This is a new blog series called The State of Charity. Essentially, they’re my thoughts and analysis on the industry and what needs to change. Here we go.
I recently started a business with a good friend that aims to tackle a huge problem in the philanthropy sector–transparency. In our quest to refine our product, I had the privilege of chatting with executives from over 30 charities (from small to large, from innovative to traditional) about their cause and their plans. I was extremely inspired by these individuals and I was surprised by how supportive charities are of young entrepreneurs entering the space.
However, in my discussions, I discovered some unsettling insights. Some of their problems ranged from donor engagement to lack of funding, but I think the problem they face goes much deeper. The philanthropy industry doesn’t have an ecosystem to foster and attract great talent. Here’s why:
- Donors are too narrow-minded about how their money should be used. My co-founder and I sought out some of the most reputable and innovative charities in the space. When we pitched them our product (which was a way for them to track their efforts on a map…akin to http://www.charitywater.org/projects/map/), their first concern was that donors wouldn’t respond to it positively. Every donor likes the feeling that their hard earned money should go directly to an impact (e.g. building wells for a water charity). While this makes sense for a donor, it’s terrible for charities. Many need to chase funding to cover administration, marketing, salaries, design work, website development, etc. Without these, a charity can’t survive. Donors need to understand that their money is being put to good use even when it’s not going directly to a well or a child in a third-world country.
- Charities are unable to compensate and retain great talent. This ties back to the first point. However, we run into an interesting situation. Most donors look at salary completely in isolation. Let me explain with an example. Let’s say the CEO of a hypothetical charity Hope for Hippos makes $5 million dollars a year in salary. This would most likely hit the news as a scandal–donors would pull their money immediately. However, what if that CEO had $1 trillion dollars in impact? That CEO should get a medal…in addition to a bonus. Yet, most donors would scare at the sheer number. Most CEO’s of charities get paid pennies compared to their for-profit counterparts. And if that’s the case, lower level employees have an even harder time with money.We can’t expect everyone in philanthropy to live as a Mother Teresa. More importantly, we decrease our probability of attracting great talent if we bottleneck the money. More money means more people entering the industry. It’s a simple truth. 50k a year isn’t attractive any more. We need to be comfortable with paying for great talent if we hope to do more innovative things in the space. The same goes for any industry and company. If you want to develop a great product, you need to put in the resources.
- Philanthropists in the industry discourage youth from entering it. This past year, we had an executive from a charity visit our university. One of the first things that came out of his mouth was, “if you want to make money, do not go into philanthropy”. Yes, it’s true. It’s not as lucrative as investment banking or private equity. But in this one talk, I didn’t hear one positive thing about philanthropy. It was full of terribly depressing stories and graphic pictures. Are you kidding me? Philanthropy is amazing. You get to help others and save the world. But that needs to change.Philanthropy needs to be sexy. People should want to enter philanthropy just as much as they want to create the next Instagram. What if Mark Zuckerberg or Steve Jobs created a charity instead of Facebook or Apple? The world would be a much different place. Since when did you market a product or service with all its negatives? When charities market it that way, it further decreases the probability of an innovator coming in.
- Great talent have a hard time implementing radical and innovative ideas. When we do have great talent in the industry, it’s often hard to retain them. Almost all the charities I talked to run the same donor engagement campaigns–direct mail, email, etc. Stray from that path and the first thing donors think about is the cost. This is why I appreciate innovative charities like charity : water and their water project map. It’s not traditional, and yes it probably did cost money. But, they had the guts to say, “yes, this costs more, but I think it would be damn cool”. If you take away the money from an innovator, all they really have is the ability to create something. If you prevent them from creating, what motivation do they have to stay in the industry? While for-profit business welcomes innovation with open arms, it’s an uphill battle with non-profits. Charities shouldn’t be justifying innovation. The reason to innovate is the same in both cases.
The industry is in bad shape and is due for a drastic change. To address the following issues, all parties need to shift their position on how the industry should be run. Everyone, including youth, charities, donors, and companies need to think differently. If we fail to do so, great talent won’t be inclined to enter this industry. Failure to attract great talent will mean that social innovation will remain stagnant for a very, very, long time. Successful founders will tell you it’s all about the people–the same applies for philanthropy.