In 2002, Dan Pallotta Ra...

In 2002, Dan Pallotta raised over $71M for breast cancer research. In 3 years, they'd raised over $194 million (all after expenses). Yet, a year later his entire organization went out of business and all 350 employees who'd made it possible lost their jobs. What happened? (View Tweet)

Note: non-profit

The answer lies in one of the most misconceived notions in the non-profit world: OVERHEAD, and the idea that non-profits should do everything they can to minimize it. (View Tweet)

Overhead is what you spend to pay your employees, fund marketing, and cover other expenses unrelated to directly supporting the charitable cause. (View Tweet)

The idea is that a non-profit should minimize its overhead so that as much of your donation goes to the “real” cause, and not to pay employees or advertise for the charity or anything else like that. (View Tweet)

Rating orgs like https://t.co/QvmW5Ejhej give an “A” to charities who spend under 25% on overhead and the BBB says that operating expenses should be less than 35% of a non-profit’s budget. Surveys say the average American feels a charity should spend no more than 23% on overhead. (View Tweet)

Dan’s org spent 40%+ of their gross donations on recruiting, customer service, and improving the magic of the experience, and with no accounting terminology to describe the value of investment in growth and the future, they were crucified in the press. (View Tweet)

In the non-profit world, perception and ideas of moral virtue are hugely influential, and their sponsors evaporated. In one day, every one of their 350 employees lost their jobs and Dan’s organization ended. (View Tweet)

Tragically, their old sponsors even went on to try to recreate the events on their own, but lacking the expertise of Dan’s org, their overhead went up. Net charitable income for breast cancer research went down by 84 percent ($60 million) in one year. (View Tweet)

As Dan puts it, “this is what happens when we confuse morality with frugality.” Charities are hamstrung in the amount of good they can do by erroneous expectations that they need to struggle, and that the people who work for them shouldn’t be paid well. (View Tweet)

He points out how backwards it is that we’re okay with someone being paid $400k/year to make violent video games or sell us fatty foods but someone solving world hunger is evil if they make more than $100k/year. (View Tweet)

This thinking originates from the idea of a fixed-sized pie: a bake sale with 5% overhead is morally superior to one with a 40% overhead…. But what is the actual size of the pies? Overhead also describes what in for-profit enterprises are called necessary investments in scale. (View Tweet)

Dan: "What if the 5% overhead bake sale only netted $71 for charity because it could make no investment in scale and the professional fundraising enterprise netted $71 million because it did? Which pie do you think people who are hungry would prefer?" (View Tweet)

Our generation is the most morally-aware and impact-conscious one in history. As Dan would put it, this generation should not want its epitaph to read, “We kept charity overhead low.” (View Tweet)

Listen to Dan discuss this and other details, including how the Puritans are the ones responsible for this peculiar state of affairs in the US, and how it’s time to overcome it and adopt a better way of thinking about impact-focused giving: https://t.co/1RGXJM9TYf (View Tweet)

Follow me for more threads like this and awesome uncorrelated opinions: no matter how much you think you share my worldview, I guarantee you I'll share an opinion you absolutely disagree with! (View Tweet)