The Power Of Incentives: How Grantmakers Use Competition To Drive Results

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The Power Of Incentives: How Grantmakers Use Competition To Drive Results
Interview with Jaison Morgan

Carrot is the market leader in the development and management of large-scale and highly technical grantmaking and procurement protocols. As a service business, Carrot works closely with philanthropic, government, and corporate entities to help them improve their search for new talent and technical solutions to some of the leading challenges around the world. Therefore, Carrot offers a unique perspective on what those grantmakers and sponsors are seeking and how that process works. As the field continues to move towards more specific methods for engaging problem-solvers and democratizing procurement, it is important to understand how that can translate into a more open, transparent, and fair experience for those seeking funding.

Jaison MorganJaison Morgan has been recognized by the BBC as “the world’s expert” in designing prizes and challenge competitions to drive innovative breakthroughs. He helped establish a lab at the Massachusetts Institute of Technology in 2007 to study how targeted rewards can be used to induce new solutions to engineering obstacles. Today, he manages the day-to-day operations of Carrot as the Founder and CEO. Carrot is the market leader in the design, development, and operation of large-scale incentive programming. Carrot has been responsible for such initiatives as the MacArthur Foundation’s 100&Change, offering a single $100 million grant to the winning team, and the NASA Tech Leap prize, a new portal to open-source the development of mission-critical objectives for satellite technologies. Established in 2010, Carrot has compiled over 40 other case studies on their website, www.carrot.net, which include philanthropic, corporate, and government sponsors around the world. Jaison completed graduate studies at the University of Chicago and is a frequent lecturer on the subject of incentive engineering. He is from Richmond, Virginia, but currently lives in Santa Monica, California, where is happily raising two teenagers.

More information at https://carrot.net/

 

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Hugh Ballou: Greetings, everyone. It’s Hugh Ballou, founder and president of SynerVision Leadership Foundation. Our job is transforming leaders, transforming organizations, transforming lives. Part of our transformational process is learning about things that are going to be helpful in our work changing people’s lives, impacting people’s lives.

We have a very special guest today. I don’t even want to get into it. Jaison, tell us a little bit about you and your background. What is this thing that you founded, Carrot?  

Jaison Morgan: My name is Jaison Morgan. I am the founder of Carrot. I am originally from Richmond, Virginia. It’s where I started. Then I went to graduate school in Chicago. Since then, I have moved out to Santa Monica. So I am calling in from California, which is now my home.

My story is the story of a lot of entrepreneurs. I had an early native curiosity in something, and I turned it into a business. While I was in graduate school, I started studying this convergence between economics and behavioral sciences, what is now called game theory. I became interested in what motivates people to do things. I also had a bent toward social enterprise, philanthropy, and doing good in the world. As a result, I started a company early on. I was lucky enough to be part of an exit whereby we sold that company to another entity. As a result, I had some capacity and time to invest in things that I was more interested in.

I went to work for a foundation. At that foundation, we started to experiment with different ways to offer prizes and competitions to compel people to solve big problems. I set up a lab at MIT in 2007 to study how prize competitions work. Following that, I started my own company, Carrot.net. Today, we are the market leader in providing innovation competitions, open sourcing platforms, and philanthropic prizes to some of the leading sponsors around the world.

Hugh: That’s intriguing. I snooped around your website. On your website, the message that you’re communicating is these are projects you have been working on for a while, and I assume you’re fine-tuning them for the nuances and culture. Part of what I read about is you were responsible for helping MacArthur award a single $100 million grant. Talk about that. You were not in the spotlight; you were behind the scenes. Tell us about that process. Why is that important for people to know?

Jaison: When you go to our website, you can learn at different case studies. At the end of the day, Carrot is a service business. If you look at our competitors in our field, some of those businesses exist as a social platform, where they are activating their own brand and presence. Their clients come in and rent out pavilions, where they are trying to gain access to innovators and solve a problem. At Carrot, we take the opposite approach. We hide behind our clients and activate their brand or cause. If you look at the case studies on our website, some of them will be very recognizable. You really wouldn’t know if Carrot was involved unless you went to that site, sought technical assistance, registered to compete, and entered into our software platform. We are a service business at the end of the day.

If you look at the range of case studies that we showcase on our site, you will see there is a lot of types. The one that gets a lot of press is this program we named called 100 and Change. It sought to give away a single $100 million grant sponsored by the MacArthur Foundation out of Chicago. What they were looking at was a way to experiment with new ways of grantmaking. If you look at traditional grantmaking and philanthropy, my perspective is a lot of it is very opaque. It is very hard to understand the preferences and biases of a foundation. Oftentimes, you need to know a program officer who works there. A lot of times, people who go through the grant writing process have to hire professionals.

What we wanted to do was level the playing field. Make the experience more open, transparent, and fair. Make sure everyone who participated, even if they didn’t win the grant, would get some form of value that was commensurate with their level of effort. It was a much bigger and ambitious program. Notwithstanding the fact that it was the largest single competition that had ever been run, we really looked at it through the lens trying to make sure that all the people who enrolled and started to work on the application forms could connect with one another, get feedback from professionals. A lot of those aspects of the program were key drivers to getting people to participate.

These themes I am mentioning—like openness, transparency, fairness, accountability, rigor—is the reason for being for Carrot. Our goal was to reinvent philanthropy, grantmaking, and asset allocation to make sure we are looking at it from the perspective of the person seeking the resources to make sure it is a value-add experience for them.

Hugh: Carrot makes me think of Bugs Bunny. It’s the orange thing we eat. What is the inspiration to use that word for your business?

Jaison: A lot of what we do is based around theories of incentives, what motivates people. If you wanted to find a single object that represented an incentive, it would be a carrot. If you look at our logo, it is an abstract vision of a carrot at the end of a stick. We don’t lead with this cartoonish, Bugs Bunny look and feel when it comes to our brand. We really want it to be cleaner and hide behind these motives. A lot of what we do is offering compelling incentives but also making sure that those incentives aren’t some win or take all proposition. The notion of the carrot, people get incentivized and motivated to participate, means a lot more to us and to people today than it did in the past.

Hugh: We deal with lots of nonprofits. The constant struggle is, “I am going to write a grant and get all this money.” Maybe you are going to get the money. It’s a win-lose. It’s pretty hard and fast. You never know if they are going to pick up one thing they don’t like and put your application aside. Grantmaking is a problem. It’s been broken. We know that many grantmakers have lots of money, but they are not going to find anybody that isn’t valuable, that isn’t going to accomplish a common mission. Talk about the win-win-win you created for the nonprofit, the grantmaker, and the people they serve.

Jaison: Absolutely. If you lined up 100 program officers from the world’s leading foundations, surveyed them, asking them, “Would you like grantmaking to be more fair? Would you like to offer a more level playing field? Would you like to attract the kind of people who don’t ordinarily respond to requests for proposals or a solicitation for a grant application?” I believe that 90% of them would say yes. The issue is that is a very hard job to accomplish.

If you start opening up the door and allow pretty much anyone to walk in to provide their best ideas, then you are presented with the semantics of how you would assess and sort and rate and stack all of that content efficiently and effectively. That is not an easy job. As a matter of fact, this is a problem that has plagued philanthropy grantmaking, and also venture capital and private equity for a long time.

As a result, philanthropists shut down certain things. There isn’t a form that anyone can go to to read to understand what they have to do to compete. There isn’t a rubric that people can find which expresses the preferences and biases of the decisionmakers. How that application and rubric get combined, and how those scores get tabulated, oftentimes sits in a black box. As a result, you have a lot of people that instead of making it a more open process will go out and hire a program officer and say, “You go out and find the grantees that we need to support.” That is a very closed network that represents only a small fraction of what they otherwise could access.

At Carrot, we are experts in this. We not only write those application forms, and there is both an art and science to that. But we also publish all that information on a public website. Anyone can see exactly what is required of them, what the implied cost is, and what the benefits are. Sometimes those benefits are just structured feedback. At the kernel of our software, we have a normalization protocol, which means that if you apply for a grant through our systems, you will get judged by five other people. They may be peers or experts. At the end of the day, we mathematically rescale all of those scores against different measures of distribution to make sure that no matter which judges you are assigned, be they easy graders or hard graders, you are going to get an equal treatment. There is a very complex way we do that. We also describe that on every website.

While it looks like operationally a very sound and scientifically rigorous way to operate, when you see people reading those sites, they start to realize, “Oh my gosh, not only is it a level playing field, but I am going to also get comments from the people who are scoring me. If those people are peers, other people competing for the same grant, I am going to get a chance to connect to them.” There is a lot that goes into this around building a community of practice, sharing information, and making sure that we have the best and brightest applicants. Everyone else who applies and goes through this experience also gets to meet other folks, get feedback from peers or professionals, and get to walk away with a much better notion of why they maybe didn’t win the grant.

Hugh: Is there a learning experience? In my experience, I find a lot of nonprofits aren’t fundable yet because they don’t have a high-performing board or a proof of concept that they can actually do the work and there has been impact. Those that apply and don’t get scored very well, is there a way for them to up their game so they can come back in a more robust way?

Jaison: Yeah. Every competition is different. That is why we have 40 different case studies on our website for people to see. Some of our clients will come to us and say, “We want some early-stage ideation. We want the raw concepts that we can harvest by going out to the world and saying, ‘Give us your best new approach for solving X.’” In those cases, we are trying to bring in folks who are early in their thought. Other folks will come up to us and say, “We want mature scaling ventures.” Every competition is different.

What we don’t want to do is waste the time of people who are working on the front lines around any particular cause. Oftentimes, on these same websites, we will put up what we call an organizational readiness test. People can take a quick quiz. Instead of having to read through all the eligibility requirements and terms and conditions, they can figure out if they are appropriate or ready for this. They don’t have to jump wholeheartedly into it. They can first read through all the requirements, take the quiz, and reverse-engineer the scoring process to see if they have the right approach. It’s about the transparency that informs those groups, even before they have registered to participate.

Hugh: That’s huge. There is so many small nonprofits that spend a lot of resources, time, and effort writing a grant. They don’t make it, and they don’t know why. I had a girlfriend in high school who got mad at me, and she wouldn’t tell me why. It’s the mystery. We haven’t learned anything or gotten any better. I love talking to people like you who are profound entrepreneurs. You see a problem and find a solution. You put people together. That’s what we do. We see a problem and solve it for people.

There is a learning for this for the nonprofit. Has there been a learning for some of the foundations you work with? Have they learned how to do things better?

Jaison: Absolutely. One of the great things that we are able to deliver is this idea of bringing in more diverse input so that we can say, “Listen, if you run a traditional government RFP, you will get the same old folks. When we do this, we bring in people from different domains and disciplines, people trying to solve problems using different tools.”

NASA came to us and said, “We need to replace the particle censor on the International Space Station. Now we can go out and hire a firm to do this, or we can run a competition in which we can get more concepts and blueprints from people all over the world. We can build a community that we can tap into later if we need it. We will also be able to rank out the best ideas that we can develop further with their assistance.” When you take this approach, you are often getting people who may be experts in particle censing. Maybe they have an expertise in chemistry or biology. But what we find is you are often bringing in people who are studying predictive analytics or machine learning, people who are applying new disciplines to solve the same problems. It’s in that diversity that you increase the rate at which these problems get solved.

There is a researcher at the Harvard Business School of the name Karim Lakhani. He wrote a paper that was published in 2009. It looked at the people who were winning some of the biggest competitions at the time. He had run an experiment in which he asked people to identify their area of expertise when they registered to compete. Then they asked those people to determine how far they thought their expertise was from the target domain of the competition. As I said, if it’s a chemistry problem, you will get chemists, biologists, drug pathologists. When you start opening up the gate, all of a sudden, you will get people from fields you never would have expected. What we found is the people who were more likely to win the more entrenched problems were usually six degrees or more of separation from the target domain.

How do you convince a woman working in machine learning or predictive analytics in Sydney, Australia to stop and turn her attention to a chemistry problem? The only real tactic for achieving that is to make sure that she is aware that she is playing on a level field and the game isn’t rigged against her. Once you can offer that level playing field, you start to gather new talent, attract people that you never would have otherwise found. That is the key to innovation. That is how we speed up problem-solving. That is what we have learned over the past 11 years. We have dozens of case studies that people who have emerged from nowhere, people you never would have thought would have been able to solve a problem, all of a sudden are awarded a big check or contract.

Hugh: That doesn’t exist only in the for-profit sector because we have people in our community who are doing high-tech things for the benefit of people who can’t afford it. We might think that that is a business model only for bottom-line greed, which isn’t necessarily greed. But how do we stimulate the economy by doing good? Philanthropy has many aspects to it.

Let’s hone in deeper on the private foundations, the ones that fund the 501(c)3 sector. They want to fund projects that further fund what they want to see happen. I have been in conversations with thought leaders. Many represent foundations. What I have learned from them is there is a lot of money, but they are not going to award it unless there is a worthy cause. A lot of the money has not been awarded. I think what you have addressed is a system that hasn’t been functional on a level that it could actually be.

In those cases, where have you bridged the gap? There is a lot of nonprofits that have really good programs, but they don’t know how to bridge the gap and even have that conversation with foundations. Am I opening something that is useful for you?

Jaison: We work in three different sectors. We are in commercial Fortune 100 companies, big companies like Johnson & Johnson, where we are doing more trial-based competition. We also work in government and philanthropy. If you look at the range of our clients, you certainly have the big ones, the big bed philanthropists. A single $100 million grant for the MacArthur Foundation is important because it shows the rest of the world that this can be done in a scalable way, and this can be done in a more open, transparent, fair way.

Behind that, we have done a $90 million competition for the Kellogg Foundation on racial equity. We have done a $40 million competition around gender equity in the United States sponsored by Melinda Gates, Mackenzie Scott Bezos, and Stacy Schusterman. We are doing a prize right now on how to improve the voting process in America for the CTO of Facebook that is offering $12 million. We are getting the top layer of all the philanthropists that want to make what we call a big bet. That’s great, and we love that work. It generates a lot of exposure for us once people learn we are the company behind the process.

You will also see that we work with a lot of community-based foundations. We work with foundations like the Arizona Community Foundation, which is working on water drought and scarcity in their state. We have worked in cities like Greensboro, Hartfield, Las Vegas. We have done stuff in the city of Los Angeles around homelessness. While we love the big work, oftentimes when you get into these local conditions and causes, you can be more authentic and specific about the kind of call to action that we develop for those clients.

You’ll see some of the local work in contrast to the bigger national/international work that we do. Of course, for NASA, we do highly technical work not just here on the planet but on other planets, too. We have a project for the Mars Landing Mission right now on how to turn astronaut breath into glucose so that they can sustain life on the surface of that planet. We are working all over the place, and we are working big, small, local, and global.

Hugh: There is 1.6 million nonprofits, 501(c)3s. That is not counting religious institutions and education and community groups or chambers of commerce. There is a lot of organizations about that.

You have used the words “competition” and “prize.” It might be my age and mental condition, but that is not entirely clear in my mind. Define what competitions and prizes work in your context.

Jaison: The term has evolved. I did a TED Talk about the earliest prizes for innovation. The first case studies we found were in the mid-1500s. For a long time, what would happen around the world, particularly in western Europe, people would want to solve a problem. They would put up what we might call a bounty or reward. For 10,000 ducats, if you can solve this problem, doesn’t matter where you went to school, who you know, you would win both fame and fortune. This was a way to democratize the problem-solving process. This occurred for about 500 years. We have all these different case studies throughout Western history that talk about how this reward system could be used as a fair, open, free market exchange to bring in people to solve big problems. There is a lot of cool case studies I could get into for you.

As the internet came online, and we started to see the effect of social media, we began reinventing this prize model. There were some early players like the X Prize Foundation, where I used to be the Head of Prize Design. We would offer these bounties, say, for $10 million, if you could put a rocket into outer space, you would win the prize. But you had to demonstrate success first. What would happen is you would push the cost to accomplish that goal onto the competing teams. They would spend their own time and resources. They would get a lot of exposure and media as a result of competing for this prize. The winner would win the prize, but they would also get a lot of attention. They could leverage that attention and capital to build new companies, build new interests.

This is how we looked at prizes for a long time. As the term has evolved now, we are using this same approach of more open, transparent, fair competition to eat into what we consider more traditional grantmaking, asset allocation, requests for proposals, government procurement. You are seeing a lot more about prize organizations taking market share away from traditional government procurement.

There was a study written by McKinsey looking at the size of the marketplace in 2010. They were saying it equaled to about $350 million back then in terms of prizes and awards and the total value of those programs. The rate of which that was increasing was about 18% a year. If you extrapolate that to today, you are looking at well over $800 million in prizes out there.

If you talk to the World Bank, they would tell you that government procurement writ large represents about $9.5 trillion market as of March 2020. The opportunity for an organization like mine to come in and try and reinvent how government agencies allocate their resources is much greater than what looks like a niche marketplace, which would be the prize world.

Hugh: Do projects that have corporate/nonprofit partnership or public/private partnership get any more favorable results?

Jaison: It depends on what you are trying to achieve. If you look at open innovation, there are certain sectors that are heavily regulated, where it’s very hard to bring in new players. If you look at education and health care, oftentimes we forget that the buyers aren’t the patients, the students. The buyers are the school districts in that equation. Trying to get a school district to change by offering some novel prize competition is very difficult.

We have seen it at the national level, when Arnie Duncan was the head of the U.S. Department of Education, and they had their Race to the Top program. We have seen the federal government challenge local school districts to change based on a competition model. Mostly, trying to affect change from the outside is a private organization, when you are looking at school district budgets that measure in the hundreds of millions of dollars, that is a hard lever to pull. As a result, a lot of the competitions that we run that are designed to affect that change look to private/public partnerships.

We are trying to get people who are already embedded with those partners to propose new ways of doing what they do so that the agency really rests in the private partner who already has the public partner side by side. In doing that, you are not necessarily inducing new activity. Sometimes you are just harvesting great partnerships that are out there, shining a light on them, helping them to scale with whatever resources you can offer. Public/private partnerships are very important, but the public side is often harder to change because of the size and nature of it.

Hugh: You’re familiar with Lynchburg, Virginia, which is where SynerVision is located. Before the Civil War, this city was the second wealthiest city in the country. Right now, Lynchburg has almost 25% of people below the poverty line before the pandemic. The -01 zip code, where Fort Early is, is 41%. We don’t have a lot of collaboration there. If a group got together and said we could address poverty moving to prosperity, if they go to your website, Carrot.net, it says at the top, “A competition platform that puts many minds to work solving tough problems.” What should people look for? Who should check out what you’re talking about?

Jaison: If you scroll down, you will see we work with government, nonprofit, and corporate. When we say nonprofit, those are often grantmakers. The competition model is really just about more efficient asset allocation. If you are a government agency that is mandated to give away a grant, and you want a faster, better, more effective way of doing it, if you are a nonprofit that has a mission with an endowment, and you want to allocate grants or provide programmatic support in some way, we are the process that allows you to achieve better outcomes. Of course, corporations look to open sourcing or crowdsourcing now. The old saying is the smartest people don’t work for you; they are somewhere else. By taking a more open approach, you can tap into folks you wouldn’t otherwise be able to find.

It is true. My parents live in Lynchburg. I have spent a lot of time there. I want to tell you a little bit about my company and the approach that we took almost nine years ago. We have offices in Seattle, Los Angeles, Nashville, and Bulgaria. I remember going to Nashville, which at the time was a hub for our software team. I was looking at the people working for us there. They all had on headphones and were working in cubicles. I thought, “This is ridiculous. People should be doing this from home. This is not how we innovate as a company.” People were having to drive long distances just to sit in a cubicle, do work, and drive home to be with their families. Our work is very project-based.

We went to a fully distributed model a long time ago. Everyone in our company works from home. We still maintain hubs in those cities that I mentioned where people can come and meet and have team-building exercises. The world is changing. We never know what comes next.

But the idea of more distributed models of operation, the idea that I can live in Lynchburg but have a job in California, the idea that I can live in DC and have an office in Lynchburg in my garage or my bedroom, that is now possible. If we think of the future of work and our experiences in business, you will see more and more of that. It will change some of the fabric of some of the cities that have been operating in the same way for a long time. Whether or not we want to accelerate that, or if we want to shine a brighter light on that is a different question. But we know it’s happening. We know it’s happening around the world. We know that it’s providing new opportunities for people.

Hugh: We figured out which meetings we could have had on email anyway. That is such a practical approach that could apply to most industries. We do spend a lot of time in useless activities that are not productive. What I am picking up from the whole context of what you are offering here is how do we be more effective and efficient in the use of all those God-given resources that we are stewards over? We have been more wasteful in the past, but we can’t afford that anymore. Methodologies like you are introducing are crucial to the health of all nonprofits and our communities. You said you celebrated 10 years?

Jaison: We are 11 years old. I founded the company in 2010.

Hugh: What does the next 10 years look like?

Jaison: Carrot is a social enterprise. From the very start, we wanted to focus on public cause, working with philanthropists and government agencies. As someone who has started two different companies, it has been my experience that maybe one of the places where we also need to break through some barriers is in how business owners raise funds to support and scale their companies.

If you look at the world of venture capital and private equity and investment banking, oftentimes people are presented with the exact same problems that philanthropists and grantmakers are presented with. It’s very hard to go out and raise a round of money because you don’t necessarily know what those investors really want from you. There is a lot of guessing and inefficiency. As we look at the best and brightest companies, if they are located in a place like Lynchburg, they can’t access funding in Silicon Valley or Silicon Beach in LA because it’s not a level playing field. We are trying to focus on that as well: the commercial application of how we run these competitions to source and select opportunities for our clients which may not only represent triple bottom line social returns but focus more on commercial aspects of their investment strategy.

I use those three words a lot: open, transparent, and fair. How do you make that experience such so that people can access different resources from around the world? What I like about our business is it is very bipartisan. All of us as Americans have this plant in the back of our head about democracy and meritocracy. If you are online today, you know that this is the new normal: being accountable for what you say and write, trying to put people out there, trying to make sure that when you enter into a platform, you have an opportunity to communicate with others. There has been a lot of criticism. The fact is that people who are growing up today have a native assumption that when they enter into an exchange, there will be a lot more openness, diversity, community. That is another ethos we are tapping into as we start to build communities around these competitions.

Hugh: Those are foundational principles that SynerVision teaches. You have to have those kinds of principles to be effective in any age. This is a great interview. I am going to encourage people to visit Carrot.net and see where they fit in. See if you can rally people in your neighborhood to pull a project together because there is a lot of work that needs to be done. We have the goods. What is missing is the connectiveness that you offer. Money isn’t going to solve the problem unless you’re ready. That assessment piece you talked about is absolute gold for nonprofits. It’s being transparent. We need to be transparent as leaders to listen and understand what it is we need to do for our part to come to the table as a valid partner in this. What do you want to leave people with today? What is a closing challenge, tip, or thought you have for nonprofit leaders and clergy?

Jaison: It’s a great question. We put so much on the table. I’m from Richmond, Virginia. I grew up in a place where diversity was a question of reparation, paying for the sins of our past and our fathers. I think the conversation somehow has been too skewed toward this notion of diversity connecting to inequity. What we have proven, and what many other folks have proven, is we need to start looking at diversity as a business tool. We need to start thinking about getting outside of whatever notion we have in the past, figuring out where you can offer more variety, new ways of thinking on how to solve problems. Those problems get solved faster. I am not here to say that the conversation around reparations through diversity is unimportant. I think it’s very important. But what I am here to say is that if you are a CEO or running a foundation, you need to embrace diversity, inclusion, and equity because that is how you solve problems today.

If you think that you can get all the talent you need there in Lynchburg, and you can hire folks who are local who can do what you want, that’s fantastic. You should continue doing that. But if you want to tap into the mind hive which is represented by the internet and people all over the world of different colors, creeds, races, religions, that is how you solve problems faster. We believe in that principle. We demonstrate that every day. It’s part of our reason for being.

Hugh: You heard it here. This is a call to action. Jai Morgan, founder and president of Carrot.net. It is a fresh approach to solving old problems and giving people an equal leg to stand on. I think it is just great. It’s a good leadership model to follow what you have done. Thank you for being our guest today.

Jaison: Thank you so much, Hugh. Have a great week.

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