Is everything you know about charities and giving to worthy causes… wrong?

We’re in a period of time where corporate philanthropy is not only proven outdated, but dead in the water.

We’re setting charities and nonprofits alike up for failure, and in this article I’ll explain why…

But before we get to that, keep in mind what we task these organizations to do:

  • Cure the world’s deadliest diseases …
  • Solve society’s biggest problems …
  • Overcome environmental, political and economical disasters …
  • Create solutions to issues nobody else can …

As people we expect a lot from charities and nonprofits, so you would think we’d empower them to succeed and give them the greatest possible platform to achieve this.

But we don’t.

The opposite is true.

We give for-profit companies one rulebook and the nonprofit sector another. It’s setting the entire world back and making already big issues bigger. The whole corporate philanthropy model is broken…

But don’t worry, there’s a way to fix it.

The Current (fragile) State of Corporate Philanthropy

In his TED Talk (see below), Dan Pallotta showcases the counterproductive state of corporate philanthropy.

It’s a talk that changed my entire outlook on business and life, and set me on a path to have the biggest impact possible on those I serve with Superhero Academy.

Dan paints a bleak picture that compares how we treat nonprofit organizations against for-profit companies, and the negative impact this is having around the globe.

  • We encourage for-profit companies to make money, reinvest it and spend it on advertising and operations BUT persecute nonprofits who don’t live hand-to-mouth and donate everything they make to their cause.
  • We empower for-profits to grow and scale (as big and as fast as possible) BUT force nonprofits to stay small and humble.
  • We measure the success of a for-profit against how much money they make BUT base a nonprofit’s success on the percentage of revenue they donate

If we made the for-profit world play to the same rulebook as nonprofits do, we wouldn’t have Google, Apple, Tesla or Microsoft. Most business would go out of business because they wouldn’t have the platform to scale, set long term goals or create a big vision.

Yet this is the platform we give to nonprofits, and there are 5 specific ways that we are holding them back.

1: Compensation

In his TED Talk, Dan Pallotta shares 5 ways we discriminate against nonprofits. The first is compensation.

He explains how we encourage for-profits to make money: the more value you produce, the more money you can make and the faster and farther you can scale.

You can then reinvest this into the business, and compensate your team accordingly.

We don’t like it when nonprofits do this!

A nonprofit should spend as little on their overheads as possible, and this includes the wages they pay their team. This not only stops them from hiring the most talented people to solve the world’s grandest problems, but it creates a moral dilemma for the people getting hired.

You can either do well for yourself and your family.

OR

You can do good for the world.

You can’t have both.

2: Advertising and Marketing

Dan talks about how we encourage the for-profit sector to spend-spend-spend on advertising.

The more you market your products, the more money you can make.

And the more money you make means the more successful you are.

Do we encourage nonprofits to do this? NO!

We don’t like to see our donations spent on marketing. We want to see the money WE give go directly to the cause, so we force charities to live hand-to-mouth and beg for advertising.

But done right, money spent on advertising could bring in a lot more money (meaning the people in need get more, and the impact the nonprofit has increases)

Yet this isn’t what we allow nonprofits to do. They have to use less effective marketing because it’s cheap, all because we don’t want them to use OUR money on an advert or TV slot.

3: Taking Risk on New Revenue Ideas

If a for-profit company like Apple spends millions on a new product that doesn’t do well, we applaud them for the risk they took in pursuit of innovation.

If Disney invests $200 million into a movie that flops, it’s okay; it’s part of the business.

Yet if a nonprofit spent $1 million on a fundraiser that doesn’t make its money back… we call into question their character.

As such, nonprofits don’t take risks. They play it safe. They minimise their vision and mission, because if they put one wrong foot forward it could be the end of their organisation (or the CEO’s job).

Will this mentality help us solve BIG problems? Of course not, but these are the rules corporate philanthropy currently employs.

4: Time

In his talk, Dan mentions how Amazon went six years before returning any profit to investors. This wasn’t a problem because their stakeholders had patience; they could see the big picture.

Could you imagine the uproar if a nonprofit didn’t donate any money to their cause for one year, let alone six? We wouldn’t allow it. We’d run them out of town, their reputation forever tarnished.

We give the for-profit sector time to grow and make an impact. We appreciate transformation doesn’t happen overnight, so we reward them with patience and reassurance.

Yet we expect the nonprofits of the world to make an immediate difference; to progress now; to prove what they’re doing works, today!

5: Profit to Attract Risk Capital

The final way we discriminate against nonprofits is how we make it near impossible for them to get significant capital or investment.

A for-profit company can pay people their profits to attract their investment and ideas. They can reinvest these profits for growth, and use it to buy the best talent, the right tools and the means to scale.

A nonprofit cannot.

They cannot use their profits like this. They must donate it to the cause they support.

This means the for-profit sector has a lock on the multitrillion-dollar capital markets, so nonprofits remain starved for growth at all times (stuck living hand-to-mouth and working hard to just get by).

This is Why Corporate Philanthropy is Broken!

We discriminate against nonprofits in these five ways, but really it comes down to our overall outlook that OVERHEADS are bad.

If a charity spends a significant amount of their revenue on overheads, we assume they’re corrupt.

If a for-profit company does it’s fine, because overheads allow them to scale and grow.

The same is true for a nonprofit, of course, but we overlook this point. We forget that the more they grow, the bigger impact they can have and the quicker they can solve the world’s biggest problems. We back them into a corner where they can only ever make short term, incremental differences.

Leaving the for-profit sector with:

  • The best talent.
  • The greatest market share.
  • The most PR and media.
  • The POWER!

So how can we fix this…?

To begin with, we must accept the old way of corporate philanthropy is dead. We need to level the playing field and allow for the rise of the philanthropreneur.

I recently wrote an article that dives into what a philanthropreneur is and how you can become one

In short, it’s about allowing for-profits and nonprofits to work from the same rulebook. Dan talks about this more in his TED Talk, so if you’ve yet to watch it I highly recommend you do (it may change how you think, as it did for me).

It’s time to realize corporate philanthropy as we know it is dead.

There’s a new solution in town, and it’s one you can empower by becoming a philanthropreneur.

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