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Collaborative Disruption in the Nonprofit World

Nonprofits are making funding an integral part of their mission, and working with for-profits and other nontraditional partners to deliver on that mission.

Changing the world is a complicated business. You need a powerful mission that will inspire and motivate people; you need a problem that needs solving and an effective way to solve it.

But you also need funding. It’s critical, but rarely the part that inspires people. The fundraising teams of most nonprofits work behind the scenes, searching (and competing) for donations and grants to fund the organization. That's the traditional approach, and while it has been effective in some cases, it's not the way forward.

Nonprofit social enterprises are flipping that model around using collaborative disruption—they are putting the funding component front and center by making it an integral part of the core mission, and working with for-profits and other nontraditional partners to deliver on that mission.

These kinds of approaches take some people by surprise, particularly those used to a traditional charity model—we give you some money, and you go off and do some good work with it. But it's challenging—and ineffective—to create real, lasting social change with the old model, because you're always working uphill against market forces instead of making them work for you. The collaborative disruption model, where nonprofits invest in for-profits to drive mission-related advances, can be effective no matter the scale.

One well-known social enterprise working along these lines is Living Goods, which employs rural Ugandans to sell health products such as de-worming pills at a fraction of the market cost. The local agents—themselves advocates for community health—pay Living Goods for the products and sell them at a profit. The agents (all women) are able to join the program through a fixed capital, no-cost loan that lets them buy necessary tools such as a uniform, storage chest, and thermometer, as well as a low-interest loan of $75 a year for purchasing inventory.

We’re also seeing more direct investment in mission-related goals from some well-known and well-funded organizations. The Gates Foundation is bridging the gap between the public and private sectors by investing in biotech companies and creating what are effectively purchase guarantees, giving pharmaceutical companies such as Liquidia Technologies a market incentive to develop and manufacture new vaccines.

But collaborative disruption of the nonprofit funding model is not just the work of large-scale organizations like the Gates Foundation. I recently spoke with a determined young social entrepreneur who was starting a nonprofit grocery store in his community to remedy the problem of access to affordable, nutritious food for his neighbors.

At First Book, the nonprofit social enterprise I lead, we are in the business of ending knowledge poverty for children in low-income neighborhoods by supplying their classrooms and community programs with brand-new, high-quality books and resources. We aggregate the voices and purchasing power of 50,000 local schools and programs, turning their tiny, individual book-buying budgets into a market force that commands attention from the publishing industry.

In the beginning, the teachers and program leaders we work with told us that among the many uphill battles they face in helping their kids become readers is the desperate lack of stories relevant to their kids’ lives and identities. The traditional audience for children's literature has been largely affluent and white, and, to no one's surprise, the characters and settings of most kids’ books reflect that.

To address this, First Book went to the publishing industry with a request for proposal. We put $500,000 on the table and asked to see a list of multicultural titles that included black and Hispanic characters in urban settings by authors from diverse backgrounds—books that would resonate with many of the children we serve.

We received dozens of proposals, and the quality was so high that we selected not one, but two, doubling our investment to $1 million. And this wasn't a one-time deal; we're already planning future purchases to expand this needed resource.

This program, The Stories for All Project, was a deliberate act of what we are calling “collaborative disruption.” By actively investing in the publishing industry and promoting the needs and preferences of our network of consumers, we’re actually building the market we need and giving the publishing industry a real reason to produce more diverse titles. It’s a market-driven solution, and that means it’s permanent.

The fact that more of these books don’t exist isn’t a failure on the part of publishers, of course. They’ve done what every responsible business in the world does; they’ve responded to their perception of the market. This is why the solution isn’t to wring our hands and wish that things were different, but to roll up our sleeves, put our money where our mouth is, and chart a new way forward—one where everyone benefits—by changing the market.

Over time, as we build the market for more diverse titles, that content will be available to all children, not just the kids in the schools and programs that First Book works with. Every child needs to experience the full spectrum of cultures and life experiences. The Stories for All Project will, in the end, benefit all children. Collaborative disruption of industries will build new markets—and that is the way forward for social issues.

Here are some things to think about if your organization is considering creating markets through collaborative disruption:

1. Forget the myth that entrepreneurs are born, not taught. The top executives in your organization need to think more like entrepreneurs—and that often means taking time to research the industries that impact your organization’s work. Logging the hours is the only way you come to know an industry inside and out.

2. Invest in analysis that will capture the dynamics and opportunities of the greater market. This analysis should further define how fulfilling a need can create market opportunities, and determine what price points the market will bear for goods and services. A good starting point for this is the work of C.K. Prahald and Stuart L. Hart, and their seminal study, “The Fortune at the Bottom of the Pyramid.”

3. Identify how you can add value to the industry to help solve the needs that your organization is working to fulfill. Social sector organizations often do not understand that corporations don’t have unlimited resources. Understanding everything about a company and an industry—including customers, competitors, and how they interact with your mission—can help you understand what investments your organization should avoid.

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