Tallahassee Democrat - Notes on Nonprofits
Printed in the Tallahassee Democrat on October 7, 2012
by Alyce Lee Stansberry
Dan Pallotta, author, social entrepreneur, and founder of Pallotta TeamWorks, recently blogged on the Harvard Business Review about the need to invest in fundraising. He calls it “multiplication philanthropy” and asks, “Why would you buy $100,000 worth of great educational programming for inner city kids when the same $100,000 directed toward fundraising could generate enough money to buy $1 million worth of it?”
It’s an interesting idea because it defies the conventional wisdom which is the more money spent on fundraising, the less money available for programs. Pallotta explains why this is a fallacy. “Imagine a $10 million pie with $8 million going to programs and $2 million going to fundraising. The last thing we want to do is make that a $3 million slice which would only leave $7 million for programs. But that’s not how it works. If it’s done correctly, the extra million enlarges the pie substantially. So the $10 million pie becomes a $15 million pie and the $7 million available for programs grows to $12 million.”
For years, I’ve bristled at the way nonprofits are often evaluated based on their percentage of overhead expenses. You’ve probably heard this rationale too. Charity A only spends 8% on administrative and fundraising costs and Charity B spends 15%. So, the better investment is to give to Charity A because more of your dollar is going directly to programs and services. The problem is there’s a strong possibility Charity A is starving itself. Unless they are a brand new organization or a tiny one, they are likely raising little or no money, are paying lower wages, not offering health benefits, have no strategic plan and haven’t conducted a Board self-assessment in years. Charity B, on the other hand, is spending 15% of every dollar on infrastructure. As a result, they may be raising more unrestricted funding for programming and support, have lower staff turnover, an up-to-date strategic plan, current policies, and are working more efficiently and effectively.
This is where Pallotta’s article resonates with me: the idea that the smart money is in multiplication and leveraging donated dollars by investing in fundraising. In the case of Charity A and B, the amount spent on overhead reveals nothing about their results and quality of services. That’s where donors, institutional funders, and leadership volunteers need to be looking. How are we working to solve the problem for which our organization exists?
We need to think differently about how we evaluate nonprofit organizations and, maybe, as Pallotta says, how we choose to invest in them. The best way to help your favorite charity succeed may be to help them feed themselves. This reminds me of the instructions on an airplane when parents are told to put the oxygen mask on themselves before helping their child. Maybe if we did, and had financial support from donors and funders to do so, we’d have stronger organizations and a more sustainable nonprofit sector.
Alyce Lee Stansbury, CFRE, President of Stansbury Consulting, is a 25 year fundraising veteran and teaches a graduate course in fundraising at FSU. She welcomes your comments and feedback at email@example.com.