Let me ask you the question; could you run a company without being able to pay people? Some of you may answer “No”. Some of you may answer “Maybe, with volunteers.” My guess is few of you would say “Yes.” Everyone has to make a living. Unfortunately we are making it difficult for one segment of our economy, a segment we all rely on to do much of the “good” we want to see happen. This is the non-profit organizations that help the homeless, the needy, the sick and the forgotten. Let me explain.
What does it take to run a successful organization? My list includes:
- Have a desired product or service
- Attract talent
- Reward that talent
- Retain that talent
- Advertise so consumers know you and your product and service
- Make a profit
Does this sound like a reasonable list? The object of this is to create wealth. We all know it takes money to make money. What happens to this company if it cannot make enough money? It eventually loses its talent and by losing its talent it either fails or reaches a level of so-so operation.
What would happen to your company if you did not have enough money to attract the best talent? What would happen if you were criticized for paying people too much? What if you were not allowed to advertise? What if you were criticized for spending too much to operate your company? This is the unfortunate circumstance we put non-profits in today.
The plight of non-profits
I work with several non-profits. They have a difficult road to travel. They do have talented people because these people want to participate in the cause, but they eventually have to make the decision between the cause and making a living, the kind of living their talent might get them in the private sector.
They have to rely on monies that come from donations and grants and they have to defend every penny spent and deal with criticism of how the money is spent. The budget for salaries and advertising is squeezed because donors don’t want their money going to administration. But what if by spending more money on salaries and administration the non-profit was able to double, triple or quadruple the amount of money being brought in to help their cause? Would that not be worth it?
The plight of non-profits was brought to my attention in a speech my friend Jeri Barr made to a leadership group. She is the director of a non-profit, so she has lived the frustration. Her speech was actually one that has been given by Dan Pallotta, who is best known for creating the multi-day charitable event industry, such as the Breast Cancer 3-Day events and AIDS Rides. Pallotta says we have not been able to come close to solving many of society’s problems because we discriminate against non-profits in five different ways. These include:
- We don’t allow them to pay high salaries and subsequently restrict their ability to attracted very talented people;
- We don’t allow them to advertise and market, thus depressing their opportunities to raise more capital;
- We don’t allow them to take risks in the pursuit of generating more and different revenue;
- We don’t allow them the time to realize their goals. Unlike Amazon, which took six years before it returned a profit, non-profits are expected to have almost immediate results;
- Lastly, non-profits cannot make a profit, thus starving them for growth, risk and idea capital.
Here is a 5 minute video where Pallotta explains this concept. And here is the link to his 18 minute TED talk where he discusses the entire concept.
The Season of charitable giving
As we come into the holiday season you will be asked to give to help support people. As you consider who to donate to I want you to think about the organization you give to. Do you put the requirement on them that only 5% goes to administration? If so are you restricting what they could truly do by having this requirement? I think it is time we rethink the whole process of charity in our country. Just some food for thought.