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GuideStar Blog

Nonprofits I Love: GuideStar

dan-pallotta-300x200.jpgEditor's note: We were humbled yesterday to read a message from Dan Pallotta identifying GuideStar as a nonprofit he loves. We're excited that he's excited about our mission and thank him for allowing us to share his kind words here.

Hi Everyone,

I have seen the future of philanthropy and it is GuideStar. They have the potential to transform the world’s relationship to giving.

Imagine if your car’s dashboard had only one big fat guage, and all it revealed were your fuel costs per mile. Not speed, engine temperature or remaining fuel. Certainly not GPS with route and time to your destination. This is what the state of information has been like for donors giving to nonprofit organizations. The big fat solitary guage has been cost - the average percent of a donation that goes to charitable programs. No guage about what good the donation has done, or whether there is any correlation between cost efficiency (which is easily—and often—gamed) and progress or reduction of suffering.

Giving is a broken marketplace. A market can’t function optimally without information. The smartphone market, for example, functions well because, within hours of purchasing an iPhone or an exploding Galaxy 7, you have all the information you need about whether it works as advertised, has useful features, and compares favorably to other similarly-priced options. Not so with giving. You don’t get to hold the organization in your hand and explore its features. Comparative information is distant, in time and space. Are you to travel to Africa to look at the quality of the wells two different charities build? In the absence of accurate information about value per dollar, society can’t produce optimal value. Donors have no way of sending their dollars to the best value-producing organizations.

Fixing this is vexing and daunting. Not only must the right questions be asked, but answers have to be collected and distributed, user-friendly, at varying levels of sophistication, for use by the average donor and big foundation alike, at scale. Otherwise you compound the marketplace dysfunction with massive inefficiency - individual people and entities performing a thousand different value-hunting expeditions for a single organization, never sharing information.

Some efforts like David Hunter’s, the Commonwealth Market’s and the Better Business Bureau Wise Giving Alliance’s have landed on some of the right questions. Others, like GiveWell, have figured out (expensive) ways to answer them. Some like Great Nonprofits have figured out some scale, but only with pieces of good information.

No one has come close to cracking the code on all of it, or how to integrate it, or deliver it.

Until now.

Six years ago in Harvard Business Review I wrote about the need for an “iTunes for Charity”—a visually delicious, user-friendly database with annually-updated narrative and numeric information on every functioning charity in America. It would require an army of experts—to perform objective, annual, on-site analysis, and would cost on order of half a billion dollars a year. Not a bad investment for analyzing $350 billion worth of charitable giving, in the U.S. alone. But I never liked the clunky bureaucratic nature of it, or the darkness of that kind of central control, or the fact that it would probably have to be a government effort, or the distant chance of getting it to happen. But I couldn’t see another way.

GuideStar has found another way. They have developed a sophisticated method for nonprofits to enter their own impact data across a wide variety of different social issues, across a wide variety of approaches to problem-solving, with over 700 (and growing) different indicators of progress from which nonprofits can choose (and nonprofits can add their own if the indicator they want is missing, democratizing the whole process), all developed by subject-matter experts within each issue category. The platform will render this information in comparative graphic form.

But it’s subjective, right? The charities enter the information. Yes, but it’s all subjective, to a degree. Even my iTunes for Charity army would be harvesting subjective data, given to them by the charity (but with far more operational friction). Unless the nonprofit is lying, GuideStar is guiding a discipline and rigor related to impact that we have never before seen. That is an objective decision and direction in and of itself. And GuideStar integrates objective third-party donor and client ratings about the nonprofit directly from Great Nonprofits’ database.

Part of their vision is that all of this information could be used to auto-generate annual reports for charities, capitalize on the information foundations have on their grantees by making it available to consumers, and could one day form the basis for the holy grail in philanthropy—a universal grant application and reporting format so that charities don’t have to provide hundred of different reports and profile information to different sources. Also, they’d like to become a global solution, which would be an answered prayer in every country where I have spoken on the subject.

And rather than a pull strategy (“Hey come visit our website”), GuideStar is pushing information out to the existing media consumers already use, obviating the need for expensive media campaigns to drive visitors, and giving us a serious hint at how the scale of this could explode, Wikipedia-like.

They are thinking about this problem in the way Elon Musk thinks about a big problem, leveraging technology, and doing it with the same sense of enthusiasm about what’s possible.

GuideStar was founded in 1994. By 1999, they had 200,000 nonprofits in their database (most of the other evaluators had only 5,000-10,000). It was all tax information drawn from IRS Forms 990 (not, primarily, the kind of information we need for value-based decision-making) but they were unique in that they never graded or rated charities—they simply served up the information for anyone to peruse and draw their own conclusions. Within 10 years they had 1 million nonprofits in their database.

This scale, combined with their visionary and dogged commitment to cracking the impact-reporting code, is part of what makes GuideStar so exciting. With 7 million annual visitors, 72-seasoned staff (three times Charity Navigator, for example), an $11 million annual operating budget (5-10 times that of their peers), a revenue model that works (they have 95.6% operational sustainability without philanthropy, as most of their revenues come from their subscription products) they have the thrust to reach escape velocity and provide the world with a new information system for charitable giving.

But the potential here goes well beyond better information. Better information can lead to a transformation in the literacy of civil society. That leads to more giving, and the consolidation of giving to the most effective organizations. That growth and consolidation is how the world gets changed.

For 23 years I have been criticizing our emphasis on overhead. They say that Michelangelo once said, “Criticize by creating.” That’s what GuideStar is doing, and it is showing us the future. The nonprofit sector should rally around it.

Thanks for reading,


Dan Pallotta is the creator of the Breast Cancer 3-Day walks and multi-day AIDS Rides, author of Uncharitable: How Restraints on Nonprofits Undermine Their Potential, and a featured regular contributor to the Harvard Business Review online. He is the founder and president of the Charity Defense Council and founder and President of Advertising for Humanity. His 2013 TED Talk is one of the 100 most-viewed TED Talks of all time, having been viewed more than 4.2 million times.

Topics: Overhead Myth GuideStar Nonprofit metrics Dan Pallotta