This fictional speech was to be delivered by a consultant for Advertising for Humanity to the students of Johns Hopkins Carey Business School in Baltimore, MD.
The speech was written by Claudia Teixeira under the direction of Professor Mike Long for the Masters in Public Relations/Corporate Communication program at Georgetown University.
Welcome and greetings
I want to thank professors Mark and Olivia for the invitation to be here.
It’s such a pleasure to be with you today in Baltimore, in this solar campus, with this great view to the bay. This is really inspiring.
I’m also glad I got here early for the breakfast. I had never tried a Berger cookie before. It is so delicious. You are lucky you can eat those whenever you want.
Introducing the topic
Today, I want to show you a different perspective to look at the nonprofit sector.
First, I want to show you that the nonprofit sector is too small to have a chance at solving the world’s massive social problems.
Second, I will talk about misconceptions that we all have, in five important areas that keep nonprofits from growing. These five areas are: compensation, risk-taking, long-term vision, advertising, and capital investment.
And third, I want to say that we should evaluate nonprofit organizations by their achievements and not by their overhead costs.
Massive social problems, tiny nonprofit sector
I’ll start by saying that the nonprofit sector is too small to have a chance at solving the world’s massive social problems.
Even though the world has experienced lately a great increase in productivity and prosperity, we still face persistent social problems like poverty, hunger and diseases.
Statistics from the Food and Agriculture Organization shows that even with economic development, 13 percent of the world population suffers with poverty and hunger. Even here in the United States, the Census shows that poverty has remained stuck at 12 percent of the population for 40 years
The nonprofit sector is the market for love. The market for those who there is no other help coming. But it is too small to really have a chance at solving these massive problems.
According to the National Center for Charitable Statistics, in 2012 about 72 percent of America’s nonprofits had annual revenue less than a million dollars. Which means they can be considered small businesses. From 1970 to 2009, the number of nonprofits that really grew, that crossed the $50 million annual revenue barrier, is 144. In the same time, the number of for-profits that crossed it is 46,136.
Five misconceptions that prevent nonprofits from achieving large-scale
That leads us to our second point. I will talk about misconceptions that we all have, in five important areas that keep nonprofits from growing. These five areas are: compensation, risk-taking, long-term vision, advertising, and capital investment.
Let’s start with compensation. We believe that it is immoral for nonprofit organizations to pay high wages. However, in order to reach scale an organization must attract the best talents. And it is only fair that they should be compensated for their achievements.
A business week survey showed that the median compensation for a Stanford MBA at the age of 38 is 400,000 dollars. At the same time the salary for the CEO of a $5 million medical charity in the United States was 232,000, and for a hunger charity, 84,000 dollars.
So if we want the nonprofit sector to grow we must understand that it has to compensate according to value and attract top talent.
The following two misconceptions are regarding risk-taking and long-term vision.
We believe that nonprofits should not risk donated dollars that should be earmarked for programs. However if we discourage risk, we kill innovation and we kill growth.
Long-term vision is also crucial for large-scale growth. Many times companies must invest in a project for years before seeing any result. But when it comes to nonprofit organizations we think that donations should go to the needy right away.
Misconception number four is about advertising. We believe that nonprofit organizations should not waste donations on advertising. And this is strange because when we’re talking about for-profit companies we believe that advertising is an investment. If the company wants to grow it needs to saturate the market with its offer to build maximum demand.
The last misconception we have that hinders the growth of nonprofit organizations is regarding the capital market. We deny nonprofit organizations the permission to pay return on investments. As a consequence it cannot attract investors and stays out of the trillion dollars capital market.
When we put those five things together we see that it is almost impossible for the nonprofit sector to grow. It can’t use money to attract talent away from the for-profit sector. It can’t advertise on anywhere near the scale the for-profit sector does for new customers. It can’t take the kinds of risks in pursuit of those customers that the for-profit sector takes. It doesn’t have the same amount of time to find them as the for-profit sector. And it doesn’t have a stock market with which to fund growth.
Evaluating nonprofit organizations by their achievements
So, as our last point, I want to say that we should evaluate nonprofit organizations by their achievements and not by their overhead costs.
It is common for donors to ask what percentage of their donations goes to the cause versus overhead.
That makes us think of overhead as a negative thing in the nonprofit sector. However this is not true. Overhead is the cost of doing business and it should not be differentiated from the cause, especially when it is being used for growth.
There is great potential for growth in the nonprofit sector in the United States. Charitable giving here, as measured by the Census has remained two percent of the GDP for 40 years.
Even a small increase in that percentage can make a big difference in the world. But for that we have to give nonprofits the permission to dream big. And to measure their success according to the achievement of those dreams.
In conclusion, we talked about how the nonprofit sector is too small to have a chance at solving the world’s massive social problems.
We also saw that our misconceptions in five important areas keep nonprofits from growing. These five areas are: compensation, risk-taking, long-term vision, advertising, and capital investment.
And third, we saw that we should evaluate nonprofit organizations by their achievements and not by their overhead costs.
We at Advertising for Humanity believe that changing our perceptions towards charity and philanthropy can change the world for the better.
We should analyze, revise and reinvent the way we think about charity and the nonprofit sector. It is our responsibility to encourage growth in the nonprofit sector so that we can have a more inclusive world. A world were people do not have to be left behind.
Pallotta, Dan (2008). Uncharitable: How Restrains on Nonprofits Undermine Their Potential. New England: University Press.
Pallotta, Dan (2013, March). Dan Pallotta: The way we think about charity is dead wrong . Retrieved from: http://www.ted.com/talks/dan_pallotta_the_way_we_think_about_charity_is_dead_wrong.html