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The New Nonprofit Paradigm: Fusing Compassion with Capitalism

By Stephanie Fritsch 

Dan Pallotta is an interesting – and controversial – guy.

His for-profit company, Pallotta Team Works, invented two high-profile events: the AIDSRides and Breast Cancer 3-Days, raising over a half billion dollars and netting $305 million in eight years. The company raised more money more quickly for these causes than any private event operation in history, and was the subject of a 2002 Harvard Business School case study. Despite this stellar success, Pallotta drew fire from critics who took issue with his brazen, business-like tactics, which came at a time before notions like “venture philanthropy” were in vogue.

AIDSRides, Breast Cancer 3-Days, Dan Pallotta, Pallotta Team Works, philanthrocapitalism, Stephanie Fritsch, Uncharitable: How Restraints on Nonprofits Undermine Their Potential, venture philanthropyPallotta’s ideas and methods are counterintuitive to all that is known about nonprofit development: for starters, ask people to do the most they can do instead of the least. His company’s events challenged participants to journey long distances for days on end in the name of causes they cared about deeply. Add to this an equally daunting challenge: to raise a mandatory minimum of four-figures (i.e., $1,200, $2,500, etc.) in order to participate. How did he get 182,000 people to walk, ride, and vigorously fundraise for his events? He marketed the heck out of them using aggressive, consumer brand practices that shocked some in the nonprofit sphere – and caused others to rethink the way nonprofits go about the business of charity.

 

In his book “Uncharitable: How Restraints on Nonprofits Undermine Their Potential,”  don’t expect to see simple solutions for replicating these successes with a few tweaks to your organizational model or event marketing machine. Pallotta doesn’t come close to suggesting ways to improve performance within the existing nonprofit paradigm. Rather, he argues that the paradigm itself is the problem, and calls into question our fundamental canons about charity. His thesis: society’s nonprofit ethic undermines our ability to eradicate great problems and puts charities at a severe disadvantage to the for-profit sector at every level.

 

Some compelling points made: 

Compensation: We allow the for-profit sector to pay people millions, but don’t want anyone paid a high salary in charity. This sends most top talent directly into the for-profit sector and gives young adults the mutually exclusive choice between making a difference and making money. 

Advertising: We let Apple and Coca-Cola inundate us with advertising, but don’t want important causes “wasting” donations on paid advertising. As a result, the voices of our greatest causes are largely muted while consumer products get lopsided access to our attention, 24 hours a day.

Vision: We let for-profit companies invest in the long term, but want our charitable donations spent immediately in the fiscal year to help the needy. That means charities can’t set aside funds to develop long-term solutions.

Learning: We aren’t upset when Paramount makes a $200 million movie that fails, but if a charity experiments with a bold new fundraising initiative that disappoints, we want heads to roll. So charities are petrified – too scared to try any new endeavors and unable to benefit from the valuable learning curve that comes with exploration and innovation. 

Capital: We let for-profit companies raise massive capital in the stock market by offering investment returns, but we forbid the payment of a financial return to charity. The for-profit sector monopolizes the capital markets while charities are left to beg for donations.

In essence, Pallotta urges the nonprofit sector to break free from traditional modes of operation in favor of “philanthrocapitalism.” Charities must start to act more like for-profit businesses in order to compete for more funding and to make legions more headway in their chosen causes.

Another critical area where charities must compete is in the acquisition and retention of dynamic, dedicated leadership. For this, it will take a fundamental change in our collective mindset to make a difference. As long as Americans see charity as a field in which people must suffer in the name of doing good, says Pallotta, we are preventing much good from being done. 

Stephanie Fritsch (stephfritsch@verizon.net) is a marketing and communications consultant based in Montclair, N.J.