To Get Beyond Two Percent, We Have to Go Beyond Giving

by Eric Kessler, Founder, Principal and Managing Director,
Arabella Advisors

The Huffington Post invited Eric Kessler to contribute to its TED Weekends series, “The Business Case for 21st Century Charities.” The series revisits the ideas addressed in Dan Pallotta’s closing talk at the 2013 TED Conference.

Two percent isn’t going to do it. That’s the basic insight at the heart of Dan Pallotta’s argument.

Charitable giving has been stuck at 2 percent of U.S. GDP for 40 years, ever since we started measuring it. And in a world of increasing demands and ongoing fiscal belt-tightening — a world where government looks unlikely to step back in to support needed social programs — the nonprofit sector fundamentally has to contend with this fact: two percent just isn’t enough.

So what can we do in response? Basically, we have to do three things: 1) work to increase the amount people give, 2) make the most of every penny we get, and — crucially — 3) go beyond giving entirely.

Number 1 is the work of expert fundraisers and marketers like Dan Pallotta, though it’s also the work of everyone else in the social sector. For one thing, we can encourage more giving by being better storytellers. We need to learn to express more clearly and creatively the problems we seek to address and the successes we are having. Too often nonprofit appeals and reports are wonky, overly complex and just plain boring. Boring doesn’t inspire giving — great storytelling does.

Number 2 is the core work of most of us with jobs in the nonprofit sector, from the folks doing their best to deliver impact to the funders who support them. Here it’s key to note that Pallotta’s attack on the habit of measuring nonprofits mainly by means of overhead ratios is spot on. Rewarding organizations for under-investing in people, technology, effective management and infrastructure is dumb. Imagine you were considering investing in a company and found out that it didn’t bother buying up-to-date technology, paying its employees competitive wages or seeking out the best management practices. Would you still invest? No. Because an investment is, among other things, a bet on the future. It isn’t the same as a simple purchase. The whole idea is to put in value now in order to get more value back later. That’s part of the genius of the stock market: you spend now, assume some risk and — if you’re smart — you get it all back later and more.

And that brings us to number 3: getting beyond giving. At the end of the day, we are unlikely to get where we need to go merely by getting people to give more. While traditional donor-supported activities are critical to having large-scale impact, alone they probably won’t get us where we need to be. Many of our biggest challenges will require financially self-sustaining solutions. And we can find those solutions in at least two areas.

First, a growing pool of nonprofits employs business-like practices to sustain themselves. Environmental groups like RARE and health organizations like PSI are driving large-scale change by employing business strategies and providing products and services that drive revenue through channels beyond traditional fundraising. The strategies employed by this sector of self-sustaining organizations should be heralded, promoted and emulated.

Second, as a century of American philanthropy has demonstrated, much of our best work is done when it’s in our economic self-interest. Whether by supporting socially-driven start-ups through impact investments or encouraging socially-driven innovation at major corporations through our purchasing power, we can move forward farther with the business community alongside us.

What I appreciate most about Dan’s TEDTalk is how it has engaged a huge audience in a discussion of these issues. What is most disappointing is that, after a century of organized philanthropy and impact, this discussion is still necessary. Hopefully, this discussion will help close the 2 percent chapter of our history and enable us all to increase our impact.

This post originally appeared on the Huffington Post TED Weekends on September 21, 2013.

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