Something I had meant to mention in my post yesterday was that Priceonomics’ admiration of Yerba Buena’s Dream House Raffle sounded very similar to fund raising philosophy espoused by Dan Pallotta.
There is something admirable about Yerba Buena’s Dream House Raffle.
Every nonprofit spends a lot of time conducting and worrying about fundraising, and that is time that could be spent on the nonprofit’s mission. The Yerba Buena Center for the Arts identified a new revenue stream and has done well at it. It now raises more money from its raffle than it receives from individual donations or from the city of San Francisco.
Dan Pallotta says something similar in his 2013 TED Talk:
Now, if you were a philanthropist really interested in breast cancer, what would make more sense: go out and find the most innovative researcher in the world and give her 350,000 dollars for research, or give her fundraising department the 350,000 dollars to multiply it into 194 million dollars for breast cancer research?
If you have been following my blog for any period of time, you know that there has been a lot of discussion and examination about overhead ratio as a valid measure of institutional effectiveness.
Of late, the topic has been spilling out of publications focused on non-profit audiences and into the mainstream. This week, FastCompany’s FastCoExist took up the topic in a piece titled, “Demanding That Nonprofits Not Pay For Overhead Is Preventing Them From Doing Good.”
Upon reading the transcript of Dan Pallotta’s talk, I see the FastCoExist article basically says everything he did three years earlier. Except there continues to be more research conducted that is supporting the validity of the claim. FastCo cites a new Bridgespan Group study that shows how uniformly applying a flat rate limit on overhead is undermining non-profit effectiveness.
According to a recent report by Oliver Wyman and Seachange Capital Partners only 30% of New York nonprofits can be considered “financially strong”—and “many trustees do not understand the financial condition of their organization or how it compares to its peers.”
Part of the problem is that many funders have become obsessed with measuring their impact on a per-dollar basis, which means they’re more eager to give to specific projects than the institutional upkeep that supports them. But the 15% overhead limit doesn’t even parallel what commercial companies shell out. According to Bridgespan’s research, the average S&P 500 firm spends about 34% of their budget on essential behind-the-scenes support. For IT companies it’s more like 78%, the report notes. Some 21st-century nonprofits probably require the same kind of tech firepower.
Similarly Pallotta noted,
So we tell the for-profit sector, “Spend, spend, spend on advertising, until the last dollar no longer produces a penny of value.” But we don’t like to see our donations spent on advertising in charity. Our attitude is, “Well, look, if you can get the advertising donated, you know, to air at four o’clock in the morning, I’m okay with that. But I don’t want my donation spent on advertising, I want it go to the needy.” As if the money invested in advertising could not bring in dramatically greater sums of money to serve the needy.
What Bridgespan did in their research was segment non-profits into four general areas (U.S.-based direct service, policy and advocacy organizations, international networks, and research organizations) and then broke down expenses into five different categories. It probably isn’t any surprise that different segments of the non-profit sector vary widely in their needs.
There is a graphic in the FastCo article that illustrates this, but for example research organizations spent huge percentages on physical assets compared to policy and advocacy organizations. Policy and advocacy organizations didn’t spend any money on field and network operations, whereas the international and research segments did, but in greatly differing amounts.
They use this research to support their assertion that requiring flat-rate reimbursements for overhead costs across the entire non-profit sector is inappropriate. Not to mention that the percentages they set are restrictively low.
Regardless of whether this research brings about change in the immediate future, at least the scope of those involved in the conversation continues to expand.