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Nonprofit slips in race for cheap laptop for world's poor kids

Problems at One Laptop Per Child show how social entrepreneurs can blaze trails but miss the payoff.

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"Their sales people were saying, 'Because we're on the board, we have inside info and we know that everything is broken and it doesn't work,' " says Mr. Bender.

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Intel has told a different story, saying that Mr. Negroponte was unreasonably demanding that the company stop marketing the Classmate in regions targeted by One Laptop. Intel didn't respond to an interview request.

Partnerships with multinational corporations can be double-edged swords for nonprofit startups. On the one hand, they're one of the quickest ways for startups to ramp up delivery of a product. On the other hand, nonprofits and corporations have different bottom lines, which means that such partnerships need to develop slowly and carefully, says Nora Silver, director of the Center for Nonprofit and Public Leadership at the University of California, Berkeley.

A successful partnership between clothing-manufacturer Timberland and CityYear, a nationwide volunteer corps, took years to forge. The Intel partnership, however, seemed hasty and didn't integrate the sales force into the effort, Dr. Silver says.

"Did these folks have a clear contract?" she asks. "You have to be very clear about such basic agreements."

One Laptop was acting as if they had a contract with exclusivity and noncompete clauses, she adds. Bender says there was only a nondisparage agreement.

The difficulty of scaling up a business isn't limited to social entrepreneurs. For-profit startups struggle with it, too. But entrepreneurs have a bigger challenge when they target poor people, especially those who are uneducated and live in remote areas.

Traditional marketing campaigns on TV and billboards may miss these customers entirely. And putting the product on shelves may not be enough. The entrepreneurs may have to find ways to advance small loans to would-be buyers. They may have to find indigenous nonprofit groups that could open markets that a corporation would never devote the time or have the credibility to crack.

One Laptop decided to target ministries of education to get bulk orders for schools. Working with those agencies, even in the developed world, requires a lot of effort and patience, notes John Quelch, a professor at the Harvard Business School.

"One of the knocks against [One Laptop] could be that they focused very much at achieving a price point for the product, but didn't necessarily focus as much on developing a solution for the ministry of education for country X," says Dr. Quelch, adding that this can be a common pitfall.

"Initially, we had three or four people doing that around the globe, which is a stretch," says Bender. One Laptop is now working closely with Brightstar, the world's largest cellphone distributor, to help with global logistics.