Why We Should Support Profits for Non-Profits

Ever since I was young, I’ve felt compelled to give to charity. Of course I didn’t have much in the way of resources to do this until I was older and got a job. But once I started working, I realized how important it was to use money wisely. And with that realization, I wanted to make sure that any charities I gave to were operating under that same philosophy. The criteria that I used to make this determination, which is pretty much the same approach most people take, was to look at how much of my donation would be going to the “cause” versus the “overhead.” I wanted to know that my hard earned money was going straight to feed someone who was hungry, into cancer research, or toward installing a well that would provide clean water to an impoverished community, not into the pocket of some CEO making hundreds of thousands of dollars, or into some flashy marketing video that made the charity look “cool.”

What I didn’t realize was that this attitude was actually hurting the causes I sought to help.

My entire perspective changed after watching a TED talk by entrepreneur and humanitarian activist, Dan Pallotta, titled “The Way We Think About Charity is Dead Wrong.” Dan has extensive experience running extremely successful charitable campaigns for issues like breast cancer, and his case for why our approach to charity actually undermines the causes we care about was a true eye-opener.

In the rest of the business world, an enterprise grows through investment. A business that promises better pay than a competitor attracts better talent. A business that invests money in marketing dollars can exponentially expand their reach, which equates to more gross revenue. A business that has the latitude to make mistakes for the sake of innovation, or to take a few years to develop a long-term growth strategy, has a better chance at succeeding than one who doesn’t. And in each one of these areas, our gut reaction is to deny our charities any and all opportunity. This trope of “the best charities are the ones who minimize overhead,” effectively cuts their legs out from under them.

They cannot divert dollars into marketing to gain exposure.

If they take an innovative risk and fail, we lose faith in them.

If they don’t produce immediate results, we label them as inefficient and ineffective.

If they keep too much money to reinvest in themselves, or pay out “too high” a salary to employees or leadership, we look at them as greedy and corrupt.

Dan raises the interesting point that it’s curious how “we have a visceral reaction to the idea that anyone would make very much money helping other people,” yet “we don’t have a visceral reaction that people would make a lot of money not helping other people.” He points out that no one has a problem if someone becomes a millionaire making violent video games for teenagers, yet we’re ready to crucify the person who makes six figures heading up a hunger charity.

His argument was perhaps best summed up in his line “We can’t confuse morality with frugality.” We laud the “bake sale” who keeps cost down and raises 5k for a to help the homeless, but we vilify the charity who spends that same 5k on marketing and raises 50k as a result. If a charity expands it marketing budget from 15% to 30%, and makes a hundredfold increase in revenue for the hungry as a result, in what world was this a morally bankrupt decision?

Dan outlines his own campaign to raise money for breast cancer. His organization put in an initial $350,000 to get the thing started, a move that was seen as excessive by critics. Yet because of this investment, the campaign had the resources it needed to multiply that initial figure 554x, netting $194,000,000 (after all expenses) to go into cancer research. Dan and his team knew that for the best results, this campaign needed to be treated just like any other for-profit venture, and by treating it as such, they saw a greater return on investment than most other non-profit campaigns ever see.

Taking a step back from my reactive biases, all of this makes total sense. I think the problem is that we so often operate as though our assumptions about a thing are correct, we rarely stop to ask whether or not our assumptions are right. If the goal is to ultimately bring in more revenue for the causes we care about most, then why should be care if a non-profit CEO makes $200k+, or takes some extra risks, or invests in the areas that will be most effective for growing the organization? If this is the way to have the greatest impact, then what sense does it make to insist things be done any other way?

So when you’re considering whether a non-profit deserves your dollars, if they’re spending a lot on employees and marketing, don’t immediately write them off — that may very well be the sign they’re the right ones to give to in the first place.

And don’t forget to give some love to for-profits, like Seeds, who support nonprofits as well :)