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Doing the math
Quite a few people in the replies to Dan Pallotta's talk have noticed that the math shown is somewhat odd from time to time.
So let's discuss this in a seperate conversation rather than in the video thread.
My personal opinion (in this post) is irrelevant, I'll take a possition myself in the debate though but want the starting post to be as neutral as possible.
Because I would like everyone to use the same numbers I've went through the vid and wrote down all numbers he uses on his slides (I made the 'topics' of the slides myself as his slides didn't have any topics):
Poverty:
12% poverty in the USA
Salary in profit vs non-profit organisations:
Stanford MBA (at age 38) = 400.000 $
CEO of a medical charity = 232.658 $
CEO of a hunger charity = 84.028 $
AIDS rides bicycle (over a course of 9 years):
182.000 cyclists raised 581.000.000 $
Charitable giving in USA:
2% GDP (300 billion)
organisations crossing the 50M $ annual revenue barrier since 1970:
144 non-profit
46136 profit
Launch AIDS rides:
50.000 $ (risk capital)
108.000.000 $ after 9 years (and after expenses).
Breast Cancer 3 days:
350.000 $ investment
194.000.000 $ after 5 years (and after expenses).
Overhead:
5% overhead for a bake sale.
40% 'overhead' (or investment in growth) in a company.
(would anyone know what a non-profit organisation spends on average on 'overhead'?)
Current charity balance (where the 2% GDP goes to):
20% of charity goes to Health and Human services. (60Billion $)
80% of charity goes to Religion/Education/Hospitals. (240Billion $)
Wish/Future:
3% GDP (450Billion or an added 150Billion ontop of the before mentioned 2%).
Richard Krooman 50+
The more I'm sure that what Dan really does is out-compete his fellow charities by using more money in organisation of fundraisers than the other charities do.
Which eventually leads to "less money to the needy" than if he does not do this, as well as quite a few jobs in marketing / promotion / other jobs related to the events (like security/catering etc.).
Ian Sinclair
If marketing efforts can persuade a person to redirect some funds toward a cause, rather than toward any other purpose - whether that be entertainment, savings, etc., but not from pre-existing charitable behaviour (such as payroll deductions) - than the growth isn't from out-competing fellow charities. This form of growth is certainly achievable.
Whether the lion's share of growth originates from within the charitable sector or external to it, will likely vary on a case by case basis. Speculation and generalization isn't constructive.
Ideally, surveys and studies would accompany such charitable endeavours to uncover whether a donor redirected funds from one charity to another or increased his/her overall contribution. Again, ideally, an emphasis would be placed on those marketing efforts that result in the latter.
Richard Krooman 50+
Dan's charities grew like crazy while % of GDP spent on charity stayed the same.
So where did that money come from if not from the competitors? (One might say that his charities are too small to really make a significant difference in the % of GDP... but then there is not enough evidence for either conclusion which wouldn't make what I write any less likely than what Dan is talking about)
His conclusions are a lot more far fetched than my own though. Where he sais that "giving a doctor a fundraising team which can use the 350.000$ makes more sense than giving the doctor 350.000$ for the research.".
Say that you're a really smart doctor.... and rather than thinking "I really need that money" each year you use the generated $ to give another doctor a fundraising team which can use 350.000$. And he then does the same (so 1 doctor in the 1st year, 2 in the next, 4 at the 3rd year etc.).
As according to Dan's numbers each of those will (after around 5 - 6 years) "make 200 Million $". (That is if they do not cannabalise eachother).
You can already see that this isn't going to work... As within around 12 years spending on those charities will exceed GDP. (I didn't really do the math precisely for the '12 years' though but it feels correct as 2^(12-5) = 2^7 = 128 which then means that "at the very least 25,6 trillion $ is spent on gdp")
Robert Gunter
I think people want to help others and that motivates many of us. We look for opportunities, but need to be presented with them to act. Maybe you have Saturday free, and just heard a charity is doing a fundraising nearby. THe advertising got you to get involved. If there was no advertising, you would not have heard about it.
In sales, it often takes 5 repeat visits to close a deal. Those first 4 visits are overhead. Getting people to realize that they can give and it makes a difference costs money. The more you spend, the more you make. Will there be mistakes? Certainly. But that is how you learn.
Richard Krooman 50+
While I'm sure that, because of the spread of televisions and computers, awareness of charities has grown significantly through the years.... Heck a lot of the "large charities" are so well known that they are considered to be common knowledge at quizes.
So it cannot be that "if we just know" -> "we will spend more on it".
Robert Gunter
Richard Krooman 50+
I give you a logical conclusion of data that tells you that is not true.
You re-state that it is true....
If that is what marketing is all about then I suggest marketeers take courses in economics and logic
Comment deleted
Richard Krooman 50+
I don't say the USA has any problem.... I am sceptical of Dan Pallotta's talk though.
Actually the more I think about it the less I'm convinced that he is justified in his beliefs.
I do however think that he has his heart on the right place... but, to me, his economical views on charities don't make any sense.
Shelby See
Richard Krooman 50+
I was confused by it though haha :D
Theodore A. Hoppe 200+
They have both received F’s from CharityWatch, the charity-ratings group, because most of the money they raise from the public pays for direct-mail operations.
http://philanthropy.com/article/Nonprofit-Inquiry-Reignites/133693/
How to Calculate a Charity Program Spending Percentage
Divide the amount the charity spent on programs by the total amount it spent, and multiply the result by 100.
For example: If an organization reports spending $750,000 on programs while spending a total of $1,000,000, dividing $750,000 by $1,000,000 produces the decimal number 0.75, and multiplying that by 100 produces the result of 75% (its program spending percentage).
http://seriousgivers.org/program-spending/
Financial Ratings Tables
At Charity Navigator we recognize that different types of organizations work differently. This variation isn't a bad thing. Rather, different types of charities have different resource and spending requirements. For example, our research shows that museums exhibit above-average administration costs as compared to other types of charities.
http://www.charitynavigator.org/index.cfm?bay=content.view&cpid=48
Shelby See
Who is doing with out can't stay out of simple trouble and the rest get government assistance. I don't feel sorry for the people that can't stay out of trouble sorry!!!
I'm also from the show me state, so show me somebody that is doing with out essential needs to life that is not voluntary!!!
Random Chance 30+
You are in serious need of one.
Do you have a good job?
Give it to 30,000 people who are out of work, lost their jobs or graduated and now their major is not applicable, but most importantly, let's throw everyone in to the same stereotype and blame them for having any kind of difficulty in life.
So you see some people as valuable and others as not valuable, yes?
Why don't you, quit your good job (if you have one) and take a menial, low-paying job cleaning out toilets, in a poor section of some big city? Would you think that job is not of value, not important and by association of having it, neither is the person who does it, and cannot survive on it? From your comment, I assume you would. So if you took that job, you are not important
Donald Rumsfeld announced the day before 9/11 that the Pentagon could not account for 2.3 trillion dollars in transactions. Was it investigated, discussed, questions raised and pursued? No, because the next day he and his gang attacked the WTC and it got buried with all the other BS. That, is the welfare system and it hurts everysingleAmerican.
Yes, people actually don't eat voluntarily, or have warm clothes or medical and are poor only by choice.
You sir, are what is wrong with America. You and your mental illness that is Artificial Intelligence on display.
A mental robot, a Manchurian Citizen.
Shelby See
http://www.youtube.com/watch?v=0E-URmNAa5o
Richard Krooman 50+
Give the best doctor out there 350.000$ or give him/her a fundraising department worth 350.000$ who will multiply that into 194.000.000$ (over 5 years).
This makes it sound as if when you market people will give more. Which might be the case (but there is no evidence for this).
However if something can grow with a factor of 554 then it can only mean 2 things.
1) It was REALLY tiny to begin with.
2) it gets it growth off of 'competitors'.
Also everyone can see that a growth like that is unsustainable.
Heck if it would (linearly) continue it's rate of growth for another 5 years at the same rate... We would get 107.476.000.000$ which is around 0.7% of GDP.
A few years later we'll have more than 100% GDP spend on his charity.
Now both 1 and 2 are valid explanations... and I would like it if I knew that 1 was the "truth".
But something inside me tells me that it's not... This is heavily supported by Dan's own graph that spending on charity has been stuck at 2% of GDP since measurements started.
Richard Krooman 50+
As the slides say that he used 50.000$ in order to raise 108.000.000$.
Which is ofcourse a very misleading number because over 9 years the "charity grew". And Dan actually told us by how much because it's total was 581.000.000$ over a course of 9 years.
So if 40% of that went into "overhead" assuming again (like last time) that the last year is excluded from this 40% rule as each time you take 40% of the "profits" from last year.
Then we get that over these 9 years ( (581.000.000 - 108.000.000) * 0.4 + 50.000 = ) 189.250.000 was spend on "overhead".
Ofcourse we know that the growth is not linear... heck the 1st year we even only had 50k as input.
If we assume however that growth is linear 189.200.000 / 8 (I exclude the 1st year and subtract 50.000) was used per year which is around 23.650.000$ each year for advertisement... over a course of 8 years. To get the revenue of 108.000.000 annually.
Which suddenly sounds a whole lot less impressive (although it is still impressive).
Richard Krooman 50+
One of the things that struck me as odd is that if you compare the overheads and his own ambition. That there is hardly any difference in eventual money going to 'the cause'.
As I also wrote in the main post I am not sure which % of regular non-profit organisations leads up as overhead but I'll assume it's 10% (just because I assume that it's more than a 'bake sale').
However if we take 10% overhead over 2% of GDP. (which is to say we add all overhead of 'old fashioned' non-profit over all non-profit spending)
We obviously spend 30Billion in overhead on a total of 300Billion.
So (300 - 30 =) 270Billion goes to 'The cause'.
Say that if we use 40% of that which leads to an increase of 1% GDP to a grand total of 3% GDP.
If (in the best case one could think of) we use 40% of the 300Billion in order to get 450Billion.
We would use (300*0.4 =) 120Billion in overhead to get 450Billion. In this situation (450 - 120 =) 330Billion goes to 'The cause'.
This is obviously a (330 - 270 =) 60Billion increase but it seems a lot less impressive than the addition of 150billion.
If we would actually use 40% of the 450Billion (as some people do in their calculations) it would be even more grim as 40% of 450Billion is 180Billion in which case you would even end up on (450 - 180 =) 270Billion which is exactly the same as you had before with just 10% overhead and 2% GDP.
So what basically happens is that a shitload of people can go into marketing jobs... who would all be funded by people who support a good cause. Which will lead to an maximal increase of (60 / 270 =) 22.222% more money on the cause while expenditure for the whole organisation goes up 50% (2% GDP to 3% GDP)
ZX Style 10+
I know we are called scrooges throughout the world, maybe it has something to do with it.
Richard Krooman 50+
I'm not so much fiercely against the ideas in this TED talk.
I do however feel that a major part of it is based on thin air and/or wrong ideas on the economic system (or wrong ideas on marketing).
There are however also a few points which should make sense to people... for instance that it's insanely stupid to not allow non-profit organisations to make a profit off of certain projects.
For instance say that a non-profit organisation would teach Africans how to best maintain their land and help them to grow stuff on there. Why not "re-use" that knowledge of those who you thought in order to further your cause?
Why not say to the "farmer" we will take 20% of everything that our help and knowledge adds on your production for the next 10 years. And we will use that money / those products to help erradicate hunger while teaching more people how to farm.
Then he has a choice if he wants to parttake in the project and while he does most of the work... you get a 'profit for the cause'.
This way the organisations who are "better at helping people" will gain revenue through the economic markets.
Now we go there... help a few... and leave when the money runs out. Which is a rediculous way of thinking.
ZX Style 10+
You as donor can put money in the project and you can get some interest back like 2% or something.
Richard Krooman 50+
Although in my view they can keep the 2% and re-invest it in themselves (they could even keep more for a certain time).
Main concept is though that you can use the markets for good.
It's why green energy will be abundant in the near future... markets will be able to make a profit (or well they make less loss) by using green energy over certain other types of energy.
Juliane Petereit
I think the only thing that could be problematic lies in the question why is spending on charity stuck at 2%? Palottas answer obviously is because charities do not have the means to grow (i.e. they can't take the money from the competitor, the for-profit-sector). But it also could be that this number won't grow no matter what you do - it could be a constant (under current ethical standards etc.). We can't know unless it is tried - a community-based experiment would be really interesting. I actually doubt that it is a constant.
Richard Krooman 50+
Thanks for your reply.
However you have a strange idea of what the term inflation is (don't be discouraged). Because say that inflation is 1% that means that to buy the same thing you bought exactly 1 year ago, you now need 1% more money to buy.
So if your salary goes up by 1% then you can buy exactly the same stuff you could last year (given that you do not have any savings and spend all the money you make... which I know sounds silly but otherwise the explanation becomes needlessly complicated :D).
What inflation means is that the total value represented by your amount of money drops as time passes. That is if you have 1000$ now you can buy 1000$ of products now. Then in 1 year from now (given the 1% inflation) the same products would cost 1010$.
What you probably mean is that (in general) the growth of GDP > inflation. And therefor the value gained by the charities is slightly higher even though it is still 2% of GDP.
Which is often true. But is not the point I'm making.
To get to the point I am making:
You say that "the for-profit sector" is the competitor of the "non-profit sector".
What I say is that ALL evidence I can see in his talk points to the "non-profit sector" being the competitor of the "non-profit sector".
Added to that it seems like competition between charities is heavily skewed towards the charity spending most on advertisement (that being almost equal to "Least on helping people!").
Also the "for-profit sector" is what makes up the GDP.
So the relationship between the for-profit and the non-profit sector is complex.
Now Dan does not say ANYTHING about this in his talk... which strikes me as odd.
Juliane Petereit
for the rest, let me try to sort this a bit: the GDP is the total income of the population (it we put it simple), which can be spent in different ways. thus it can either be spent on non-profit or profit (e.g. you can either buy a coke or donate the same amount of money). in this way profit and non-profit-sector compete. what makes it complex is the fact that the money you donate does not directly contribute to the economy (even though indirectly a lot of charities do).
and of course he did not talk about this as he does not have any data supporting thesis 1 that non-profit-sector and profit-sector compete. however, there is also no data supporting thesis 2 that more advertisment leads ONLY to competition among charities (I think there already is a minor competition among charities). Both of theses theses are logical and he supports the first. as I said it should examined experimentally. I think he just did not consider this. The data he gives lead neither in the one nor in the other direction.
Richard Krooman 50+
His conclusion then is "More charities should do what I did".
While if spending remains at 2% (which he sais it does) it basically means that you must be getting the $ from your competitors.
Which then means that nobody should do the stuff he did.
Now I'm not saying which it is.... I'm just saying that it needs to be thought of.
He can say he's the new messiah of charities... but he won't convince me untill he can show where I'm wrong.
First things last ;)
I kinda figured you meant growth of GDP. So I guess I answered that.
Second point on that though.
If you buy a coke then that coke had to be produced, if it was produced in your own country then your money actually adds to the GDP of your country.
Now if you give money to a charity... then it becomes more complex, part of that will also add to GDP as they have to buy stuff themselves. But a lot of money actually gets spend in the countries that need the aid.
Now ofcourse you only spent your money once... But when you poor it into the GDP then it pretty much only moves within your country.
Say that you buy a piece of furniture in your home town. The guy who sold you the thing takes a % the country takes part of it as well. Then the guy who made it gets a piece and then eventually whoever made the fabrics used in it gets something (this is usualy in another country).
So let's say that 60% of the money you spent actually attributes to the GDP (assuming that most products you buy are from your own country).
Then all these guys get an income... and the economy forms a somewhat closed loop. (the usa is fairly open and I don't really know the %'s.. I'm not some professor in economics or anything).
But I really do not see how the "non-profit sector" must compete for your money with the "profit sector", as the profit sector means that money is added to the GDP.
Mary Cullen
Do you give to each and every charity that knocks on your door? And do you still do due diligence to see if the local arthritis chapter does indeed make good use of your collection.
But you know somtimes local station donate local air time to charities, or give a reduced rate. One billboard company will put up a billboard for a nonprofit if it has no commercial customer for it. There are ways to be more efficient and creative, but even those that seem simple do have some kind of cost. Maybe minimal, but not free.
ZX Style 10+
Government? allready has a debt of 14 trillion, don't think so.
Donors? High number of unemployed and not able to increase their money for charity with at least 50%.
So this whole future wish is a kind of speculative.
I mean if the pie is not growing how can you justify the overhead?
You are just shoving the money from charity A to charity B minus the cost of the extra overhead to make the donor support your charity. The result is clear, less money to the cause!
Salary CEO:
I already said this in the video, but i will repeat it here.
The height of the salary of a CEO doesn't have a relationship with the performance of the company period.
http://online.wsj.com/public/resources/documents/CEOperformance122509.pdf
There is no need to pay for a ferrari, while the guy with the ford can do the same or better.
Overhead:
I personally find it nonsense that you have to have a large overhead to triple your money.
Attracting attention from donors is also doable for free.
Organize a ludic/playfull flashmob and the TV and newspapers will report your actions and you have free marketing.
Also door to door collecting is free if you have volunteers.
All this can be done for very little money or even for free and with a very small overhead.
Cause:
The speaker is leaving the cause behind, he is only about how to make the pie larger.
i.e. How to make as much money as possible, and ignores the demands of the charity itself.
Conclusion:
My money is going to a charity who is helping the cause, and not a charity who's main goal is tripling it's money and after that they might look at the cause.
Mary Cullen
Door to door knocking: Again, someone has to recruit volunteers for this, train the volunteers, provide them with the materials they need, organize the day so the volunteers know what routes to take and doors to knock on, probably want to supply volunteers with t-shirts and some kind of credentials so the homeowners realize this is a legit thing. You're probably going to have to provide snacks and drinks as well, or put in the time to get sponsors to do it. Are you just sending volunteers out willy-nilly or have you got a targeted area? I don't know about you, but I don't have many charities knocking on my door.
ZX Style 10+
We get a minimum of 26 door to door knockers per year, for fighting cancer, brain research, kidney foundation, sport for disabled people, foundation for poor kids to sport, muscle foundation, animal protection and the list goes on and on.
And some unoffcial for the local church, or local footballclub, scouting, tennis etc. are dropping by each year.
Below a planning with when each charity is able to knock our doors.
http://www.cbf.nl/Collecten/collecteroosters-landelijk.php?gclid=CLSe8-en-rUCFY3LtAodyCAAzw
Those volunteers do a couple of streets and head back home. So it's really easy to do for normal people like you or me.
Ofcourse some organization is needed. Though if you do this yearly it becomes a routine.
But it's cheaper then a campaign of tv commercials for 30.000 dollar per second. And raises a lot more money if they know you are a trusted person in the neighbourhood, other then some actor who gets paid huge money to promote a charity.
Also we have some tv channels who organize for free special aid nights after a disaster, like haiti which raised $80 million or the tsunami in thailand which raised 125 million. The funny thing is those channels get higher viewer hits and thus more income from commercials in between.
Ultimately it's our choice where and how we spend our money.
It's your choice to invest money to let the value triple or quadruple.
I don't like the idea my money is wasted on something other then the cause itself.
Because there is a risk involved and sometimes it turns out it was a bad gamble.
I bet the hungry kids wouldn't like that their food is gambled on some risky hedge fund.
And that is what the charity should be all about!!!!
John Beaton
With all due respect, I think this is short-sighted view and Pallotta addresses this type of thinking directly. You seem to paint people whose goal if tripling money for the cause as somehow not caring about the cause. NGO's NEED some business-minded people who can raise revenue to support the cause.
Here is a hypothetical question I would like you to answer, pulled directly from Pallotta's talk: Which charity is doing more to solve an issue: The charity that spends 10% on overhead/fundraising and 90% on solving the issue, but never nets more than $5,000,000 total, or the charity that spends 30% on fundraising/overhead and 70% on solving the issue, but each year they grow by $5,000,000? In 10 years, the 70/30 charity is putting $35,000,000 toward solving the issue, while the 90/10 charity is still only putting $4,500,000 toward the same solution.
So which charity is spending it's money more wisely? 70/30 or 90/10? For me, the answer is clear.
ZX Style 10+
But, there is a major but.
This 70/30 is not guaranteed.
It's a risk. risk capital is not named this for no reason.
It could also turn out bad, leaving the needy with nothing.
How are you going to explain the hungry, sorry we gambled with the money, next year you'll get your food. And i also believe the donors should make this choice. it's the money of the donor's not the money out of Dan Pallotta his pocket.
So then it's 90/10 vs 0/100 Which charity has spend his money more wisely?
Stew Ogilvie 10+
Robert Gunter
Lance Williams
CEO of Unicef - $1, 200.000 base salary (not including perks)
CEO of American Red Cross - $700,000 base salary (not including perks which includes 8 weeks of paid vacation/yr)
CEO of Goodwill - $2.5 million min
Top 25 Medical Charities - CEO base salary runs from $700K to $2million
http://www.charitywatch.org/hottopics/Top25.html
That's about 3 times what was put out in this lecture. When U add in TOTAL COMPENSATION - it's usually about double their "base salary"