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A newsletter of Napa Valley Community Foundation

August 2013

plantIs it possible to admire a nonprofit organization, while simultaneously disagreeing with the way it promotes  itself?


It's a question I've been thinking about, because I've been suspended between admiration and disagreement for the last week, like a particle of iron dancing between two magnets.


Here's how it happened.  I read an article about a nonprofit called Charity: Water, which is rapidly expanding its work to bring safe drinking water to 800 million people around the world who don't have it. 


I love their mission, and all the good they've accomplished in a very short period of time: 9,000 water projects in 20 countries in 7 years, benefitting 3.5 million people.


What I don't love is their approach to funding their operating budget. 


The group makes this promise to potential givers: "Private donors fund our operating costs so 100% of your donations go straight to the field."


Charity: Water's "100% Model" comes with a logo and a backstory.  On their website, you can learn about the generous angel investor who has made big gifts to cover operating expenses in recent years, as well as a group of other business leaders and philanthropists (collectively called "The Well") that regularly pours unrestricted charitable dollars into the group's operations, so the rest of us don't have to.


Pretty compelling, right?  After all, most people who make a donation want to see a direct connection between their gift and the people who are helped as a result of their gift.  Or put more simply, donors generally prefer to support programs, not overhead. 


This is a sentiment I understand completely, and one that I encounter frequently in our work with local donors.  Even when generous and thoughtful people recognize that program delivery wouldn't be possible without fundraising expenses or office supplies or the PG&E bill, there is usually a clear preference for spending less on overhead, and more on services. For efficiency and leanness in administration and fundraising, so more dollars are available for the cause.


The problem with this preference is that it's too often based on a couple of imperfect assumptions.


The first assumption is that overhead is not part of the cause.  As activist and author, Dan Pallotta, says in this thought-provoking TED talk, nonprofits tend to systematically under-invest in marketing and fundraising activities that lead to growth, because these activities are perceived to be in competition with program activities.


Mr. Pallotta makes a compelling case for an idea that is common wisdom in the business world: that investments in marketing and fundraising are actually complimentary to an organization's programs, not in competition with them.  More spending on overhead (like marketing and fundraising expenses) can lead to a bigger program budget, and the capacity to help more people.  


The second assumption is about comparative impact.  If Charity A does the same thing as Charity B, but Charity B spends less on overhead, then I'm going to write a check to Charity B.  To arrive at this conclusion you have to assume, wrongly in my view, that the programs of these similar charities actually achieve similar results. 


In our experience, this is very rarely the case.


There is a significant, quantitative difference between the results that various nonprofits can achieve--even nonprofits in the same line of business with similar budget dollars available to them.


Nearly always, better results come from stronger executive leadership and strategic investments in infrastructure. 


Smart, forward-looking Executive Directors make investments to recruit strong Board members, train their staff, promote their mission, plan for the future, diversify their revenue streams and evaluate their programs.  These activities all cost money, and many of them would be classified as overhead. 


As eloquently stated in The Overhead Myth, an open letter to the donors of America penned by the CEOs of three organizations that evaluate nonprofits: "Many charities should spend more on overhead.  The people and communities served by charities don't need low overhead, they need high performance." 


By reinforcing the notion that overhead is undesirable, Charity: Water does a disservice to the nonprofit sector.


There are no equity investors among public charities.  No "Class A" and "Class B" shareholders. Having one group of "private" donors absorb the cost of critical--if less appealing--investments, so that other "public" donors can give 100% to the cause, is a brilliant parlor trick, but a parlor trick nonetheless.


I think it's time to move beyond gimmicks, and to have candid conversations about what nonprofits need in order to grow and be successful.


But please take what I say with a grain of salt. Sixty percent of my time last year was spent on administration and fundraising, which means this Ode to Overhead was authored by a man wearing a summer-weight blazer with a bright red "O" stitched to the back. 


Terence Mulligan


Contact the Community Foundation

email: julia@napavalleycf.org

web: http://www.napavalleycf.org