Whereas for-profit sectors are applauded for risk-taking, aggressive marketing, and capital and financial incentives, the nonprofit sector is "stuck" begging for money and handouts. Too many nonprofits, he argues, are rewarded for how little they spend—not for what they accomplish.
"We have two rulebooks," Pallota says. "We have one for the nonprofit sector and one for the rest of the economic world."
To illustrate his point, Pallotta shares the story of his own nonprofits—AIDSRides bicycle journeys and Breast Cancer 3-Day events, which collectively raised $581 million dollars over the course of nine years. These events raised more money more quickly for their respective causes than any other events in history. They were a smashing success.
Yet, when it became known to the public that both organizations spent 40% of their gross income on "overhead"—things like marketing and staffing —they went out of business.
Pallotta says the backlash was the result of a fundamental assumption about nonprofits: "overhead" must be kept as low as possible. People would rather see their donations go directly to the needy, not toward things like marketing or advertising—even if such things could bring in dramatically greater sums of money to serve the needy. But, as Pallotta points out, this is not a standard for businesses.
In addition to marketing and advertising, he identifies four other areas of discrimination against the nonprofit sector: (1) compensation, (2) risk in pursuit of new ideas for generating revenue, (3) time, and (4) profits. Once again, he explains, the rulebooks for nonprofits and for-profits differ in each of these four areas. Whereas one is allowed to feast on the tools of capitalism, the other suffers under the notion of some noble, yet backwards ideology that frugality equals morality.
This backwards ideology, he says, is the "greatest injustice ever perpetrated against all those citizens of humanity most desperately in need of our aid."
But it does not have to be this way, Pallotta reassures his audience. Things can change, he says, if we take responsibility for the thinking that has been handed down to us, "revisit it," "revise it," and "reinvent" the whole way humanity thinks about changing things.
You can view the full TED Talk here.