Want Pennsylvania’s nonprofits to maximize their impact?  Want them to have dynamic leaders and staff that can serve their community in the best way possible, while leveraging those donation dollars into real, lasting social change?

Well, listen up.  We need to talk about lemonade.

Well, more specifically, we need to talk about lemonade stands. Lemonade stands have always been great for a whole lot of things – teaching your kids the value of a dollar, cooling off on a hot day, or – as is increasingly the case these days – raising money for worthwhile causes.

With that in mind, imagine that you want to set up a lemonade stand to raise money for some much-needed restoration work in your local park.  Which is better – a lemonade stand that raises $75, of which only 10% ($7.50) goes towards buying “overhead” like water, sugar, and lemons?  Or one that spends $100 (40%) on marketing, signs, people to promote the stand, etc. – but which ultimately collects $250?

The first made a profit of $67.50 for the park.  The second one made $150.

Lemonade Graph

If given the choice, I’d take the $150 every time.  And I’m not alone.  In a fabulous TED Talk released this month, fundraising activist and author Dan Pallotta dissects the two different “rule books” that nonprofit and for-profit companies must play by.

He points out that society’s expectations of how the two sectors should behave differ wildly, especially regarding how they raise money.  He provides five examples:

  1. Compensation:  Why is it a sin to make a really good salary providing really good human services?  We can pay $20 million to a for profit CEO making and selling violent video games to kids, but God forbid we pay $500,000 to a talented CEO of a nonprofit providing critical mental health services to troubled teens.
  2. Advertising and marketing:  It’s not a sin – it’s a means to an end.  If nonprofits were more like for-profits (which they are constantly told they should be), they would do what successful for-profits do: advertise, advertise, advertise!
  3. Taking risks on new revenue ideas:  In the for-profit world, it is considered entrepreneurial.  In the nonprofit community, it is virtually prohibited.
  4. Time:  It’s never on the side of nonprofits.  Consider, for example, the fact that Amazon.com took six years to start turning a profit.  Few funders give the kind of time AND support needed for a similarly bold nonprofit to achieve success.
  5. Profit to attract risk capital:  Two words on this point – “Forget it.”

These five examples have led to the kind of thinking Pallota terms “Morality vs. Frugality.”  These two different sets of rules govern the way the average citizen views and interacts with non- and for-profit companies.  These ideals can be traced all the way back to modern America’s Puritan roots, which permitted our early pilgrims to earn a profit so long as they gave a portion of their earnings back to charity.

At Denny Civic Solutions, we work with all three sectors – for-profit, nonprofit, and public.  Why?  Because all three need civic campaign guidance at some point or another.  In fact, we’ve found that most really big civic change requires all three sectors to work together to bring about change.

Policy makers need to understand these issues and the important role all three sectors play in society.  Recently, the Pennsylvania State House Rules committee passed a resolution directing their legislative Budget and Finance Committee to survey the salaries of nonprofit executives providing human services with support from the State.  The State provides financial support to for-profit companies to provide many of the same services, and yet their CEO salaries were of no concern.

In short, that places a target on the backs of people who are on the front line of human service delivery, and the ramifications of these types of actions can be profound not only for the nonprofit organizations themselves, but also for the sector as a whole and – most importantly – for consumers.

Perhaps our legislators are being led by their Puritan roots, or maybe there’s just a fundamental misunderstanding of the value of the nonprofit sector in Pennsylvania.  Either way, we can only hope that our elected leaders will listen to people like Dan Pallotta and consider the impact of such shortsighted resolutions.

If not, Pennsylvania’s human services consumers might find themselves left with a whole heap of lemons – and no one creative enough to turn them into lemonade.

What do you think?