Mergers and Acquisitions in the Nonprofit World

I don’t know if the pace of nonprofit mergers and acquisitions across the sector is increasing, but I’ve been personally involved in more over the past few years (two) than in the previous fifteen (none). Mergers and acquisitions are still pretty uncommon, I think, and I’m not clear what relationship those trends have to comparable trends in the private sector. The market pressures of the nonprofit sector are notoriously bizarre, and traditional market dynamics like economies of scale and market share just don’t apply in any particularly rational way. For example, because income for many nonprofit comes from philanthropic foundations and from individual donors, revenue often has a tenuous-at-best relationship to the market value of their offering. The value proposition for funders is often divorced from the quality of the service the organization provides, or the efficiency of its work, or the success of its advocacy efforts (although not necessarily divorced from the funders’ perception of those things).

As a result, the market pressures that often lead to mergers and acquisitions in the private sector don’t necessarily play out very consistently in the nonprofit world. But given how hard foundations have been hit by the recession, and given the continuing growth in just sheer numbers of nonprofits (the number of U.S. nonprofit organizations increased by 60% in the decade between 2000 and 2009), we suspect we’ll see more M&A in the coming years.

The first merger I was involved in (as a board member of the nonprofit I ran until 2007) was a solid success. It was really more of an acquisition: we absorbed the strongest programs and the associated program staff but not the other organization’s name or the pieces that didn’t fit well. I think the alignment in mission and organizational culture, as well as the ways in which the programs were complementary, made a big difference. Everyone – the boards and staff – took their time, and everyone on both sides worked pretty hard at building a new sense of camaraderie and shared organizational identity, which also made a big difference.

The second (between Center for Native Ecosystems and Colorado Wild) – a more conventional merger, with a new name and a combined board – is a work-in-progress, but so far everything looks really good. I’m much more of an observer than participant on this one, but they are following a similar playbook: measured and thoughtful, a lot of effort on making the programs and all the systems fit, and a lot of attention on creating a supportive sense of shared organizational culture. It’ll be a while before we get a real verdict, but the indicators are good so far.

But this is anecdotal, and while there is some discussion and a modicum of research (for example, Chronicle of Philanthropy maintains a blog on layoffs and mergers), I think the social sector would do well to invest some energy in learning from our own M&A activities . . . when does it seem to work well, when does it not, what lessons can we draw, and the like. I suspect, as well, that the nonprofit sector could learn a lot from the private sector about thinking strategically about mergers & acquisitions, how to avoid common pitfalls, and about how to make them work.

Defending Their Turf: Nonprofits Pushing Back Against Social Entrepreneurship

Photo by flickr user Pete Reed.
You know an organization, or a sector, is starting to have problems confusing the instinct for self-preservation with advancing their mission when you come across stories like this: “Defining Social Good: Nonprofits Worry About Calif. Bill” in the Chronicle of Philanthropy. Two bills that would give social entrepreneurs more corporate structure options are apparently gaining steam in the California legislature, and the California Association of Nonprofits is worried that more socially-minded business ventures might harm nonprofits.

Sean Stannard-Stockton of Tactical Philanthropy made this point really clearly:

“Some nonprofits worry that a California push to recognize for-profit social businesses will undermine the nonprofit sector. That’s the wrong question. The question should be about maximizing social impact, not protecting specific corporate forms.”

While there may be more to the story (there usually is), I think Sean is dead-on, and I think this conflation of self-perpetuation and mission runs deeper than just a nonprofit association’s reactionary response to legislation that might enable other types of social change organizations to do more social change work. In some ways, this is the same “not knowing when to wrap it up” problem that many nonprofits have. Either they lack a clear endpoint, so self-perpetuation actually becomes hard-wired in the DNA, or when they arrive at the clear endpoint they just come up with a new mission. The result, in either scenario, can be organizational behavior more oriented toward organizational preservation and protection at the expense of the mission or the cause itself.

But this also has hints of the dying-industry problem faced by institutions like the publishing, newspaper, and music industries. Their business models are basically dead, and while they can all milk their legacy networks for a while they are on an inevitable downward slide (if not tailspin). The energetic effort to suppress alternative business models (e.g., newspaper paywalls and the absurdity that is the Denver Post and other newspapers suing bloggers who link to them, record labels suing fans for sharing music) might buy them some time but won’t change the outcome. The smart ones – I think of O’Reilly Media, the Huffington Post, and Pandora as examples – are figuring out very different models, and are poised to thrive in so doing.

I don’t think the nonprofit sector is in any danger of dying, but attacking efforts to widen the range of social change organizational structures sure smells like prioritizing self-protection over enabling social impact. State nonprofit associations ought to be leading the charge in this brave new world, helping everyone make sense of the range of organizational structures for changing the world, maybe even helping to do some of the innovating themselves.

Be More Like a Nonprofit!

Photo by flickr user chrisspurgeon.
On Monday I thought out loud a bit about how nonprofit exceptionalism – the sense that the laws of business physics don’t apply because we nonprofits aren’t like them over there in the private sector – can do more harm than good. Nonprofits have a lot to learn from the best-run organizations in the private sector, since strong organizational practices will often add value regardless of the sector. And in my experience, nonprofits generally stink at some things that the best private sector outfits tend to be really good at, including long-term strategic thinking, staff development, financial management, and understanding the returns on capacity investments.

But the same is true in the other direction, as well: private sector organizations can learn a lot from the best-run nonprofits. This isn’t a new idea, and many of the items I’d put on that list have earned attention from other writers over the years. They include the ability to focus clearly on a complicated mission, to make their supporters feel valued and engaged, and to make a lot happen on the cheap. This list may also include organizational structure: Jason Fried’s column in the April issue of Inc. describes their efforts at 37Signals to keep the organization as flat as possible. He offers some interesting reflections on their experiences, but for many small and mid-sized nonprofits a loose organizational structure is the norm. A group like Center for Biological Diversity, which famously eschew structure despite its 60ish employees (it may be more a collection of free agents than a conventional organization) yet coalesces anyway into a strong strategy and high productivity, may be an extreme example. But you won’t have to look very far to find plenty of examples of less vertical, less structured organizational charts in the nonprofit world, and you might have to look harder than you’d expect to find examples of actual organizational charts at all.