Thinking Outside Of The Box Can Lead To Success…And Sometimes, Devastation

…in the for-profit sector, the more value you produce, the more money you can make. But we have a visceral reaction to the idea that anyone would make very much money helping other people. Interesting that we don’t have a visceral reaction to the notion that people would make a lot of money not helping other people. You know, you want to make $50 million selling violent video games to kids, go for it, we’ll put you on the cover of Wired magazine. But you want to make half a million dollars trying to cure kids of malaria, and you’re considered a parasite yourself.”  — Dan Pallotta

Curing the Charitable Curse

Curing the Charitable Curse (Photo credit: jurvetson)

Who?  Dan Pallotta was the chairman and CEO of Pallotta TeamWorks, and he has interesting ideas regarding investing in, growing, and raising funds for charity work.  I had never heard of him till recently when I stumbled upon a TED Radio Hour on NPR.  I listened to his full-length TED Talk (link below) and read the Harvard Business case study on his company (obtainable for $6.95).  I am both intrigued and impressed by his unconventional thinking and methods, and dismayed by the challenge imposed by the conventional banality.  Trying to change a deeply-rooted cultural perspective, however, may require more than one extraordinary entrepreneurial talent.

Most of the social ills or diseases we face as humanity are enormous in scale: poverty, AIDS, clean water, breast cancer, or any kind of cancer, etc.  The progress, when there is some, is slow and painful.  It is as if we can’t, won’t, or don’t know how to commit to curing, eradicating, or even “simply” reducing some of these horrors.  Pallotta noticed the issue of scale and thought big social problems require big scale solutions.  He said, “Our [charity] organizations are tiny up against them [social problems], and we have a belief system that keeps them tiny. We have two rulebooks, one for the nonprofit sector and one for the rest of the economic world.”  Hence, the quote I used to open this entry.

Pallotta wanted to build a “for profit charity” on the assumption that bigger return requires bigger and longer-term investment.  For his first organized AIDS event, biking for AIDS research, he raised $50,000 seed money, and netted – let me repeat, netted – one million and thirteen thousands dollars.  100% of the net went to the benefit.  Based on this idea, during the nine years of Pallotta TeamWorks, the company raised $108 million.  Again, that’s net.

The success, however, only invited media’s conventional scrutiny and public outcry.  When the key sponsor, afraid of the “bad” publicity, pulled its support, Pallotta’s company of 360 employees and 16 national offices ceased to exist overnight.

The media focused on the organization’s “overhead,” typically about 40% of the budget. Pallotta TeamWorks used part of the seed money to advertise, such as full-page ads in New York Times, Boston Globe, etc, and full-color brochures.  This was money well spent.  For the first event, the $50,000 seed money that brought > $1 million, $40,000 was spent on advertising.  Would we quarrel with a for-profit organization on such return-on-investment ratio?  As Pallotta TeamWorks grew, it wanted to attract bright young people to work for the organization, so it offered competitive salaries (against the private sector) to candidates.  As Pallotta explained, “Businessweek did a survey, looked at the compensation packages for MBAs ten years out of business school, and the median compensation for a Stanford MBA, with bonus, at the age of 38 was $400,000. Meanwhile, for the same year, the average salary for the CEO of a $5 million-plus medical charity in the U.S. was $232,000, and for a hunger charity $84,000. Now there’s no way you’re going to get a lot of people with $400,000 talent to make a $316,000 sacrifice every year to become the CEO of a hunger charity.”

A box in the sky is much less restricting!

A box in the sky is much less restricting!

It can make sense for people to take on $400,000 annual income, and then offer tens of thousands for charity.  Essentially, these well-off few get accolade for generous charity donations, and may be invited to sit on the board of the charity organizations where they can throw their influence.  Such an equation is a lot more attractive.

Of course not everyone’s life goal is making a lot of money.  However, when the gap between working for a charity organization and working to make a nice life becomes so glaring, the ones sitting on the fence will likely choose the good pay.  Is it just a matter of commitment?  Do we truly regard people who are willing to take below-average pay for “good” causes, and working to exhaustion, as “noble?”  I concur with Pallotta’s chiding that “we confuse morality with frugality.”  This is yet another either-or false dichotomy that we have artificially imposed upon ourselves.  It’s all based on deficit thinking that we have to fight for a limited size of a fixed pie.  What Pallotta has demonstrated is that if we can grow the pie, everyone benefits.  Wouldn’t the poor and the sick be better off from a larger pie?  Wouldn’t we all be?

The organization that decided to ditch Pallotta TeamWorks arranged its own charity event the following year.  The outcome?  “The overhead went up, net income for breast cancer research went down by 84 percent or $60 million in one year.”

Pallotta TeamWorks was crucified by the media for its “overhead.”  Yet, when the overhead went up and income went down the next year, there was not any hint of scrutiny and criticism.  Journalists claim that they only report “facts,” focusing on the four “w’s,” what, who, where, and why, and one “h,” how.  In this case, the journalists employed only their conventional and superficial tool box, and not even very well.  They glossed over the why’s and the how’s.  When we examine a charity organization that is run on for-profit model, should we still hold it against the non-profit model?  When some one, or an entity, operates outside the box, how shall we evaluate the actions and outcomes which are, by definition, likely to be unprecedented?  At the very least, we may want to consider suspending our judgment till we can construct an out-of-box perspective.

Does Pallotta have such a strong ego that he let himself be blindsided?  I would say yes except that he had talented people working for and with him.  Egos do not usually groom outstanding potential successors and welcome exceptional talent.  Pallotta had several people working with him, who were equally committed to outside-of-box thinking.  Why was he blindsided?  We all are from time to time.  Were there ways in which he could have better handled the media and publicity?  With his case as an example, I am sure we can come up with some possibilities.  One approach would be to invite journalists to document some of these events, from start to finish.  Or, offer some public education seminars.  Have beneficiaries provide testimonial cases.  Have participants of past and present offer their success stories, especially how events organized by Pallotta TeamWorks differ from others.  I am sure more imaginative people can come up with better ideas.

Abstract pushes boundaries.

Abstract pushes boundaries.

What I find disheartening in this case is that facts do not speak for themselves.  For those who claim that “numbers speak for themselves,” they neglect to add, “it  depends on what numbers you want to focus on.”  It’s that pesky “socially constructed reality” playing again; what I consider to be important numbers and facts may not reflect others’ choices.  Why is it so much easier for us to embrace a medical breakthrough, or a new tech gizmo, but are suspicious of a social entrepreneur’s advocacy and even success?  It’s worthy of a dissertation, but I am more interested in your opinions.

Till next time,

Staying Sane and Charging Ahead.

Direct Contact:  taso100@gmail.com

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