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Big nonprofit funders love making groups compete for cash

More and more, big funders are turning to competitions to figure out where to put their funds.

Big nonprofit funders love making groups compete for cash
[Source Image: Rogotanie/iStock]

Earlier this year, the Chan Zuckerberg Initiative joined with the Rockefeller Foundation to offer $10 million in prize money for the winners of their Communities Thrive Challenge. The idea is for community groups to suggest scalable ways to build more economic opportunity for low-income and financially insecure people in the areas they serve.

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It’s just the latest entry in a now powerful trend: using competitions to find the best places to direct funding. According to a new State of Open Innovation report by strategy and innovation consultancy Luminary Labs, which surveyed a variety of entities that are experimenting with everything from “crowdsourcing, prize competitions/challenges, hackathons, data jams, open science, and more.” The report notes that that 41% of nonprofits surveyed are fully committed to some type of decentralized idea generation, while the rest are still developing their plans. Overall, the survey found that roughly two-thirds of respondents, including private sector companies, government agencies, and nonprofits, are sponsoring or executing external prize competitions.

[Source Image: Rogotanie/iStock]
Although the group’s sample size is arguably small–it polled roughly 100 industry leaders, including 17 nonprofits–the report includes responses from well-known sector practitioners like Schmidt Futures, Sage Bionetworks, MIT Solve, and the Barbara Bush Foundation For Family Literacy. “These results apply primarily to funders, although they suggest new funding avenues for groups or individuals looking to solve complex problems in a new way,” says Luminary Labs CEO Sara Holoubek in an email to Fast Company. “For funders, there is early evidence that open innovation is potentially a more efficient and effective grant-making process that reaches a larger, more diverse group of potential solvers.”

[Source Image: Rogotanie/iStock]

Not surprisingly, only about 35% of the nonprofits respondents are fully dedicated to open innovation efforts. Cause groups are typically funded through grants and donations, which contributors like to see go directly toward projects with quantifiable returns. Developing internal innovation practices would likely fall into the same bucket as paying for overhead, something that sector analysts consider vital for groups to grow and succeed long term–yet which remains chronically underfunded.

[Source Image: Rogotanie/iStock]
That means some groups may not be able to creatively refine what’s working all by themselves. But they may not have to. In recent years, major foundations like Rockefeller, Bloomberg, MacArthur, and CZI have hosted competitions to find groups with great formulas or concepts that might otherwise go unnoticed. As James Anderson at Bloomberg Philanthropies has evangelized, it’s a great way to avoid strategic blind spots and build city-level change that can be replicated nationally.

An often-repeated refrain within the sector is that those groups already in touch with the people they serve probably know how to best serve them. The report affirms that concept in a broader way, pointing back to Joy’s law, a conceit articulated by Bill Joy, the cofounder of Sun Microsystems, that states “no matter who you are, most of the smartest people work for someone else.” Even groups that don’t win these competitions still gain something from the experience. As the report notes, “Innovators often find value in feedback, guidance, and the opportunity to develop relationships,” too.

“One of the big findings, across sectors, is that collaboration is the new competitive advantage,” adds Holoubek, who considers CZI’s effort a textbook example. “For nonprofits, this means novel partnership opportunities, whether with startups, individuals, government, or established corporations, to bring more solutions to the table.”

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Corrections: This article has been updated to clarify the fact that report only surveyed organizations already doing some form of open innovation. The percentage of nonprofits that have fully fleshed-out open innovation practices and the percentage of private sector companies, government agencies, and nonprofits are interested in the idea of sponsoring or executing prize competitions have also been updated.

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About the author

Ben Paynter is a senior writer at Fast Company covering social impact, the future of philanthropy, and innovative food companies. His work has appeared in Wired, Bloomberg Businessweek, and the New York Times, among other places.

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