Lessons for New Philanthropists (and old ones)

Paul Shoemaker of Social Venture Partners is publishing “Ten Things We’d Like to Tell Every New Philanthropist.” Paul notes in the intro: 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.

With Paul’s permission, I’m going to be republishing his ten lessons. Imagine if every funder with some experience under their belt published a similar list? Imagine the resources that could put to better use if new donors (or experienced, but ineffective ones) could learn from lots of experts like Paul.

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.


  1. Tidy Sum says:

    Alas, it is not only philanthropoids that are hypersensitive and boneheaded when it comes to overhead and administrative costs.

    I had the eye-opening experience of facilitating a group of nonprofit leaders in a proposal review and grantmaking process.

    Surely, I thought, they of all people would be sensitive to the dynamics of nonprofit capitalization and the burdens of fiscal management.

    But no! They too squawked like silly geese about overhead and its roots in all that is evil. You would think that the applicants were allocating funds to support the manufacturing of weapons-grade plutonium.

    Here at the Center for Further Research we hope to isolate the neurochemical action that activates the gene responsible for what we call the overhead knee-jerk response mechanism.

    When we do, the readers of Tactical Philanthropy will be the first to know.

  2. Thanks for the comment. I’m actually not too surprised, although it seems crazy to think a nonprofit employee would be against overhead (excessive overhead maybe, but no one in the for-profit sector sits around saying that the money they spend on computers, employees and marketing is a problem!).

    I think the root of this problem is the steady drumbeat of media reinforcing overhead expense as the problem. Someone needs to send the media a different message…

  3. Tom Canavan says:

    First, let me insult your intelligence.

    You guys are still thinking last century about philanthropy. If you can’t find a philanthropy that does what you want it to, the way you want to do it, then MAKE ONE.

    You all know what’s wrong with Philanthropy. You know it’s entrenched in ‘that’s how we have always done it and it’s what your supposed to do’ and yet you continue to do it. All this talk is a waste of time and energy.

    Can’t you invent a group that help others and supports itself? Does what you want it to do and has all finances open to the public? Or does everyone involved in any charitable “philanthropic” work only do it to make money or for attention to themselves and isn’t accountable to you, the social investor?

    Do you really think it’s wise or necessary to pay someone $150,000.00 a year to give away your money to help others and have to use a microscope to see what they are doing?

    If you are interested in using your money to help others and want 100% of your money to go to those you want to help and become self supporting by design, visit my website. I give you a way to do what you’re all complaining about on my site. Take it, do it.

    Tom Canavan
    The Benefactor Project