We usually look askance when someone suggests that the nonprofit sector should function more like the for-profit world, but that doesn’t mean we cannot learn from it. In the for-profit sector, growth through merger or acquisition is one option among several routinely considered in a strategic planning process. Doing so is pro forma. Many companies work towards getting acquired as a means to expand their reach, gain access to needed investment for infrastructure, or attract and retain top talent. Others keep it on the table as a foil to test internal growth options. Yet, nonprofit organizations typically consider merger as a last resort, often only in face of impending financial collapse. To be ‘acquired’ is deemed tantamount to failure in the nonprofit sector.
Why the difference?
Mergers in the for-profit sector come with a financial payout for the owners, which can be used to invest in the next venture or the next lifestyle. Management is obliged to maximize return to shareholders despite any externalities it may create. In the nonprofit sector, our obligations and measurement tools are significantly more complex and diffuse. Moreover, the catalyst to consider a nonprofit merger typically lies with senior management, and not the direct beneficiaries of the mission. While nonprofit managers are unquestionably committed to their organizations’ respective missions and their constituents, they are also responsible for the well-being of the organization itself and their employees. In this complex context, the aversion to mergers makes sense.
Even so, the external environment continues to rapidly evolve such that holding onto the status quo can be riskier than taking the risk to change. COVID hasn’t altered the environment as much as it has served as an accelerant to trends that Fairmount has long seen coming:
- Public sector funders wanting to achieve greater efficiencies by working with providers who can serve a larger geographic area
- Foundations looking for “innovation” and documented outcomes that require the capacity to both plan and evaluate new programs
- Donors gravitating towards well-branded organizations
- The expectation that information systems will enable data-driven decision making in real time, requiring greater financial investment, a capable IT team, and internal evaluative capacity
- Top talent gravitating towards organizations whose brand is associated with quality and professional development opportunities
- Next generation board members attracted to organizations they deem as making an impact, and that can also nurture and support their learning how to be effective in their role
None of this is to say that all nonprofits should merge. Rather, we emphasize that consideration of merger, affiliation, strategic alliances, shared services, et al should be an integral part of a nonprofit’s strategic planning process. The benchmark should be return on mission and how to optimally serve constituents. This begins with taking a highly disciplined approach to defining the mission as a benchmark for decision making, and not just a tag line. If the conclusion is that a merger or other form of strategic alliance does not generate the highest Return on Mission, great: you’ll be closer to understanding and generating a path towards maximizing your goals through internal means.
At Fairmount Ventures, we’ve been helping nonprofits consider mergers and affiliations as an option for many years. We’ve helped organizations identify partners and then facilitated the process from start to integration. We’ve assisted other organizations in considering these options, only to conclude that they are not ready or that there is a better, internally-driven path to growth and mission advancement. Our commitment is to helping clients find the solution that’s right for them, and for their communities.
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