Dan Pallotta, entrepreneurial pioneer and humanitarian activist, recently delivered a truly captivating and moving TED Talk titled, “The Way We Think About Charity is Dead Wrong.” He stressed society’s broad discrimination against the nonprofit sector and our generation’s responsibility to reinvent the way we think about changing the world.

Dan Pallotta’s TED Talk is a plea for social innovation.

Our faulty beliefs and misconceptions about charities have become roadblocks, leading us astray from helping the causes we love. Dan Pallotta stands to both correct the nonprofit sector’s reputation and provide us with an alternative thought system.

During his lecture, he points out the massive apartheid between the nonprofit sector and the rest of the economic world. With these 5 key points, he highlights the major disadvantages charities face in comparison with their profitable opposites:

TED Talk reveals the 5 Major Disadvantages Nonprofits Face

1) Compensation

As a society, we tend to feel uncomfortable with the concept of people making money by helping other people. A widespread, flawed ideology exists that earning a high salary at a charitable organization equals corruption.

  • In Dan’s words, “you want to make 50 million dollars selling violent video games to kids? Go for it, we’ll put you on the cover of Wired magazine, but you want to make ½ a million dollars trying to cure kids of malaria and you’re considered a parasite yourself.

Unfortunately, choosing a career path in nonprofits often means sacrificing your own financial wellbeing. While this may be a worthy aspiration, Dan Pallotta makes the keen observation that people earning higher salaries can still become prominent, successful philanthropists in their personal lives. For example, the average Stanford MBA graduate earns a salary of $400,000. The CEO of a Hunger Charity earns an average of $84,000.

  • As Dan Pallotta sees it: “It’s cheaper for the Stanford MBA person to donate $100,000 every year to the hunger charity, be called a ‘philanthropist,’ sit on the board of the hunger charity, and  supervise the poor S.O.B. who decided to become the CEO of the hunger charity.”

2) Advertising and Marketing

A charity’s advertising costs are commonly met with opposition from the public. We do not like the idea that our donations go to fundraising expenses, rather than going directly to the needy.

A critical problem with this way of thinking: charities do not have the chance to grow if they cannot effectively spread their messages to the public. To drive this point home, Dan Pallotta shared a staggering fact:

  • In 40 years, the nonprofit sector has not been able to wrestle any market share away from the for profit sector.” After all, how could it, if it isn’t really allowed to market?

3) Taking Risk on New Revenue Ideas

Nonprofits have a deeply ingrained fear that, if an effort is not wildly successful, their reputation will be badly tarnished.

Dan made a startling comparison to how any unsuccessful feats taken on by the media go unpunished:

  • “Disney can make a new 200 million dollar movie that flops and nobody calls the attorney general. But you do a little 1 million dollar community fundraiser for the poor, and it doesn’t produce a 75 % profit to the cause in the first 12 months, your character’s called into question.”

This debilitating fear nonprofits hold onto stops them from achieving their full potential and stifles innovation.

4) Time

Society expects charities to churn out results almost immediately in order to justify their projects. Sadly, no one extends them enough patience for them to work on any long term goals. If they have a magnificent dream that will take them 6 years to attain before it makes an impact, society attacks them. Rather than seeing that the end goal is worth the wait, the public condemns the charity of withholding money from the needy.

5) Profit to Attract Risk Capital

Dan Pallotta says: “The for profit sector can pay people profit in order to attract their capital for new ideas. You can’t pay profits in a nonprofit sector.”

The for profit sector has a lock on the multi-trillion dollar capital market, and the nonprofit sectors starve for growth, and risk, and idea capital.

And when he saves they starve for growth, he really means it: “From 1970 to 2009, the number of nonprofits that really grew that crossed the $50 million dollar annual revenue barrier, is 144. In the same time, the number of for profits that crossed it is 46, 136.

The Root of the Trouble = A Very Dangerous Question

In his TED Talk, Dan Pallotta emphasizes that these pitfalls all stem from one dangerous question: “what percentage of my donation goes to the cause versus the overhead?”

Dan Pallotta defines 2 profound issues with this mindset:

1) It makes overhead sound negative and evil, as if it is not part of the cause.

2) “It forces charities to forego what the need to grow (in the interest of keeping overhead low).”

The idea that putting less money toward overhead means there will be more money leftover for the cause is, in fact, a very narrow and limited one. How it works is actually the exact opposite: the investment in fundraising actually raises more funds. By that logic, we should actually be putting more money into fundraising!

The Big Picture: Dan wraps up his point by accentuating that we “can’t force these organizations to lower their horizons to the demoralizing objective of keeping their overhead low.”

Dan Pallotta’s Generosity of Thought

As Dan sums up this riveting call to action, he urges us to have generosity of thought. He asks us to change the world by changing the way we think about charity.

The audience erupted in a standing ovation in response to his last gripping, motivational words:

“If we reinvented the whole way humanity thinks about changing things forever for everyone … that would be a real social innovation.”

We’re 100% On Board with Dan Pallotta!

Dan’s message was one of the best TED Talks ever. His words rang true for us in so many ways.  We fully support his philosophy and strive to meet his call to action. We are one way companies are trying to change the way we think about charity. It is our intention to become a hybrid of the nonprofit and for profit sectors. We have built a bridge to connect the two worlds, so our world has every advantage to thrive.