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Doing Better: NC nonprofit sector needs to rethink approach as funding shrinks

If you still haven’t dumped a bucket of ice water on your head, you better hurry up and join the crowd.

Because if social entrepreneur and TED phenomenon Dan Pallotta is right, it’s going to be a long time before we have a chance to take part in a fund-raising campaign that rivals the Ice Bucket Challenge, which has raised more than $100 million this year for the ALS Association.

“I love the Ice Bucket Challenge. Period. It’s a collective expression of love in a world with far too little of it,” Pallotta wrote in a recent post for Harvard Business Review’s blog network. But, he noted, it also underscores the massive constraints that limit the impact of the charitable sector.

“Zero-cost fundraising ideas that spring up out of nowhere and require virtually no investment are not sustainable because they rarely happen, and relying on them won’t result in the world we truly seek,” he wrote.

The reality, he says, is that we’re making little or no progress in solving some of our nation’s biggest challenges. Globally, annual deaths from AIDS have increased over the past 20 years. Nationally, during that same time, adult literacy rates haven’t budged, and the poverty rate has remained stuck at 12 percent.

Uncertain future

Pallotta’s TED talk on “The way we think about charity is dead wrong” has been viewed 3.2 million times. He brought his provocative message to the Triangle this month as the keynote speaker at the N.C. Center for Nonprofits’ annual conference.

His ideas hit home in a sector that is deeply worried about its future. Despite a slowly recovering economy, a recent survey by the Nonprofit Finance Fund found that nearly half of our state’s nonprofits think this year will be more challenging financially than last year. And 40 percent of our nonprofits are worried about achieving long-term financial sustainability.

They’re going to stay worried, Pallotta thinks, unless some fundamental shifts occur. Charitable giving, he says, was 2 percent of the GDP in the U.S. in the 1970s – and 40 years later, it’s still the same.

Even worse, the ability of nonprofits to attract talent, raise funds and innovate has been crippled by the very question many of us are careful to ask before contributing to charities: “What percentage of my donation goes to the cause versus overhead?”

In Pallotta’s view, “overhead” – or administrative, fundraising and program costs – is precisely what makes it possible for nonprofits to advance their cause. Without investing in talented staff, awareness campaigns and innovative services, the reach and impact of many nonprofits will remain too small in a world of very big problems.

How does Pallotta know his approach works? He put it to the test in the 1990s and early 2000s by pioneering the concept of multiday charitable events nationally. The grueling bike rides and long-distance walks he organized raised nearly $600 million for AIDS and breast cancer charities.

Pay an issue

The public’s expectation that nonprofit executives earn relatively modest pay and the tendency to demonize executives who are perceived to earn too much drives away a lot of talent, Pallotta believes. By their late 30s, for example, Stanford MBA graduates have a median annual income of $400,000. Meanwhile, the head of a typical U.S. hunger charity makes about $80,000 a year. “We create a very stark, mutually exclusive choice between doing very well for yourself and your family or doing good for the world,” he says. Why not pay nonprofit executives based on fundraising success and overall impact, he asks.

Charitable groups are often blasted as well for spending on marketing rather than using the money for food, medicine or other tangible goods and services. But how effectively can a nonprofit like Save the Children compete for our attention and financial contributions, Pallotta asks, with a yearly marketing spend of $623,000, when behemoths like McDonald’s and Hershey’s each spends hundreds of millions dollars annually to swamp us with messages?

Pallotta is fighting back with the Charity Defense Council, a new nonprofit that seeks to upend traditional notions of charitable giving and unleash greater funding and performance in the industry. Here in North Carolina, organizations like the United Way are leading the way in developing innovative strategies to invest in the scale and sustainability of nonprofits. In particular, they are taking a “venture philanthropy” approach powered by increased financial and human capital investments in promising solutions.

In an era of rising social need and shrinking government resources, Pallotta is right – we do need to fundamentally rethink how we tackle challenges in health care, education and economic development. There are good models and good will out there. Now’s the time to translate them into sustained impact.

Christopher Gergen is CEO of Forward Impact, a fellow in Innovation and Entrepreneurship at Duke University, and author of “Life Entrepreneurs: Ordinary People Creating Extraordinary Lives.” Stephen Martin, a director at the nonprofit Center for Creative Leadership, blogs at They can be reached at and followed on Twitter through @cgergen.