10 Things We'd Like to Tell Every New Philanthropist: Lesson 1

I’m going to start a series – “Ten Things We’d Like to Tell Every New Philanthropist.” Each of the 10 things will be posted individually every few days and each will open with a title that paraphrases a common misperception or mistake. We plan to follow-up this series with another equally provocative topic – “Ten Things We’d Like to Tell Every Non-Profit”

Important Note – This is written in the spirit of sharing knowledge and helping philanthropists be more effective. Every mistake articulated here has been made by all of us. The intent is not to preach a one-size-fits-all formula or to be arrogant in our viewpoints. Our sincere hope is that it will encourage reflection and stimulate lots of feedback, criticism, and conversation.

Lesson #1 – “I want all of my contribution to go directly to the program and the kids being served and not have any wasted on overhead or administration” (comment frequently overheard from philanthropists)

This desire is well intentioned, but the consequences can oftentimes be detrimental.  How so? First of all, what is “overhead and administration?” For example, are staff overhead? Non-profit organizations are businesses just like any for-profit entity, but with a social mission. They have to invest not only in the “product,” but also in the systems, infrastructure and operations to support the end product. Let’s use an analogy here from the private sector: What if an investor in Intel was able to buy shares, but then instruct Intel Co. that they could only spend that money on engineers and chips? Who knows better how to ultimately, collectively invest its capital – an investor or the employees of that organization? Can you have a successful company without a sales, marketing, and finance infrastructure to support the product? A non-profit has to build a successful, holistic enterprise just like any other business.

This kind of “micro-targeting” of some philanthropic dollars can have other consequences: it can lead to under-funded organizational structure with a  demoralized staff and reduced internal capacity. It can force the non-profit to play a “shell game” with donors where it rearranges its numbers to create the appearance of 100% program spending, and it can lead to a non-profit executive having to make suboptimal spending tradeoffs. This is not to suggest that a donor shouldn’t  care about where their money goes and what the ultimate social benefit is. But the practice of over-controlling and directing a donation to a non-profit is like asking a non-profit to put together a 100-piece puzzle, but having duplicates of some pieces and none of others.  The puzzle will never be put together right.

Paul S