Dear Founder,
Welcome to the last letter of the book review series. This was harder than I thought, but I hope it was worth it for you. I hope it sparked curiosity about new concepts, introduced new perspectives, or raised questions on certain subjects, along with some answers. Essentially, all the reasons this publication exists.Thank you for helping me complete a book from beginning to end; it’s been a while. Reading this was as much for myself as it was for you. Now, let’s get into the final chapters, shall we?
Chapter 10: Markets
Markets organize much of human exchange. They drive prosperity and wealth creation but also breed inequality and environmental degradation. In this chapter, Jacob aims to do two things: show how change agents can learn from market dynamics, and highlight the mess we need to clean up as changemakers.
What can be learnt?
Revenue Mix: Mission-based organizations often struggle with finding the best revenue strategy: focus or diversity? Many successful businesses and fast-growing nonprofits thrive on a single dominant revenue stream. While revenue diversification is advised to hedge against risks (and often recommended by grantmakers), it’s rare to achieve. Attention might be better spent on strengthening the core of the business model.
Cost Structure: Some strategies are labor-intensive, posing a dilemma between quality and quantity. In social change, low-cost, scalable interventions are rare, but they do exist. Yet, sometimes, only high-cost interventions work effectively. Creating impact can be expensive.
Net Impact: The F.B. Heron Foundation in the U.S. focuses on understanding the total impact of all their activities, not just grantmaking. They developed a "net contribution" framework, viewing impact across four dimensions: human capital, natural capital, civic capital, and financial capital. Impact in these areas can be positive, negative, or both. Organizations assessing themselves this way must invest time, thought, and data into this process, leading to the next key point: the role of information.
Information: Markets rely on information; buyers and sellers need to make informed choices. Investors, for example, have data on a company’s Environmental, Social, and Governance (ESG) performance. Donors often access similar data in other regions. It requires a collective effort to gather, organize, and distribute this information to place decisions in the right social and environmental context.
How many of these acronyms used in the marketplace are you familiar with: SRI, CSR, ESG, SIB, PRI?
Let's dive into the other takeaways from this chapter:
Finance: Finance has taken on a higher purpose, with social finance becoming a multi-trillion-dollar industry. Social organizations will need a mix of financing but must be cautious not to adopt the capital provider's outdated processes that might not align with their beneficiaries' needs.
Grants: Anyone who has applied for foundation grants knows they're often full of bureaucracy. As a nonprofit, consider the net grant—the financial value minus the cost of staff time to apply for and manage it. Some grants even have a negative net value.
Pricing: Charging for a product with a pro-social purpose can be strategic. For example, studies show that in the Global South, farmers who pay for water pumps are more likely to maintain them than those who receive them for free. But in some cases, offering something for free has the greatest impact.
Market Behavior: Changing market behavior often takes longer than expected. Markets have self-reinforcing feedback loops and inertia. It requires financial support, humility, stamina, creativity, and a deep understanding of demand and supply.
Division of Labor: Nonprofit collaboration doesn't have to mean each organization offers the same solution. Instead, a group of nonprofits can address the distinct needs of an individual—one might provide housing, another job training, and another healthcare.
Social Discount Rate (SDR): SDR represents how we balance present and future trade-offs. In social change, some issues worsen if not addressed, while others make more sense to conserve resources for future use.
Chapter 11: Complex Systems
A good way to understand complex systems is to take a lesson from the behavior of ants. An ant colony is a complex system that functions like a single, sophisticated organism, far greater than the sum of its parts. For example, when a foraging ant discovers food, it releases a pheromone to attract its siblings. As more ants arrive, they release more pheromones, attracting even more ants. This process is known as a positive feedback loop. Conversely, the presence of many ants might attract a predator, leading the ants to release a different pheromone to signal a retreat, creating a negative feedback loop. These simple communication mechanisms allow ants to act collectively across space, time, and in response to threats.
You may wonder how this is relevant for change-makers. Jacob states that the science of systems is crucial because, to change the behaviors of systems, we must first understand them. Additionally, as individuals or organizations devoted to the public good, we are also a system. However, we are fragmented; arguably, we remain less than the sum of our parts. If ants can come together to create something greater, why can't we?
The rest of the chapter delves into the details of systems, their elements, and characteristics, but let's briefly start with how to identify a complex system and relate it to lessons for social change.
How do you identify a complex system?
There are seven indicators:
1. The components are connected to each other.
2. Their interactions follow a set of rules.
3. The interactions involve both negative and positive feedback loops.
4. The components optimize.
5. The system interacts with the world outside its boundaries; that's how it derives meaning.
6. The system processes information.
7. Components enter and exit the system over time.
Lessons for social change:
Be intentional about connectivity. Weak connectivity within a system dampens its ability to respond to the needs of the world. To increase connectivity, we must enhance the ease of connection.
Simplify the rules. If all interactions among components follow their own separate rules, it’s difficult to achieve system-level efficiency or cumulative learning. We must standardize processes like information transfer and reporting.
Support feedback loops. Feedback is essential for learning. There should be established feedback loops between foundations and grantees, as well as between nonprofits and beneficiaries.
Encourage goal orientation. When components in a system have clear goals, they are more likely to adjust their behavior to optimize goal achievement.
Embrace a common identity. The parts of a social change system are people, who may not see themselves as part of a community. We must clarify what we mean when we say "we." Community building is more than just a feel-good activity; it has strategic consequences.
Enhance the flow of information through the system. For people to work together effectively, they need to know what others are doing. Improving the flow of information among different nodes in the system is essential.
Embrace exit and recombination. Organizations that step aside, merge, or seek acquisition should be celebrated. They contribute to the potential of the entire system. We must provide cultural support for more dynamic recombination of organizational resources, whether in money, people, or ideas.
Chapter 12: Institutions
Institutions are patterns of relationships. They are enduring structures that shape how people connect, conflict, align, and interact. There are two categories: Behavioral institutions, which reflect patterns in how people act over time, such as marriage, and organizations, which are institutions that provide structure to collective activity. In social change, we constantly interact with both forms of institutions. We work within and through them, either as a target or as a vehicle. Institutions are neutral; they can be good or bad, effective or ineffective. We must accept institutions as they are, even as we work to change them.
I want to highlight something Jacob states in passing. Thriving institutions are not always about cutting-edge technology or global prominence. That being said, let's explore some of the key concepts and takeaways together.
Organizations and organisms are not only similar in their Greek root word, which translates to "tool" or "organ of sense," but also in their behavior. Both tend to protect their existence and seek their own continuity. While nonprofit documents rarely state a desire to exist forever, this intent is often evident in decision-making focused on sustaining the organization.
Self-preservation in social change is both a weakness and a strength. It’s natural for leaders to feel a sense of responsibility, pride, or even shame. However, organizations are a means to an end, not an end in themselves. We must not prioritize the "success" of our organization over its very purpose. Nonprofits should aim to put themselves out of business.
A primary predictor of an organization's future behavior is its past behavior. Existing patterns in resource allocation, communication, and decision-making offer clues about what to expect in the future. For example, in resource allocation, next year’s budget is often based on last year’s budget. This contrasts with zero-based budgeting, where every expense must be justified, even if it has been in place for years. It takes intentional leadership to prevent systems and processes from feeding inertia.
Money reflects the distribution of power within and around an organization. The amount of control individuals have over financial resources often indicates their power within the organization. Following the money can also reveal strategic leverage points to influence an organization's behavior.
Every organization has a culture—a set of norms that unconsciously guides actions. We are what we repeatedly do. If you wish to build a culture, you must consistently repeat the behavior you want to see.
A leader must offer a vision of how the organization might behave differently and invite others into these new behaviors. This vision succeeds only when systems, processes, and finances align with it. The leader does not have to be the chief executive but plays a vital role, as people naturally look to them for the organization's narrative.
Information is essential. A nonprofit should have a dashboard and various metrics that regularly reflect different signals about progress. Don’t forget to measure internal impact—this is Pelumi speaking, not Jacob.
Lastly, we must understand how to incentivize alignment. This can be complex, as people are motivated by different things. However, most people value dignity, respect, and autonomy. These elements are crucial to making institutions work and should be reassessed periodically to ensure they are effective.
Shall we toast to finishing this book together? Cheers. Thank you for your patience. The next book review might take a while. It's bye for now. See you in the next letter.
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