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  • I want to talk about social innovation

  • and social entrepreneurship.

  • I happen to have triplets.

  • They're little. They're five years old.

  • Sometimes I tell people I have triplets.

  • They say, "Really? How many?"

  • Here's a picture of the kids.

  • That's Sage and Annalisa and Rider.

  • Now, I also happen to be gay.

  • Being gay and fathering triplets is by far

  • the most socially innovative, socially entrepreneurial thing

  • I have ever done.

  • (Laughter) (Applause)

  • The real social innovation I want to talk about

  • involves charity.

  • I want to talk about how the things we've been taught to think

  • about giving and about charity

  • and about the nonprofit sector

  • are actually undermining the causes we love

  • and our profound yearning to change the world.

  • But before I do that, I want to ask if we even believe

  • that the nonprofit sector has any serious role to play

  • in changing the world.

  • A lot of people say now that business will lift up the developing economies,

  • and social business will take care of the rest.

  • And I do believe that business will move

  • the great mass of humanity forward.

  • But it always leaves behind that 10 percent or more

  • that is most disadvantaged or unlucky.

  • And social business needs markets,

  • and there are some issues for which you just can't develop

  • the kind of money measures that you need for a market.

  • I sit on the board of a center for the developmentally disabled,

  • and these people want laughter

  • and compassion and they want love.

  • How do you monetize that?

  • And that's where the nonprofit sector

  • and philanthropy come in.

  • Philanthropy is the market for love.

  • It is the market for all those people

  • for whom there is no other market coming.

  • And so if we really want, like Buckminster Fuller said,

  • a world that works for everyone,

  • with no one and nothing left out,

  • then the nonprofit sector has to be

  • a serious part of the conversation.

  • But it doesn't seem to be working.

  • Why have our breast cancer charities

  • not come close to finding a cure for breast cancer,

  • or our homeless charities not come close

  • to ending homelessness in any major city?

  • Why has poverty remained stuck at 12 percent

  • of the U.S. population for 40 years?

  • And the answer is, these social problems

  • are massive in scale,

  • our organizations are tiny up against them,

  • and we have a belief system that keeps them tiny.

  • We have two rulebooks.

  • We have one for the nonprofit sector

  • and one for the rest of the economic world.

  • It's an apartheid, and it discriminates

  • against the [nonprofit] sector in five different areas,

  • the first being compensation.

  • So in the for-profit sector, the more value you produce,

  • the more money you can make.

  • But we don't like nonprofits to use money

  • to incentivize people to produce more in social service.

  • We have a visceral reaction to the idea that anyone

  • would make very much money helping other people.

  • Interesting that we don't have a visceral reaction

  • to the notion that people would make a lot of money not helping other people.

  • You know, you want to make 50 million dollars

  • selling violent video games to kids, go for it.

  • We'll put you on the cover of Wired magazine.

  • But you want to make half a million dollars

  • trying to cure kids of malaria,

  • and you're considered a parasite yourself. (Applause)

  • And we think of this as our system of ethics,

  • but what we don't realize is that this system

  • has a powerful side effect, which is,

  • it gives a really stark, mutually exclusive choice

  • between doing very well for yourself and your family

  • or doing good for the world

  • to the brightest minds coming out of our best universities,

  • and sends tens of thousands of people

  • who could make a huge difference in the nonprofit sector

  • marching every year directly into the for-profit sector

  • because they're not willing to make that kind of lifelong economic sacrifice.

  • Businessweek did a survey, looked at the compensation packages

  • for MBAs 10 years of business school,

  • and the median compensation for a Stanford MBA,

  • with bonus, at the age of 38, was 400,000 dollars.

  • Meanwhile, for the same year, the average salary

  • for the CEO of a $5 million-plus medical charity in the U.S.

  • was 232,000 dollars, and for a hunger charity, 84,000 dollars.

  • Now, there's no way you're going to get a lot of people

  • with $400,000 talent to make a $316,000 sacrifice

  • every year to become the CEO of a hunger charity.

  • Some people say, "Well, that's just because those MBA types are greedy."

  • Not necessarily. They might be smart.

  • It's cheaper for that person to donate

  • 100,000 dollars every year to the hunger charity,

  • save 50,000 dollars on their taxes,

  • so still be roughly 270,000 dollars a year ahead of the game,

  • now be called a philanthropist because they donated

  • 100,000 dollars to charity,

  • probably sit on the board of the hunger charity,

  • indeed, probably supervise the poor SOB

  • who decided to become the CEO of the hunger charity,

  • and have a lifetime of this kind of power and influence

  • and popular praise still ahead of them.

  • The second area of discrimination is advertising and marketing.

  • So we tell the for-profit sector, "Spend, spend, spend on advertising

  • until the last dollar no longer produces a penny of value."

  • But we don't like to see our donations spent on advertising in charity.

  • Our attitude is, "Well, look, if you can get the advertising donated,

  • you know, at four o'clock in the morning, I'm okay with that.

  • But I don't want my donations spent on advertising.

  • I want it go to the needy."

  • As if the money invested in advertising

  • could not bring in dramatically greater sums of money

  • to serve the needy.

  • In the 1990s, my company created

  • the long distance AIDSRide bicycle journeys

  • and the 60-mile-long breast cancer three-day walks,

  • and over the course of nine years,

  • we had 182,000 ordinary heroes participate,

  • and they raised a total of 581 million dollars.

  • They raised more money more quickly for these causes

  • than any events in history,

  • all based on the idea that people are weary

  • of being asked to do the least they can possibly do.

  • People are yearning to measure

  • the full distance of their potential

  • on behalf of the causes that they care about deeply.

  • But they have to be asked.

  • We got that many people to participate

  • by buying full-page ads in The New York Times,

  • in The Boston Globe, in primetime radio and TV advertising.

  • Do you know how many people we would have gotten

  • if we put up flyers in the laundromat?

  • Charitable giving has remained stuck, in the U.S.,

  • at two percent of GDP ever since we started measuring it in the 1970s.

  • That's an important fact, because it tells us

  • that in 40 years, the nonprofit sector

  • has not been able to wrestle any market share

  • away from the for-profit sector.

  • And if you think about it, how could one sector

  • possibly take market share away from another sector

  • if it isn't really allowed to market?

  • And if we tell the consumer brands,

  • "You may advertise all the benefits of your product,"

  • but we tell charities, "You cannot advertise all the good that you do,"

  • where do we think the consumer dollars are going to flow?

  • The third area of discrimination is the taking of risk

  • in pursuit of new ideas for generating revenue.

  • So Disney can make a new $200 million movie that flops,

  • and nobody calls the attorney general.

  • But you do a little $1 million community fundraiser

  • for the poor, and it doesn't produce a 75 percent profit

  • to the cause in the first 12 months,

  • and your character is called into question.

  • So nonprofits are really reluctant to attempt any brave,

  • daring, giant-scale new fundraising endeavors

  • for fear that if the thing fails, their reputations

  • will be dragged through the mud.

  • Well, you and I know when you prohibit failure,

  • you kill innovation.

  • If you kill innovation in fundraising, you can't raise more revenue.

  • If you can't raise more revenue, you can't grow.

  • And if you can't grow, you can't possibly solve large social problems.

  • The fourth area is time.

  • So Amazon went for six years without returning any profit to investors,

  • and people had patience.

  • They knew that there was a long-term objective down the line

  • of building market dominance.

  • But if a nonprofit organization ever had a dream

  • of building magnificent scale that required that for six years,

  • no money was going to go to the needy,

  • it was all going to be invested in building this scale,

  • we would expect a crucifixion.

  • And the last area is profit itself.

  • So the for-profit sector can pay people profits

  • in order to attract their capital for their new ideas,

  • but you can't pay profits in a nonprofit sector,

  • so the for-profit sector has a lock on the multi-trillion-dollar capital markets,

  • and the nonprofit sector is starved for growth

  • and risk and idea capital.

  • Well, you put those five things together -- you can't use money

  • to lure talent away from the for-profit sector,

  • you can't advertise on anywhere near the scale

  • the for-profit sector does for new customers,

  • you can't take the kinds of risks in pursuit of those customers

  • that the for-profit sector takes,

  • you don't have the same amount of time to find them

  • as the for-profit sector,

  • and you don't have a stock market with which to fund any of this,

  • even if you could do it in the first place,

  • and you've just put the nonprofit sector

  • at an extreme disadvantage to the for-profit sector

  • on every level.

  • If we have any doubts about the effects of this separate rule book,

  • this statistic is sobering:

  • From 1970 to 2009,

  • the number of nonprofits that really grew,

  • that crossed the $50 million annual revenue barrier,

  • is 144.

  • In the same time, the number of for-profits that crossed it

  • is 46,136.

  • So we're dealing with social problems that are massive in scale,

  • and our organizations can't generate any scale.

  • All of the scale goes to Coca-Cola and Burger King.

  • So why do we think this way?

  • Well, like most fanatical dogma in America,

  • these ideas come from old Puritan beliefs.

  • The Puritans came here for religious reasons, or so they said,

  • but they also came here because they wanted to make a lot of money.

  • They were pious people but they were also

  • really aggressive capitalists,

  • and they were accused of extreme forms of profit-making tendencies

  • compared to the other colonists.

  • But at the same time, the Puritans were Calvinists,

  • so they were taught literally to hate themselves.

  • They were taught that self-interest was a raging sea

  • that was a sure path to eternal damnation.

  • Well, this created a real problem for these people, right?

  • Here they've come all the way across the Atlantic to make all this money.

  • Making all this money will get you sent directly to Hell.

  • What were they to do about this?

  • Well, charity became their answer.

  • It became this economic sanctuary

  • where they could do penance for their profit-making tendencies

  • at five cents on the dollar.

  • So of course, how could you make money in charity

  • if charity was your penance for making money?

  • Financial incentive was exiled from the realm of helping others

  • so that it could thrive in the area of making money for yourself,

  • and in 400 years, nothing has intervened

  • to say, "That's counterproductive and that's unfair."

  • Now this ideology gets policed by this one very dangerous question,

  • which is, "What percentage of my donation goes to the cause versus overhead?"

  • There are a lot of problems with this question.

  • I'm going to just focus on two.

  • First, it makes us think that overhead is a negative,

  • that it is somehow not part of the cause.

  • But it absolutely is, especially if it's being used for growth.

  • Now, this idea that overhead is somehow