Exploring Alternatives to Traditional Government Funding

Man in front of three doors trying to make a choice

How and Why to Explore Alternative Funding Models

Traditional government funding mechanisms can do more harm than good. Their stop-start nature means that nonprofits must forever start and discard programs and gear up and down as funding opportunities appear. I hear this from nonprofit leaders all the time. One recently echoed: “When the grant ended, we had to stop a great service saving the community thousands of dollars.”

The Value of Obtaining Revenue for Results, Not Programs

There is another way. Community Based Care of Central Florida (now Embrace Families) developed a powerful approach to working with government funders.

Embrace Families serves children in the child welfare system by developing community-based services for children and families. Instead of receiving a handful of grants, they obtain their government funds in bulk. Moreover, they get funding commitments for ten years. Any year-end surpluses can be used to prevent children from entering the welfare system. With the benefits, Embrace Families accepts the responsibility of serving every child that needs services. They promise not to create waiting lists, and if more children need more assistance than the funds provide, Embrace Families must raise the funds.

What does this mean in practice? Embrace Families obtains greater responsibilities and control of its income. Since Embrace Families buys services from local nonprofit children’s service providers, it also means that as these nonprofits produce results, Embrace Families can offer them rewards such as greater income stability and additional funding to improve children’s lives.

Furthermore, the ten-year contract acts as an incentive for Embrace Families to serve children immediately. Acting reduces the time and expenses associated with any child being “in the system.” If a child requires $100, or even $10,000 in services today that prevent future losses, Embrace Families invests.

The most important result of the effort is its effect on children. In the Embrace Families service area, the number of foster children has been reduced by 35 percent. In the bigger picture, for years, Florida languished at the bottom of state-by-state comparisons in this area. Today, according to Right for Kids, Florida ranks among the top five.

How It Works and Why It’s Worth Considering Exploring Alternative Funding Models

Instead of government officials prescribing detailed procedures via grant applications, Florida buys results. By contracting for results, the nonprofit stabilizes its income. Stabilized income frees Embrace Families to focus on helping children and families to stay out of “the system.” This exchange provides higher value to the government, the nonprofit, taxpayers, and, most importantly, vulnerable children.

How to Begin a New Value-Based Funding Approach

You can use the thinking behind this strategy to explore places where you can offer more value and obtain more income. Here are questions to consider as you start the process.

For nonprofits with government funding who seek to copy Embrace Families’ approach:

President/CEO Glen Casel recommends that you expect a multi-year effort to transform your relationship with government agencies. “You also need a champion, such as your trade association, who has a voice and can give you a voice.”

For foundations and nonprofits:

Use these questions to consider your current income exchange processes:

  • Where do they work?
  • Where do they challenge you and cause friction?
  • How might they be improved?

For example, The James Graham Brown Foundation in Louisville, Kentucky, began funding the Brown Fellows Program at Centre College and The University of Louisville. The impetus for the Fellows Program was a disappointment with funding requests, such as building and deferred maintenance, from institutions of higher education. Inspired by the board’s restiveness, the Foundation created The Brown Fellows Program. This program offers a full-ride plus scholarship opportunity for twenty undergraduates a year and meets the Foundation’s goal to promote the well-being of the citizens of Louisville and Kentucky. The colleges gain top students, tuition fees, and a closer relationship with the Foundation. Students gain an opportunity to study at top universities in Kentucky.

Five Steps Nonprofits Can Take to Explore Alternative Funding Models

1. Dream up or find and learn about alternative funding models, like the Embrace Families and James Graham Brown Foundation.

2. Talk to your trade associations, peers, and Karen to identify possible solutions and next steps.

3. Learn about your funding sources’ challenges. What results do they want?  What are their frustrations with the current process?

4. Identify changes that will create wins for everyone involved.

5. Commit to a change. Explore what you are willing to give to make it. Get started.

 

Author
Karen Eber Davis

Karen Eber Davis Consulting guides executive directors and CEOs to generate the resources, boards, and support they need to make remarkable progress on their missions. As the award-winning thought-leader, advisor, and founding principal of Karen Eber Davis Consulting, Karen helps nonprofit leaders get answers, generate revenue, and grow their mission. Davis is known for her innovation and practicality based on her work with or visits to over 1,000 nonprofit organizations and her experience leading board and team events. She is the author of 7 Nonprofit Income Streams and Let's Raise Nonprofit Millions Together.