Charity Case: Are nonprofits operating under a separate rule book?

Charity Case author Dan Pallotta explains the number of nonprofit organizations that have crossed the $50 million annual revenue barrier since 1970 is 144. He adds, the number of for-profits that have crossed it is 46,136, and as many as 80 percent of nonprofit organizations in the U.S. have budgets under $500,000. Finally, only one percent have budgets greater than $1 million.

Despite the fact that our sector is tackling issues of “massive proportions,” we are required to work under a separate rule book, one that doesn’t have any of the proven capital strategies our corporate sector leverages every day.

“This is the crux of the matter,” says Pallotta.

Pallotta explains this discriminatory rule book reflects five transgressions against our sector:

1) Compensation: We let the for-profit sector pay people a competitive wage based on the value they produce without limit. Want to make $50 million selling video games to children? Have at it, says Pallotta. “But if you want to pay the right leader half a million dollars to cure kids of malaria, you and the leaders are parasites yourselves.”

2) Advertising and marketing: Charities can’t build demand for donations to their causes while businesses advertise until the last dollar no longer produces a penny of value.

3) Risk taking in pursuit of new donors: While it’s okay if the movie industry spends $100 million on flops, a $5 million charity walk that doesn’t show a 75 percent profit in the first year is considered suspect. Consequently, nonprofits shy away from large-scale fundraising ideas and cannot benefit from powerful learning curves.

4) Time horizon: New companies can go six years without returning any profits to investors in the interest of building market dominance while charities that have long-term goals are expected to yield short-term, direct services. If they don’t deliver, they are pariahs.

5) Profit: Businesses can offer profits to cultivate investment capital, but there’s no such vehicle for charities. The social sector is starved for growth capital.

The author included a relevant quote from former president of the Association of Fundraising Professionals, Paulette Maehara. She says we are to blame for perpetuating some of these transgressions. “The sector has fallen into a trap we created. By focusing on what we DON’T spend, and not on what has been accomplished, we have completely missed the mark in our messaging. We are part of this problem and it’s up to us to educate our way out of it,” adds Maehara.

Pick up a copy of Dan Pallotta’s Charity Case. It’s a provocative look at some of the sector’s most persistent problems as well as Pallotta’s comprehensive answer to them.

Do you have personal experience with one of the transgressions mentioned above?

See also:

Page to Practice™ book summary of Charity Case
Page to Practice™ book summary of One-Hour Activist

Image credit: TED, danpallotta.com

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