Dan Pallotta’s TED talk “The way we think about charities is dead wrong”

A friend of mine had recommended I watch this TED talk by Dan Pallotta, titled “The way we think about charity is dead wrong”. I finally got around to watching it last night and wrote up my notes in an email to my friend and then figured I might as well post them on the blog as well.

Pallotta’s main point is that the metric of “overhead” in charity is a misleading one at best, and is actively damaging in some cases. Givers want their money to go straight to the cause they are trying to support, so they want “overhead” to be as low as possible. But he points out that if that money can be used effectively for fundraising, then there will be a multiplicative effect such that more money in total goes to the cause. He gives this example: “We launched the AIDSRides with an initial investment of 50,000 dollars in risk capital. Within nine years, we had multiplied that 1,982 times into 108 million dollars after all expenses for AIDS services.”

I think the idea of growing the pie is one that people tend not to instinctively get, not just in charity work but everywhere. People assume that if a job goes to an immigrant, that’s one less job for an American, as if there is a fixed set of jobs, and it’s a zero-sum game such that if you get a dollar, I don’t. But the world doesn’t work like that – we regularly see vast new sources of value being created, which have benefits for everyone (I recently read Peter Thiel’s book Zero to One, which makes a similar point). It is so much more powerful to think in a non-zero sum way, and realizing that by working together to grow the pie, everybody is better off. Play the infinite game, people!

I also think his point about how we expect people to work at non-profits to work for cheaper is fascinating. I loved his example of the Stanford MBA who makes $400k a year is better off donating $100k/year to charity and getting the tax writeoff than actually going to work for a non-profit where he or she would have to take a $300k/year paycut. It’s similar to the conflicted attitude people have towards artists making money, as illustrated in Amanda Palmer’s recent article.

At the same time, I also know how easy it is to waste money in fundraising and marketing – I was the finance manager for Google Offers, Google’s Groupon-like product. We definitely pushed marketing dollars into that, and…not so successful, despite those Stanford MBAs. He was very successful at multiplying the impact of his fundraising dollars exponentially but I don’t know how generalizable a case that is – it is _hard_ to gain visibility in today’s fast-moving complex world, as there are just so many entities competing for people’s attention.

I also thought it was funny that he cited the stat of giving in the US staying at 2% of GDP a year for decades, and says that they can’t compete with companies spending on advertising. One of the stats I use at Google is that the advertising business as a whole has averaged around 1.3% of GDP for a century, according to Bloomberg – nothing has moved that dial. It’s moved from radio to TV to the Internet, but the total pie has not grown despite everybody in advertising extolling the virtues of growing the pie. So I don’t think giving is doing as badly as he thinks it is 🙂

It was an interesting talk, and I agree with his point that we should treat charities more like we treat companies – give them the time and the resources to invest in themselves such that they can grow and be more effective. I’ll have to think more about how to choose which charities to donate to.

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