Boldly making profits like no non-profit has made before....
Thanks to my friend Charles Senteio for pointing out this piece in The Economist:
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BETWEEN 1994 and 2002, more than $300m was raised in America for dozens of AIDS and breast-cancer charities at bike rides and walks organised by a profit-making fund-raising outfit called Pallotta TeamWorks. Then, in August 2002, after many of the charities decided to bite the hand that fed them, the Los Angeles-based organisation was forced to close, sacking its 350 employees. The final straw had been the decision by Avon Products Foundation to launch its own version of a three-day breast-cancer walk developed by Pallotta, which it fired.
The charities had become angry after a number of newspapers complained that the firm was too costly, charging expenses that typically exceeded the 35 cents per dollar raised recommended by various charitable watchdogs. They also complained that Pallotta was a for-profit company, and that its founder, Dan Pallotta, paid himself a salary well above the norm.
As Mr Pallotta points out in his riposte, “Uncharitable”, firing his firm may have got the expense ratio down, but it did the charities no good. After Avon started its own three-day walks, the most it managed to raise was $22.7m after expenses; the last walk organised by Pallotta TeamWorks, after costs, had provided Avon with $70.9m to make grants. The other charities that dispensed with Mr Pallotta’s services suffered similar falls and some had to lay off staff.
Mr Pallotta’s anger at his treatment has prompted a big idea: the charitable sector should embrace capitalism, and not just by borrowing business methods from the corporate world, but by actively seeking to make a profit by doing good. Why is most charity hopelessly ineffective, he asks? Because it is run according to an ideology that ensures it will fail: charities are starved of the money, techniques and talents they need to succeed—things that are taken for granted in the business world.
Mr Pallotta blames the Puritans who founded America, especially John Winthrop, who set out in his famous “city on a hill” sermon that the “Modell of Christian Charity” requires the poor to be given handouts rather than helped to escape from their poverty. “Charity”, argues Mr Pallotta, “is no longer an exchange between the non-needy and the needy. It is an exchange between the non-needy (donors) and the non-needy (the charity work force) to provide services to the needy. It is an exchange between equals to help the needy.” Why is society happy that carmakers make a profit, pay competitive salaries and advertise their goods, yet it is outraged when charities do the same?
Mr Pallotta produces quite a lot of both data and logic. If you do not first analyse a fund-raiser’s results, how is it possible to judge whether what it spent was justified? He also makes a convincing case for charities to spend far more on advertising, perhaps even selling shares to pay for it. If this makes you queasy, read Mr Pallotta’s book. As he says, “To mount a campaign to convert 6 billion people to love—which is essentially the role of charity—takes a lot of money…Raise the capital to promote the idea by offering a return on investment, hire the best people to manage the effort, and run the advertising to spread the word. You beat capitalism at its own game.”
See the article here:
http://www.economist.com/books/displaystory.cfm?story_id=12970810
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