitude comes from malice, rather, it comes from a lack of understanding what makes nonprofits successful. The movie addresses many of these concerns head on.
I have long been a fan of Dan Pallotta’s. His TED Talks are legendary. There are links to two of his talks below. I urge you to watch them.
Dan hits the nail squarely on the head in Uncharitable when he asks why the for-profit world can attract and keep such remarkable talent, produce such wonderful products and easily attract investors (or in our world, donors) and contrasts that with the nonprofit world. Basically, the gist of the movie is Dan’s acknowledgement that the nonprofit world is at a distinct disadvantage when competing for the time, treasure and talent of others. He boils it down to five areas of disparity:
- Compensation — For some bizarre reason, we have normalized poor pay for the fundraising profession. Don’t get me wrong, many who work for nonprofits are paid extremely well. But when compared to the for-profit world, it is totally out of whack. Paying our fundraising staff considerably more may very well produce commensurate revenue. The notion of scarcity doesn’t serve our profession well at all. We see it as in bad taste or taboo to use money as a motivator to produce more.
- Advertising & Marketing Spend — This is a personal pet peeve of mine. I have witnessed the Marketing spend cut drastically when times are tough for a nonprofit. To be honest, if one were to do the exact opposite (spend more instead of spend less on advertising in those times of crisis), I would surmise that the fundraising response would be better. We commend charities for how much they don’t spend on advertising and marketing, with the underlying thought process being that every dollar a nonprofit brings in should go to the mission. There are even websites out there that grade nonprofits based on their low overhead. Does any shareholder of McDonald’s complain about the amount of money that is spent on advertising because a smaller spend could produce a larger dividend? Doubtful. The investor realizes that all of McDonald’s marketing and advertising help to return a better dividend!
- Risk Taking. Most nonprofits are exceptionally risk averse. Almost to their detriment. I wrote about the concept of Noble Failure here. As Albert Einstein said, “The definition of insanity is doing the same thing over and over and expecting different results.” Mostly, our profession hasn’t seen major innovations in the last twenty or thirty years. The ice bucket challenge, which some see as innovative, came from a grassroots group and was then “given” to the ALS Society. ALS did not create it.
- Time to Succeed. Nonprofits are notoriously poor at long range thinking. This is likely because of the constant pressure to address immediate funding needs versus the long-term. We all know that the cycle of a transformational gift to a nonprofit can take many years. And sometimes, at the end of that multi-year investment of time and energy, the nonprofit does not receive the gift that they were hoping for. In contrast to that, Amazon had such a huge war chest of funds at its inception that it survived, despite being unprofitable for many years. The investors realized Amazon was building its brand and gave it the latitude it needed to succeed.
- Use of Profit to attract institutional investors (i.e. stock market or bonds). There isn’t a traditional ROI (return on investment) in the nonprofit world like there is in the for-profit world. The ROI is much more nuanced and open to great subjectivity. What is a good feeling worth as an ROI? While there are some gift vehicles that see a “profit” motive (like the donation of appreciated securities that have very large capital gains [here in Canada]), that is seldom the motivator for donors.
The United States is a capitalist society and many of these notions about how to “fix the system” do not fully appreciate the population’s desire to remain a capitalist society. But I believe the current system doesn’t work as well as it should. We borrow a mindset of “efficiencies over everything else” from the for-profit world. As I have written in previous posts, nobody needs to donate to a charity (other than those that tithe, but that is a different blog post altogether). People need to buy groceries, have shelter, get from Point A to Point B. But donating is not a necessity. Moreover, donating on a nonprofit’s timeline (like a budget year, for example) is even less of a priority.
If you have the opportunity to watch the film, I urge you to see it. I will take that statement a step further and urge you to bring some of your board members to see it. It will certainly re-shape how everyone views fundraising overhead.
Until next week.