Dan Pallotta Is Rethinking Nonprofits

As the Convening Leaders 2015 Closing General Session speaker, Dan Pallotta will provide an inspiring send-off. Not a feel-good, canned motivational speech, but a call to action to get participants thinking about the nonprofit sector — where many of them spend their careers — in a whole new light.

Perhaps you’re not among those who have helped bring Dan Pallotta’s TEDTalk — “The Way We Think About Charity Is Dead Wrong” — to nearly 3.3 million views. You may not have picked up a copy of either of his books, Uncharitable: How Restraints on Nonprofits Undermine Their Potential or Charity Case: How the Nonprofit Community Can Stand Up for Itself and Really Change the World. But by now, you’ve got a pretty good idea of this humanitarian activist’s message: We — the public, and even those who work in the nonprofit sector — need to rethink the way we perceive nonprofits.

“A lot of people think, oh, Dan Pallotta — he’s the guy that wants charities to act more like business,” Pallotta recently told Convene. “But that’s not quite right. I’m not saying, geez, charities are so stupid, I wish they would learn how to act more like business. What I’m saying is, stop telling charities to act more like business when we as a society are not for a moment ready to give charities the big-league freedoms that we really give to business.”

Just what are those big-league freedoms? We asked Pallotta to share his vision for nonprofits — and what Convening Leaders attendees can expect when he takes the stage on Wednesday, Jan. 14.

What drives your passion for transforming the way people think about charities — which is generally using administrative spending and overhead as the default measurement of that charity’s performance?

What drives my passion is the potential that exists if we change it. The potential is unspeakably large. And the other thing that drives my passion is that it’s not difficult to change people’s minds. We’ve just all grown up [around] a set of ideas that have become habits for us without really thinking about them. The extent to which we can change the way people think about charity liberates these organizations, and gives them the same kind of economic freedom that we give to the Fortune 500s. And then we can really start to make things happen. Then charities can start to play on a level field with the giant consumer brands. And that to me is really, really exciting.

Could you describe the for-profit framework that you envision for charities in order to drive entrepreneurial thinking into philanthropy?

Let [charities] compensate people based on the value that people produce, so that people of all ages could see that they could make just as good a living — they could make a great living — in the nonprofit sector if they produce [results] as they can in the for-profit sector. There are people out there selling, for example, medical equipment with the most incredible sales capability and skills. Not for a moment would they come into the nonprofit sector and do fundraising. Why? Because their salary is fixed in the nonprofit sector. They don’t get compensated based on their performance. Man, we could really use some of those people in this sector. That’s one thing.

The second is advertising and marketing. How can we build market demand for more philanthropic giving? We’ve got to spend money building that demand — the L’Oréal brand spends $1.5 billion a year to market cosmetics [and] McDonald’s spends a billion dollars a year to market fast food. We need to be able to do that to level the playing field and get charitable giving increased. And if we can increase charitable giving, there’ll be a lot more resources to start to solve these problems.

The third thing is the ability to take risks the way Elon Musk is taking a huge risk with Tesla [Motors] right now and the way the movie studios take risks — like $200-million bets on huge movies. So if the nonprofit sector could do that, if it could place multimillion-dollar bets on new fundraising ideas, and fail and succeed and fail and succeed and learn and learn and learn, that would be another way to dramatically expand the sector.

And the next thing is to give them more time. Instead of looking in 12-month increments at what was your overhead and what did you produce, give it time to let things grow, the way we let Boeing amortize the Dreamliner over the next 20 years.

And last, create capital markets so that we can bring capital — the kind of capital that Twitter has now that they did their IPO over, or that Tesla has. Without capital, not only can you not achieve great things, you can’t even imagine great things.

Those are the kinds of freedoms that we need to bring into the nonprofit sector. And then it can really start to solve some of these problems. We won’t need to rely on government — because government is never going to be able to afford to solve these problems anyway.

What kind of yardstick should people use when they evaluate a charity?

The worst thing you can use is overhead, because overhead will betray you utterly and completely as a donor. You can look at two soup kitchens and [Soup Kitchen] A tells you 90 cents goes to the cause and [Soup Kitchen] B tells you 70 cents goes to the cause. So you give to Soup Kitchen A, not knowing anything else about them — only to find out that they serve rancid soup to seven people a week. Whereas Soup Kitchen B serves hearty, nutritious meals to tens of thousands of people a week in a beautiful facility. So the overhead measurement just betrays donors pathetically.

So what would you use if you don’t have overhead? Well, you’d want to find out: What are their goals? What progress are they making toward those goals? And how do you know? Those are the three big questions that you really want to ask.

What resources exist for potential donors to learn more about a charity’s effectiveness?

There really aren’t [any] — except for the charities themselves. So what I tell people is, you’re always going to give to the Red Cross when [there’s] an earthquake or tsunami. And you’re always going to have a friend asking you to pledge them in a walk that they’re doing for some cause. Separate from that, though, you should think about — over the course of my life, what cause do I want to impact the most? What cause or causes have affected me personally the most?

And think of yourself as a philanthropist. You know, philanthropy means love of humanity. It doesn’t mean a billion dollars. Think about what cause — over the course of your life if you were to give a thousand dollars a year, it might end up being $50,000 or $60,000 — would you like to impact? Now start to do some research and look at what organizations people seem to say are the best at whatever it is, fighting breast cancer or preventing violence against women, whatever your cause might be. And then once you’ve narrowed it down to two or three organizations, go visit them. Call them up. Say you want to meet with them. You’re talking about a 50- to 60-thousand-dollar proposition. You would never buy a car without going and looking at the car. You don’t cast a vote for president without spending hours and hours and hours watching debates and learning about their positions on the issues. You should have the same respect for the money that you’re going to give to charity.

So rather than relying on some dumbed-down star rating from some watchdog agency, go there yourself. Charities love that. That’s why they have development directors to talk to donors, potential new donors, to take you for a tour of the facility and [answer] all those questions.

Tell us about your latest effort — the Charity Defense Council and the Charity Defense March planned for June of next year.

We need to make this whole area of charity sexy — I mean in the way that Apple makes the Apple Watch sexy, in the way that Google makes self-driving cars sexy; … the way that consumer products make their products sexy. People would give more to charity if it weren’t so boring. So what we need to do is to take a page from the egg industry, the milk industry, and the pork industry. People used to think of pork as a heart attack waiting to happen. And then the pork industry got together with an ad agency and they came up with the slogan “Pork, the Other White Meat.” So now when you eat pork, you think you’re being a model of national health. The pork slogan now is “Pork. Be inspired.” They’ve stolen our message!

So we’ve created this thing called the Charity Defense Council to be brave, and to be bold, and to be daring, and to involve people at the grassroots level — for the people who are just coming into this sector and are young and full of dreams and the people who’ve been in this sector for 30 years and are tired of not being able to make a difference. We’re going to advocate for ourselves, but not in boring, old ways. We’re going to be an ad agency for the sector to run ads that feature people who work in the sector, who do fundraising through the sector, and they’ll be looking at a camera and [in the ad they say], “I’m overhead.” Because we’ve dehumanized overhead. We need to re-humanize that.

The ads of the future show a little kid with a piggy bank who says, “I’m going to donate all the money in my piggy bank to the local homeless shelter, and I want them to spend 100 percent of it on fundraising for the administration because I want them to grow.” It’s provocative, interesting, not an academic ad.

And we’re going to do this Charity Defense March, which is a long-overdue event for the sector to come out. And I don’t just mean come outside. I mean come out the same way people who are gay come out. Come out to the world and say, “We have dreams that go way beyond keeping administrative costs low. And it’s time we let the world know.” So we’re going to march for three days from Maine to Salem, Massachusetts — and not for AIDS, not for breast cancer, not for hunger, but for the systemic issue that prevents us from doing more about AIDS and breast cancer and hunger. So this is a march for the march organizers. It’s a fundraiser for the fundraisers. It’s a march for the people who fight for the people.

How many people do you expect to join the march?

Our goal is to get 500 people and net a million bucks, so that we have a healthy first-year launch for the Charity Defense Council. But my dream would be for 7,000 people to show up.

What are your other plans for the Charity Defense Council?

Our first order of business is to get ourselves launched and then start a serious institutional fundraising effort to do this on a big scale. It’d be wonderful if we could get the Ad Council involved. I want foundations around the country to support this effort, help us do a $5-million budget in a test city, and do public-opinion polling, create post campaigns. And then if it works — if it moves the needle on public opinion — launch it nationwide to the point where we’re spending 50 to 100 million dollars a year changing the way the public thinks about charity. One thing’s for sure: They will never change the way they think if we don’t utter a word to them. And that’s been our MO for a century. It’s unbelievable. The nonprofit sector is a trillion-dollar economy. If you look at just the health and human-services portion of the sector — $60 billion a year in donations — and never has the sector collectively run a full-page ad in The New York Times to say, this is what the nonprofit sector does.

Why the low profile?

It’s about remaining humble. Well, humility is not what’s going to solve these problems. The sick joke that gets played on the nonprofit sector is it’s told it should not act in its own self-interest. And that’s why the nonprofit sector has never risen up, because self-interest has been a bad thing. Well, if we can’t help ourselves, we can’t help anybody else. And it’s time to realize that.

Michelle Russell

Michelle Russell is editor in chief of Convene.