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3 Ways Your Social Business Will Be Better Than a Charity Find out how the three pillars of the Charity Industrial Complex are holding charities back from really making an impact and how your social business can be different.

By Jason Haber

Opinions expressed by Entrepreneur contributors are their own.

The following excerpt is from Jason Haber's new book The Business of Good. Buy it now from Amazon | Barnes & Noble | iTunes | IndieBound

In The Business of Good, serial and social entrepreneur Jason Haber intertwines case studies and anecdotes that show how social entrepreneurship is creating jobs, growing the economy, and ultimately changing the world. In this edited excerpt, Haber explains three ways charities are failing donors -- three things your social business can do differently to really make an impact.

There are three basic characteristics of the Charity Industrial Complex. First, it holds that charities should be meek in overhead but mighty in intentions. Second, it presupposes that guilt is the most effective tool to build donor support. Third, charities reward the act of giving without tying directly to impact.

It's a common refrain: "How much of my money will go into the field and how much to overhead?" Overhead is the bane of charities' existence. They must keep it as low as possible or face public shaming. Charities have been hampered by their own approach and by societal expectations.

"The things we've been taught to think about giving and about charity and the nonprofit sector are actually undermining the causes we love and our profound yearning to change the world," Dan Pallotta said in his powerful 2013 TED Talk. He was referencing our aversion to overhead.

Charities are praised for frugality. They're admired for low overhead and limited marketing. At the same time, they're criticized if they spend too many resources on staff or on any item that doesn't deliver resources to the field. With little money for marketing, and no focus on branding, it's little wonder New York Times columnist Nicholas Kristof once commented, "Any brand of toothpaste is peddled with far more sophistication than the life-saving work of aid groups."

So charities can't spend money on building their brand, marketing, advertising, or raising public awareness about their cause. If they did, they'd become pariahs. Despite the fact that these tools are considered essential parts of the business toolbox, they're off limits to charities. Why? Isn't it valuable to create brands that can be leveraged for causes important to society? Shouldn't the organizations that are trying to save the world market themselves with the same tenacity as Crest? Of course we should.

Being meek in overhead creates another unintended problem. Charities aren't able to focus on what many see as their biggest shortcoming: transparency. Scott Harrison was well aware of this obstacle when he founded charity: water. By setting up two separate bank accounts -- one for field work and one for operations' costs -- and being transparent, Harrison solved this problem. People always told him that charities were black holes. "The transparency stops the minute the donor gives," Harrison says. "I assume charities are always trying to have an impact, but they did a bad job connecting donors to that impact." With its separate but equal (in importance if not size) bank accounts, charity: water could spend money, energy, and time building a platform to connect donors to their impact. As Harrison says, "How simple. How clear. How definitive."

The second tenet of the Charity Industrial Complex is the method by which charities encourage donations. They use guilt. You've probably gotten pieces of mail with sad images of people in despair. You may have seen infomercials with slow, dark-sounding music, filled with images of melancholy kids. The charities' message to the donor is twofold. First, they hope to make you feel so bad about the situation that you'll donate. Second, they want to play off the puritan belief that charity is a form of penance. So if the suffering is foreign to you and you're living a comfortable life, you should give something back.

Harrison didn't believe in donations by guilt. He tried it another way. He made it cool. "It should be cool to give. It should be cool to be generous. It should be cool to say yes to helping out," he said. Instead of making people feel guilty, Harrison wanted them to feel excited and hopeful. That meant an entirely new way to brand. Look at the images that charity: water displays on its site or in its marketing materials. They are powerful. They are poignant. They are positive. Its subjects are smiling; they look hopeful for a better future. A future that's delivered to them by the help of donors.

"I think so many charities have operated in shame and guilt: Let me make you feel as bad as possible about yourself so you'll reach into your wallet and give. For us, it's much more invitational. It's a great opportunity not based in guilt or shame," Harrison says. "No one is going to wear a T-shirt about an organization that makes you feel lousy about yourself. But we do wear T-shirts from Nike because Nike makes us feel great about ourselves. Nike believes that within us is greatness."

That feeling of hopeful inspiration doesn't extend only to the donor base of charity: water. It extends to the office environs and staff. In 2015, charity: water moved into a new office in Lower Manhattan. It may be the coolest office I've ever seen (and I work in real estate, so I've seen a lot). The office feels more like a tech startup than a nonprofit. There are creative spaces for meetings, whiteboard walls, Millennials buzzing everywhere, oversized displays with inspirational messages (including one huge yellow wall that reads "#nothingiscrazy"). There's a maternity room, a coffee bar, a think tank, and shuffle board and ping pong tables. There are two water wells with pumps. There's a state of the art sound room, video editing room, dashboards that highlight the nonprofit's metrics in real time, and modular desks by Steelcase. Most of the items that make up the 22,000-square-foot space were donated or purchased at heavily discounted prices. Newmark Grubb Knight Frank, the commercial real estate conglomerate, graciously leased the space to charity: water at an enormous discount to its market value.

"Working in an organization with your vocation doesn't need to be a bummer," Harrison says. "I don't think you need to walk around with a sad face all day because you're working in conditions of extreme poverty."

The third principle behind the Charity Industrial Complex is that charities need not focus on impact and results but instead on the act of giving.

Instead of adopting a laser focus on giving, Harrison went one step further. He wanted to connect donors to their impact. I've donated to many charities, including charity: water. But no other charity has connected me to my donations like it has. I have GPS coordinates on all the water projects I've funded and can view them on Google Earth. A clean-water rig that I helped fund has its own Twitter account (@cwyellowthunder) and sends out regular updates on its progress.

Whereas charity: water embraces impact, many older charities have left that in the background. "Because the norms of charity permeate this sector, organizations have only needed to show charitable intent and tell good stories to motivate caritas in board members, donors, and staff, so that they survive and even thrive, regardless of their impact," J. Gregory Dees noted in his remarkable paper "A Tale of Two Cultures: Charity, Problem Solving, and the Future of Social Entrepreneurship."

Since charity: water's emergence, a new generation of charities has followed in its trailblazing path. Together they're remaking how we give, what we give, and why we give. They're working to break the Charity Industrial Complex.

Jason Haber

Serial and Social Entrepreneur

JASON HABER is the author of The Business of Good (Entrepreneur Press, May 2016) and co-founder of Rubicon Property, a social entrepreneurial real estate firm based in Manhattan that has since been acquired by Warburg Realty. He has vast experience in government and public policy. Haber has worked as an adviser for several elected officials and candidates in New York City, and in Washington, D.C., Haber was an adjunct professor at John Jay College where he taught a public policy course. He is a board member of Rivet Media, a virtual reality startup. Haber is a frequent commentator on CNBC and Fox Business News and has been covered in The New York Times and The Wall Street Journal.

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