How Competition Breaks Nonprofits

Should nonprofits compete with each other?

A lot of people believe that nonprofits should behave more like businesses by competing to provide the best services. The theory being that since active competition between businesses lowers prices and improves distribution of services for consumers, the same thing should be said for nonprofits. Oddly enough, in the nonprofit space the same competition can have a nasty inverse effect.

Let me provide an example: A few years ago in Cambodia we were working with several local nonprofits to distribute Bio-Sand water filters to a large population of villagers who had opted-in to our program. We were trying to figure out who we could properly source filters from within the area, and began doing research on who might be the best fit. We weren’t the end-point consumer (the villagers), so we had to make a decision on their behalf based on who could produce the best filters locally. There were two organizations who were trying to sell roughly the same filter with the same program mission. Both were funded by separate Rotary Club grants and both had subsidized production down to nearly the same price-point.

They did not work together, despite the fact that one of them had great water testing facilities and the other had great production capacity. Between them, they would have made a great filter accessible to everyone in the region. Instead, there was a pride issue around who was really making the best filters, and for a long time they refused to collaborate. Since their funding sources were not market-based (demand was not a factor in production), the result was that there were two poor product offerings: one org that had well-tested water filters but few available, and the other org that had high volume but minimal testing. They were competing in a vacuum with no market to build on, despite being funded by the same institution. The net result was that it was costing both organizations more money to distribute a worse product, and everyone was suffering.

This dynamic plays out all the time, and is somewhat counter-intuitive. Since the nonprofit world is extremely fragmented, competition would seem to be a good thing (many players competing to deliver the best services). Unfortunately since the results of programs are not market-based, stagnation and ego-driven battles can ruin an otherwise great service delivery.

I believe it can be avoided if people are competing for the right things. Peer competition can be a great motivator, but it needs to be managed properly. Look at the X-Prize and the way that spurs innovation. I believe the same can happen with collaboration. A few donors should get together and make a regional C-Prize for collaboration by sector - a Competition for Collaboration. Nonprofits compete in teams against other regions for the most impact through collaborative delivery of services around a particular program. The winning region’s collective programs would be funded by the prize.

I believe the net result in efficiency would be enormous, not just for the winning team, but for all the participating teams that decided to tear down walls and work together towards their collective missions of competing to improve the world. As a donor, that would be major bang for your buck.