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.

New NOI Report: Experiments in Online Advocacy

Groundwire reported on the very interesting and useful conclusions of an in-depth research project by New Organizing Institute about online advocacy. Check out Groundwire’s summary or you can dive into the full report (“Experiments in Online Advocacy”). A lot of the research questions are very specific and pertinent to the online advocacy operational decisions you make every day, like how best to set up the sender’s name for maximizing the open rate, how best to embed video for improving the click-through rate, the timing of emails, and the like.

The Nimble Nonprofit: A Manifesto

Among the many challenges nonprofits face is the weight and inertia of the conventional wisdom about being a nonprofit. But the world in which nonprofits labor today isn’t the same world where the professionalized Nonprofit 2.0 paradigm of the past several decades developed. Sometimes the conventional wisdom has the right idea, but the most important information is lost in the clutter. At other times, though, the conventional wisdom actually makes it more difficult for nonprofits to make great things happen. And sometimes the conventional wisdom is just simply wrong.

The result: nonprofits are too often guided by convention and inertia, and are too often unable to learn from their own experiences, from each other, and from unconventional sources.

And the result of all this: too many nonprofits don’t perform to their potential.

The good news is that a professional-but-nimble, technologically savvy, Millennial-driven Nonprofit 3.0 model is emerging. How are we contributing? Well, for starters, we figured we’d write a manifesto (natch).

So, with a crowdsourced, social networked, microblogged, mobile, and location aware drum roll, here’s our Nimble Nonprofit Manifesto v1.0:

  1. Shake the yoke of convention. Be skeptical about the received wisdom. Ask hard questions about everything you’ve been taught on running a nonprofit.
  2. Be agile and innovative. Experiment, take risks, fail fast and smart, adapt, deploy the best practices of high performance organizations regardless of sector, pivot to embrace opportunity, and foster a culture of openness.
  3. Build a great team. Hire smart, fire smarter, create a sustainable and supportive organizational culture, and grow and empower your crew.
  4. Sustain a Jedi focus. Maintain a sharp focus and tight discipline on the your goals and on the work that most needs doing.
  5. Build relationships and networks. Tell great stories, treat people well, ask them for support, rinse and repeat.

Mythbusters: Seven Myths About Great Nonprofits and Great Executive Directors

1) Myth #1: Your Nonprofit isn’t Really a Business
Actually, it is, and the laws of business physics apply.

2) Myth #2: Spending Money is Bad
Smart investments increase your capacity to do good.

3) Myth #3: You Can Do Everything
You can’t. You have to be strategic and focused.

4) Myth #4: Organizational Cultures Just Happen
You have a huge impact on your organization’s culture.

5) Myth #5: Be Careful About What You Share
In most cases, being more transparent and candid helps your cause and your organization.

6) Myth #6: Viva Martyrdom!
The martyrdom ethic offers a quick path to burnout, not impact.

7) Myth #7: Funding Flows to Great Nonprofits
On the contrary, funding flows to nonprofits that do a great job of fundraising, which has must more to with their fundraising skill than it does with the quality of their work. If you want to be high-impact, you need to do great work and do great fundraising.

What Gladwell Got Right

Malcolm Gladwell’s latest critique of social networking sparked an energetic response in the social networking-o-sphere, just as his October article did. And his critics are largely right.

Yup, he is missing the point that weak tie relationships can become strong tie relationships.

Yes, he is confusing the question of ‘why people protest’ with the question of ‘how.’

Indeed, he seems to misunderstand the relevance of decentralized control over the production of media and the distribution of information.

Yes, he continues to attack the least interesting and straw man-est argument that social networking caused the Egyptian revolution. Of course it didn’t. “Social media aren’t causing revolutions,” as blogger Allison Fine puts it, “they are aiding them.”

And, as Ethan Zuckerman suggests, Gladwell missed the most important question altogether: “I think the interesting story to watch will be whether social media can help Egypt in the transition to democracy.”

But I think his ongoing critique of social networking does (obliquely) illuminate the biggest weakness in the social-media-for-advocacy universe: the lack of clarity about the mechanisms of change underlying the use of social networking tools.

Most of the writing (including Beth Kanter’s and Allison Fine’s terrific book, “The Networked Nonprofit”) seems rooted in the presumption that engagement through social networking tools is a good thing and will enable or enhance whatever social change goals are in your queue. The mechanism, such as it is, usually reduces to:

more weak tie engagement using social networking tools => more strong tie engagement using social networking tools => more ability to do whatever it is you do

This might be true in the most general of ways, but it’s not very useful for crafting an effective outcome-oriented strategy, especially if you are working with limited resources (i.e., nearly always). It may be that the most effective strategy really does amount to igniting high-volume protests. Kanter’s impressive effort to pressure Apple into making nonprofit donation tools available on the iPhone might fit into this model. Get enough people talking enough about it and you might be able to leverage some high-profile media coverage. And you might then be able to leverage the coverage into effective market pressure.

But if I’m trying to persuade my City Council to adopt historic neighborhood protections, thousands of Facebook messages from people who don’t live in my town probably isn’t going to be very effective (in fact, they might even have the opposite effect, since what elected representative wants to look like they are responding to pressure from outside their community?). The most effective voices may be the residents and property owners in those specific neighborhoods, so the winning strategy may really be about persuading a very small number of people to get involved in very direct ways. If you want to persuade the Member of Congress from western Colorado (whomever it might be at the time) to support a wilderness bill, direct expressions of support from a small number of Colorado opinion leaders among ranching and farming constituencies are likely to be much more effective than a large number of comments from across Colorado and the country.

The savvier social networking evangelists in the nonprofit world do a good job of highlighting the importance of having clear goals before launching a social networking strategy. Clarity about whether you are more focused on reach or on high levels of engagement, for instance, will have a significant impact on what you do. The next step, though, is to extend that sort of thinking a few steps further back: exactly what social change or community value outcomes are you aiming for, what exactly needs to happen to accomplish those goals, and then how exactly can a social networking strategy help you get there.

There’s no one right way to do this. A campaign-focused organizing strategy that identifies the individual decision-makers of consequence can work well, just as the more abstract “theory of change” or “logic model” approach that some funders emphasize. But absent some clear understanding of what must happen, exactly, to produce the targeted outcomes, then social networking may or may not have any meaningful impact. And I think it’s safe to say that it won’t have as much impact as it could.

The main value of Gladwell’s continued critique (which has, ironically, been propelled far more widely because of social media than it would have been otherwise) has been to catalyze a reinvigorated discussion about the value of social networking in social movements. Perhaps it will also help drive a touch more rigor in our thinking about how to use these tools most effectively.

Can Social Networks Create Social Capital?

In September, 2008, Green for All, 1Sky and the We Campaign organized a national day of action — Green Jobs Now — to demand progress on green jobs and a green economy. Tens of thousands of people participated in over 670 events in 40 states. Staff led on-the-ground efforts in just a handful of key cities, while the majority of actions were organized online and offline by activists and other citizens -– volunteers, by and large.

The green jobs day of action was large, strong, and helped set the tone nationally on a key topic in an upcoming election. Discussions about green jobs and green economy policies occurred from local to national levels. Many engaged in those events have continued to be involved in the issue, if not the organization, and some have taken up leadership roles locally or even nationally. Green for All developed a long-term program of on the ground activities to continue engaging participants — and attract new ones.

Online networks were used to help organize the national day of action but the action was not about “likes” or fans or messages. While the online networks may have taken off in terms of size and activity, is that where the power of this day of action was rooted? Or was power based in the individual relationships offline and online, many of which continued to grow and strengthen after this day?

A challenge of our time seems to be building networks of quantity while creating/generating quality from the networks. Planning, reporting, and strategic systems put a priority on numbers instead of narrative. We have two year (or shorter) program cycles that reward immediate, impersonal action instead of relationships.

Online networks have transferred the tools of organizing and programmatic leadership from organizations and placed them into the hands of the citizen/member. Meanwhile, organizations typically approach social networks as a staff-driven, top-down push towards higher numbers of fans, friends, and followers.

Contacts, Connections and Social Capital

Social networks and email lists are built with contacts: email addresses and spur of the moment expressions of interest. Connections are longer-term relationships built on commonalities of interest, geography, conversation and exploration of ideas, place, and trust. The difference between contacts and connections is a central theme in Robert Putnam’s look at social disconnect and the breakdown of American civil society, Bowling Alone: The Collapse and Revival of American Community, 2000.

Putnam describes social connections as fabric that, when woven, creates social capital in organizations and societies. Social capital is tangible and malleable. It can be organized and brought to bear upon a situation. One’s amount of social capital can be measured and, when spent, its value can be assessed.

Social contacts are more ethereal, less tangible — almost hypothetical. These are people who have met but do not necessarily know one another. Many are connected only randomly. They may be able to broadcast the events of their day to one another but not ask a personal favor or base a decision on the advice of one another.

Build Social Capital

Many organizations approach social media as a numbers game. Larger numbers of friends/fans/followers indicate strength. Unfortunately, this overlooks the value of real social capital: without organizing and relationship building, social networks are not powerful.

One thing often forgotten when organizations build social networks and make plans to “use” these networks (be it for advocacy, for fundraising, or just to drive traffic to their website — maybe the most common if least helpful use of the network) is the first word: Social

Think about your own, personal, use of Facebook and Twitter. It’s not about the “network”. It is probably not, even for those of us immersed in these issues, about the cause or the politics, either. It is about the social, the personal interaction, the catching up with and hearing from friends.

Alissa Hauser and Marianne Manilov talk about how small, core networks spring up around social needs, not politics or cause. Groups with political and social change goals are stronger and more viable over time when there are opportunities of personal interaction, relationship and trust-building, and sharing stories. Bari Samad, Internet Director at Green for All, characterized it well in a recent conversation. “We have a predisposition to assume that people always want to be activists, and bypass the critical steps of engaging them in conversations and meeting them where they already are,” he said when talking about how many organizations view existing or potential new constituents.

In fact, the bar for activism is higher. Activism: the word itself denotes action. Action takes time. Action that is unplanned or lacking goals and practice often produces unexpected and disappointing results. Time and resources are needed to create more valuable actions — and more productive activists.

Organization are leaving value on the table by not building relationships and opportunities for real, personal, engagement between people and organizations around issues of common concern.

Green for All and others in the Green Jobs Now campaign are, like many organizations (but still too few), providing examples of ways to view online networks as a tool for creating and strengthening long-term power-development in social change campaigns and movements. The networks connect people — allow for interaction — and serve as a jumping off point for building strong relationships.

We hope to explore these jumping off points and look at how to create programs that draw real strength from communities and networks in a session at the Nonprofit Technology Conference in March.

The Monitor Institute’s Cool New Data Tool

The Monitor Institute has a new data visualization tool designed to help funders see relationships between their funding and grantmaking by other foundations but potentially useful for community planning applications. It’s a very cool tool – it offers clear, clear visualizations of multiple data layers, it’s easy to navigate, and they obviously put a lot of thought into the user interface. This could be a useful tool for mapping all of the organizations that work on a specific issue within a particular community, for instance, or for mapping the relationships between different issues in a community or regional planning process.

On first blush, there are two important elements I’d love to see on the next iteration. One is a Gapminder-type capacity to show change over time. I like that you can change the date range, so you can see the relative longer-term investments across sectors, etc., but you can’t see trends unless you manually change the date from one year to the next – clunky and not easy to do. The trends matter . . . a large investment this year in a subsector or by a particular foundation may mask a downward trend, which would be just as important to notice if you are trying to understand the relationships, seams, and opportunities. The other would be some capacity to show multiple dimensions at once, again like Gapminder does. This basically shows a single set of flat relationships on each screen. In your mind’s eye you can build a less-flat model of how each of the flat pieces relate to one another, but the tool doesn’t really help you do that.

The distribution model is also unclear to me. If their vision is a closed, proprietary system run through the Monitor Institute, well, that might be useful for whichever funders want to play ball, but it’s a lot less useful to the rest of us. If their vision is a stand-alone, self-contained tool, I can picture a lot of very useful ways organizations could use the tool to help them map their landscapes more effectively and more clearly through strategy.

And as the Philanthropy 2173 blog reminds us, with every data visualization tool you have to ask about the data themselves. Garbage-in-garbage-out is still the rule no matter how cool the visualization tool is.

Cross-posted on the PlaceMatters blog.

Why Will This Work?

The notion that a campaign or program strategy ought to be based on a coherent idea about why those activities will produce the desired results seems pretty straight-forward.  In fancyfunderspeak, it’s often called a theory of change or a logic model.  But there’s a debate simmering between the theory of change proponents, like Paul Brest of the Hewett Foundation, and the skeptics, like Albert Ruesga at the White Courtesy Telephone blog.

Brest’s basic argument (as he articulates in “The Power of Theories of Change”) is that it’s tough to expect donors to donate if the grantee can’t explain why their work is likely to lead to the desired social change.  The skeptics’ rebuttal seems to be that this constitutes funder overreach and that requiring an explicit theory of change creates a great deal of anxiety and extra work without any real added benefit.

Ruesga, for instance, argues that a clear theory of change is implicit in most grant proposals (“Debunking Theories of Change” Part I and Part II).  His worry is that requiring an explicit theory of change is likely to either confuse grantwriters or send them down rabbit holes of formal logic and dissertation-worthy socio-political models (and yes, in case you were wondering, he includes Carl Hempel citations and linked syllogisms to make his case).  If that’s really what a funder is seeking, I’m likely to going to side with the skeptics.  But plenty of grant proposals, in my experience, really aren’t built on a coherent rationale for why these activities might produce those results.  Waving off a requirement for an explicit theory of change would be like dropping the expectation for a grant proposal to clearly describe the goals of a project or to outline how the grantee will evaluate success.  If you are one of those funders who doesn’t care about evaluating grant outcomes, more power to you, but you ought not drop the requirement for reporting outcomes simply because you think most grant proposals already cover this.  Sure, some grant proposals will include clear goals, a cogent theory of change, and an evaluation mechanism, but many don’t.

I think I get the skeptical instinct here.  Funders can – and sometimes do – go way overboard.  But asking prospective grantees to explain why they believe their work will succeed seems pretty reasonable to me.

Now, there is a much deeper – and I think much more interesting – debate lying barely beneath the surface here about how involved funders themselves should be in crafting the strategic vision around a movement or social change effort.  Who is the steward of the strategy, and what does that mean for the relationship between funders and nonprofits, is a landscape-shaping discussion.  The question has a sibling, or at least a cousin, that gets at the extent to which funders should focus on organization- and capacity-building versus actual social change campaigns.

And these two questions both beg other, even more difficult and more important questions, like why do so many nonprofits doing such important work allow themselves to become so dependent on such challenging funding sources.  A foundation can ask for whatever the heck it wants, after all; if you don’t like their requirements then you can pitch elsewhere.  If you find the expectations of the philanthropic community to be unreasonable, then you might be better off developing a different business model altogether.

As a donor, a funder, or as a potential campaign partner, for that matter, I care a lot that you’ve got a coherent rationale for why this particular suite of strategies is likely to produce the change we are targeting, or, if we are feeling more risk-tolerant and experimental, why we think these untested approaches are worth the effort. If we really are getting stuck on the idea that grant proposals should clearly explain why the organization believes its proposed efforts will produce the desired outcomes, well, that’s not encouraging.

And a hat tip to Tactical Philanthropy for the links.