This series is about the TED Talk by Dan Pallotta: The Way We Think About Charity is Dead Wrong. You can find the video and transcript here.
The next point that Pallotta makes is one about the difference in how we treat time in the for profit sector as opposed to the nonprofit sector:
So Amazon went for six years without returning any profit to investors, and people had patience. They knew that there was a long-term objective down the line of building market dominance. But if a nonprofit organization ever had a dream of building magnificent scale that required that for six years, no money was going to go to the needy, it was all going to be invested in building this scale, we would expect a crucifixion.
As with his discussion of risk, I think that Pallotta has an important point here but also missis a critical distinction between the for profit and nonprofit worlds.
Let me start with where I agree with Pallotta. Just as nonprofits need to be able to take risks and create new methods of delivering services and increasing philanthropic support, so do nonprofits need to be able to take the time to move such projects from their initial, risky stages to success and stability. It isn’t enough to be able to take risks if one can’t learn from those risks and make adjustments, a process that can take months or years. If our expectation is that everything nonprofits attempt succeeds instantly or is abandoned, we are robbing nonprofits of important opportunities to change the world and – more importantly – are robbing the people who are served by those nonprofits opportunities to have their worlds changed.
But let’s be clear about the analogy that Pallotta is using here. On the for profit side we have Amazon, a for profit organization whose major purpose is to increase the wealth of investors by making a profit and sharing that profit with them. That Amazon took six years to do so is unfortunate, but as Pallotta points out, investors had patience because they understood that Amazon was building market dominance and would eventually return profit to them. Of course, those investors also knew that by investing in Amazon they had taken a risk. There was always the possibility that they would not see any profit returned to them.
On the nonprofit side we do not have a named organization. Let’s suppose, for a moment, that it is the same hunger charity our Stanford MBA did not become the CEO of a few posts ago. This hunger charity, being a nonprofit, has no responsibility to make a profit and share that profit with its investors. Rather, its purpose is, presumably, to feed the hungry. Now, it is possible that there is a case to be made that, if the nonprofit has a plan to “build this scale”, it ought to have six years to do so before it feeds the hungry, but it’s difficult to imagine what that would plan would be or even what it would mean to “build this scale”. Amazon, after all, was building its scale to achieve market dominance. That doesn’t strike me as something nonprofits do.
There is, of course, a larger point here. Amazon, like all other businesses, makes a profit by doing something. In Amazon’s case this was selling products online and – in its early stages – this was selling books online. So Amazon really has a dual purpose: it must generate profit in order to create wealth for its investors and it does so by selling books online. The reason that investors could have some degree of confidence that Amazon would one day return profits to them was that it was really good at selling books – and eventually other products – online, even if it took some time to achieve the kinds of scale necessary to guarantee profits.
Our nonprofit does not have this dual purpose: its function is to feed the hungry. If such a nonprofit existed for six years – and solicited donations or investments for six years – while “no money was going to go to the needy”, its legitimacy would quickly be called into question. It would be as if Amazon existed for six years not only without returning profit to its investors, but without selling a single book! Without the nonprofit taking some action to show it was going to feed the hungry, there would be no reason for donors to believe that it ever actually would.
There are, however, nonprofit organizations that do follow a model similar to the one Pallotta is proposing. For example, organizations that fund cancer research are under no deadline to actually cure cancer or develop new treatments. People are happy to continue supporting such organizations. However, these nonprofits have to – and they should have to – show that they are actually performing research aimed at developing new treatments or cures. Moreover, while people are evidently patient with such research – much as investors were patient with Amazon – it should not be expected that people will be patient with these organizations forever. Just as Amazon would not have survived if it took it twenty years to return a profit to investors, it should at least be a valid question how long donors will continue to support research organizations if they do not develop new treatments or cures after decades of research.
And so there are two important points here. First: nonprofits, like for profits, do operate on a deadline of sorts. An organization might be able to function for years – or even decades – without achieving its goals, but it cannot operate forever without achieving those goals. Second: even as an organization – for profit or nonprofit – functions without achieving its goals, it must demonstrate that it is attempting to achieve them and, hopefully, that it is making meaningful progress towards them. Thus, it may take Amazon some time to realize a profit for its investors and it may take our hunger charity some time to eliminate hunger in its town, both must show that they are making progress towards those goals.
So, allow me to recap:
It is absolutely true that nonprofits need to be allowed time to grow services and that fundraisers need to be allowed time to realize returns on strategies, just as it is true that a for profit enterprise needs to be allowed time to realize profits for its investors. However, such time is not an unlimited resource: a for profit must more product in order to demonstrate that it is on a path towards profitability and a nonprofit must demonstrate that it is taking action – the precise nature of which will vary from organization to organization – to realize its goals. Moreover, even if an organization is taking action, failure to realize those goals after a reasonable time – ‘reasonable’ being a somewhat fluid concept here – may indicate that the goal is not achievable or that the methods being employed by the nonprofit are not going to be successful.
So, yes, by all means, time… more time. But let’s not pretend that the need for more time is an excuse for a lack of impact altogether.