Challenging Nonprofit Funding Strategies

If funders were to incentivize cooperation amongst small business support providers, there would be an explosion in economic growth and job creation! Unfortunately, a well-intentioned shift of focus towards sustainability in recent years leaves little room for outcomes based on cooperation versus isolated efforts. This narrow view of sustainability and success actually intensifies the effects of scarcity by pitting organizations who could accomplish more together, against each other.

In the nonprofit realm, the current landscape typically involves nonprofit service providers and lenders competing for limited dollars based on merit and outcomes. While meritocratic systems seem logical, they can cause problems in the nonprofit space when it comes to innovation and efficiency. I want to be clear from the onset that this is not about setting a low bar for nonprofits. It’s true that some nonprofits do better work and are more effective than others. My argument is for an acknowledgment of the interdependency that already exists, or should exist, as a natural solution to scarcity and unique skillsets. Unlike their for-profit counterparts, nonprofits are not high growth companies built to scale that provide even greater value for the world by beating their peers and gaining more market share. A given community would simply experience less benefit If several nonprofits within an informal ecosystem were to disappear over time.

IN THE PSYCHOLOGY OF SCARCITY THE AMERICAN PSYCHOLOGICAL ASSOCIATION SUMMARIZES THE NEGATIVE EFFECTS OF SCARCITY ON THREE KEY AREAS.

• Scarcity demands mental resources, narrowing our focus and impacting our choices.
• Scarcity increases negative emotions, which effect our decisions.
• The effects of scarcity contribute to the cycle of poverty.

In any other industry, identifying synergies and creative problem solving are rewarded, usually by greater profit. In the nonprofit space, you can be penalized for efficiency. For example, it’s not uncommon for funding to be linked to the time you spend with a certain number of clients. The reality is that sometimes a client may only need two hours of assistance instead of six, but not meeting for six hours harms the organization’s ability to apply for grant funding in the future.The current system also incentivizes double counting within a community. As the same client is shuffled around to multiple agencies, all of the organizations involved will be measuring outcomes for the same client. For example, if small business owner Suzie gets support from three nonprofits that year, all three may be citing Suzie’s growth in their year end report. While this may lead to unintentional double counting when a significant funder is resourcing several local organizations, the biggest loser is the community as a whole that might have seen more new jobs or value creation if nonprofits were encouraged to work together efficiently.

It’s easy to forget the forest for the trees when it comes to success in the nonprofit realm. The ultimate success metric is inherently bigger than the nonprofit itself. While for-profit success is measured by profit, non-profit success is measured by the advancement of the community or group being served. If you cease to be outwardly focused, your value as a nonprofit organization is diminished. Having to prove why your services stand alone as having a larger impact than the organization down the street requires a lot of inward focus. Below is a summary of some of the most common barriers as well as several ideas on how to incentivize cooperation.

BARRIERS TO COOPERATION

• Linking success to the length of time an organization spends with their clients.
• Lack of acknowledgment of time spent innovating on new and more efficient processes that might reduce normal outcomes for a certain time period.
• Requirements that outcomes fit neatly into popular impact categories rather than collaborating with the nonprofits themselves for feedback on the highest impact activities.

INCENTIVIZING COOPERATION

• Extra consideration for organizations who can prove enhanced outcomes linked with cooperation.
• Peer selection systems where votes from potential grantees play a factor in a funders evaluation process.
• Potential local grantees are required to identify the strengths of other local organizations when applying for funding.

In communities everywhere, nonprofits are cooperating in clunky ways behind the scenes due to the reality of scarce resources and specialization. By incentivizing grant recipients to leverage the strengths of other local organizations, it’s likely that the return on funding will be higher and clunky systems will be streamlined for the greatest good.