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4 Philanthropy Fallacies

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Americans gave $298.42 billion to charities in 2011, most of it during the mad scramble of the hectic holiday season. Donors made their end-of-year contributions amid the distractions of shopping lists, party schedules, work deadlines, and family. This can’t help but make giving smartly challenging—no matter how many zeros are on the check. So, in 2013 resolve to give wisely—all year round. You can start by avoiding these common fallacies of philanthropy:

1. Other people know where you should give.
When clients ask me, “What are the top 10 organizations to donate to?” I always answer with a question: What motivates you? There are more than a million nonprofit organizations in the United States alone, and deciding which ones to give to isn’t just about them—it’s about you. What change do you want to see in the world? Do you want to help conserve lands out west? There’s an org for that. Do you want to help build schools in Uganda? There’s an org for that, too. Friends, family, celebrity spokespeople, “best-of” lists in magazines and newspapers can all be good starting places for finding worthy organizations, but their suggestions are often irrelevant because they don’t start from the change you want to see.

Your passions and the issues that touch you personally should drive where you donate your dollars. Think about what is most meaningful to you and then talk to people who may share that same experience or interest to find out where they have given. Think about the scale of the problem you want to help solve. If you are interested in improving education, do you want to see change locally? Then maybe you don’t need to look any further than your child’s school. Want to contribute to systemic change? Find an organization that aims to reform the way teachers are evaluated and promoted. Either way, when you put your money where your passions are you’ll be more likely to stay engaged, learn more, give again, and experience the deep reward of helping to advance a cause you care about. That’s good for you, good for your cause, and good for the organizations you wind up supporting.

2. The money you give should go only to programs.
Another question donors often ask me is how much a nonprofit should be spending on overhead. The answer? It depends. Like businesses, organizations have expenses such as rent, salaries, and health insurance. Some of these expenses aren’t directly related to programs. They’re just the cost of doing business: After all, it takes overhead to take action. In fact, I often advise my clients to specifically fund overhead, because it’s the most challenging type of funds to raise. Healthy organizations need dependable infrastructure, strong leadership, training and other HR programs, good technology, and more to grow and thrive. My colleague Gwen Walden and friend Jerry Hauser of The Management Center wrote recently about how best to support this. Depriving them of such “overhead” can create what some in the nonprofit sector call a starvation cycle—where an organization never reaches its potential because it never gets enough nourishment to grow.

Plus, different types of nonprofits have different expenses, so there’s no one-size-fits-all target for “amount spent on programs” versus “amount spent on overhead.” For example, a direct service organization such as a homeless shelter will probably have a higher overhead than an advocacy organization. What’s more important to look for in a nonprofit is how well it achieves its goals.

There are online resources such as GuideStar that give organizations seals of approval. But look behind the simple ratings (same goes for their number of Facebook “likes”) for more substantive facts about the impact they’ve made. Speaking of which….

3. A nonprofit’s results are usually obvious.
Most nonprofits will present you with a narrative to help you connect with the cause and better understand their work. These stories help you understand what the organization is all about but may not tell you much about its impact. Most organizations will also provide you with data on their activities. Even these facts and figures don’t always give you the complete picture. What you really need to know is how the organization’s work drives the change you seek.

For example, discrete information such as how many scholarships a nonprofit awards, how many wells it has dug, or how many acres it has saved may be positive signs of progress, but they don’t tell you much about its true impact. How many of those scholarship students go on to graduate? Does a community need new wells or should they fix the ones they already have, and is there evidence of less disease and more economic prosperity in the communities with wells? Have native plants returned to the acres that were saved? If you can’t readily find the information, ask—smart organizations will be happy to engage potential donors.

4. When in doubt, give to a big organization.
When I was determining where to donate for Hurricane Sandy relief, I wanted to give to an organization I felt was making the biggest impact—regardless of its size. In fact, some of the most meaningful actions I saw in the wake of Sandy were made by the clusters of people going block by block providing aid where and how it was needed. And other little-known organizations, including one I co-founded, are focused on the less-sexy business of long-term recovery—an aspect often ignored by the most recognizable NGOs.

While large nonprofits may have national—or international—name recognition or be better equipped to address large-scale challenges (like, for example, ending AIDS in Africa), their size isn’t always an advantage. It may take a large organization more time to act than a smaller, issue-focused group. A bigger nonprofit may be better set up to tackle problems more broadly, while a smaller group may have significant expertise in a specific area. Often, innovations are driven not by those with deep pockets but by nimbler players who can take on more risk. Make sure you match the span of the impact you seek to the reach of the organization.

Creating change in our world isn’t easy. But if you follow your passions and are clear-eyed about the true impact of the organizations you support, you’ll find clicking “Donate Now” more satisfying and your contribution will be all the more effective.

As founder and a managing director of Arabella Advisors, Eric Kessler has built a social venture firm dedicated to making philanthropy more effective. His client work at Arabella includes philanthropy strategy, evaluation, foundation management, and project execution.

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