Mission + Strategy = Social Value

Hawaiian Nonprofits Say 'Aloha' to Merger, in their Own Distinctive Way

 I am a strategic re-structuring consultant and I love to collect stories about nonprofit mergers and partnerships. Daily I find cases in my in-box from all over the country, and most are so run-of-the-mill that they are not distinctive enough to write about in my blog, but today I have one that is. It comes via The Maui News, June 21st, which reported that three nonprofit mental health and substance abuse agencies on the island of Maui announced a merger of their organizations - Maui Youth and Family Services, Malama Family Recovery Center, and Aloha House. They are consolidating because "it will make us stronger," according to Judd Cunningham who will be the new CEO of the combined organization.

A lot of their merger story is ordinary. Their motivations for a merger were quite typical - they wanted to improve back-office administration, create seamless programs for their clients, and grow their services. As with other mergers, they combined all three boards into one entity and selected one board member, Peter Cahill, the former chairman of the MYFA Board, to lead the consolidated governing structure. Then the board selected Cunningham from Aloha House to be the new CEO of the combined entity.

But this merger is different in one very interesting respect: the name. In most consolidations the nonprofits would agree to choose one name for the merged organization, but not in this case. The three agencies expect to operate under their individual names.

Why would they choose do that?

I can think of two reasons. By keeping the individual names they are sending a message to the community that the merger has not caused any changes in the programs which they have come to rely on. In fact, the merger impacts administration and governance of the programs, and not the individual programs themselves. If they were not paying attention, most people in the community would have no idea that a merger occurred at all, and that is ideal from a client perspective.

Another reason to consider keeping separate identities is the concern about inappropriately mixing customer groups. The clients of a family agency may not want to integrate their children into a nonprofit which provides addiction treatment services to adults. By maintaining separate identities and separate program locations, the community does not need to be concerned that the client populations will be inappropriately consolidated into a single organization or location, and the consolidation can then proceed in the areas where it needs to most: administration and governance.

It will be interesting to see how this strategy of keeping the three names works in the future. If you are aware of a merger that has kept separate identities, write and let me know how it has worked out.

Take the Call

I don't know about you, but sometimes I have no patience for people who refuse to get involved or contribute in any way to making this world better, even in the smallest of ways. Frankly, I get so much enjoyment and learning from the work I do as a volunteer and a consultant in the nonprofit sector that I can't imagine why everyone wouldn't want this kind of reward. Now, I have a poem which succinctly sums up my feelings on the subject. The next time you meet you meet someone who has no concept of giving back, think about what Hesiod said:

                      
                                                        The best is he who calls men to the best.
                                                            And those who heed the call are likewise blessed.
                                                            But worthless who call not, heed not, but rest.
                                                                              - Hesiod (Greek)

"The Warning Signs of Organizational Failure"

Most of us who have run nonprofit organizations in our career have, at one time or another, felt the panic of failure. When annually recurring grants suddenly, and with little warning, stop coming; when a key person in the business office leaves, or worse, fails at his or her job; when a new competitor with a talented, charismatic leader emerges in our field, we are apt to wonder whether or not these are the warning signs that our organization is not going to make it. We go through sleepless nights and stress-filled days until we see our nonprofits through the latest hurdles. But what if the hurdles don't stop coming or worse, our organization can't make it over the hurdles any more?

When is it the right time to consider closing a nonprofit organization?

There are so many crises in the day-to-day operation of a nonprofit organization that it can be difficult to tell the difference between the normal state of affairs and an actual disaster. How can a nonprofit CEO or a board of directors tell the difference? This has not been an easy question to answer until now.

The Fieldstone Alliance recently published a document on its web site called The Nonprofit Decline and Dissolution Report which identifies six warning signs of decline for a nonprofit organization. They are:

1.  Loss of all or a significant portion of support from a key funding source
2.  "Chase dollars" syndrome
3.  Sudden and dramatic expansion of services
4.  Falling behind on financial obligations
5.  Consistently unable to meet service and financial projections
6.  Departure of key board and staff

As the report states, "The point at which a nonprofit organization's mission is 'to survive' is the point at which the organization should consider going out of business."

Is this your organization's actual purpose?

It's important to state that these six factors are not an assurance that an organization will fail, but they could be leading indicators.You must confront the facts of your situation regardless of whether your nonprofit is closing or not, the sooner the better. Time gives you better options including preserving your organizational assets through a merger. Once the situation spins out of control it can become too late even for a merger.

And if a merger is not for you, time can allow for a smooth close-down process which allows you to transition your services to other nonprofits. This will be important for your clients and your employees.

Management Service Organizations Deliver Social Value, Save Costs

What do you say to a nonprofit leader who can't collaborate?  Well, how about: "I'm not on Earth to build Pillsbury United." That's what Tony Wagner, long-time executive director of Pillsbury United, said when pondering the decision about whether or not to become part of a unique management service organization called MACC - Metropolitan Alliance of Connected Communities, based in Minneapolis, Minnesota which formed on Jan. 2, 2006. 

I've written about management service organizations (MSO's) before (see my Feb. 13th entry). An MSO is a collection of nonprofits which come together to share back-office functions and at the same time, they maintain their separate identities, governing structures and programs. The purpose of an MSO is to gain operating efficiencies and to increase the quality of back-office functions through consolidating multiple nonprofit operations. MSO's are really becoming popular.

Tony and four of his colleagues who are part of MACC decided to put their clients - and not their brands - first.  The five organizations in MACC, whose combined budgets total $35M, jointly provide administrative functions to their members such as accounting, office technology and human resources. Their goal is to operate more efficiently and to share best practices in order to benefit their clients.

The story of how they got started is interesting. Initially, the group started out small, with only three nonprofits; today there are seven members of the collaborative. All five of the founding members were human service agencies focusing on self-sufficiency programs for families and communities and their agencies were experiencing similar government and philanthropic budget cuts. I have to believe that kind of mission and operational alignment created synergies for the collaboration and eased the process quite a bit.

And the results show that MACC is meeting its goals. At the end of 2007 - after just one year of operation - the MACC Commonwealth agencies reported that their members served 1,000 additional clients and saved their members $200,000 in annual costs. These are impressive results.

The MACC Commonwealth has been so successful, in fact, that it has drawn notable attention including a paper published by the Humphrey Institute that won first place at a national conference on nonprofit best practices.

Tough times call for new thinking and as Tony Wagner reminded us in an article in the Minneapolis-St.Paul Star Tribune, "Our primary purpose is to serve people, to serve communities." Well said, Tony.

60 Ways to Leave your Merger Partner or When a Board Just Can't Say 'I Do'

I collect lots of stories from the web about nonprofits that have successfully completed mergers, but only rarely do I find stories about two nonprofits that fail so miserably at a merger attempt that it makes the news. One such case came to my attention last month and makes for a great opportunity to talk about all the reasons people leave their merger partner.

The story is this: two California coastal public radio stations, KUSP and KAZU, made a decision to enter into a merger process. Their reasons for seeking a merger were much like those of other nonprofits. The two stations were providing many of the same services in the same community and they wanted to eliminate duplicate programming and overhead expenses "to free up resources for other projects, such as more local news reports on the stations," according to KUSP station manager Terry Green.

For a year, the two nonprofits worked on the merger details. They hired a public radio consultant to work with them to create a new nonprofit entity to house the single radio station post-merger, and last September, they completed a six-month study on the future of public radio in the Monterey Bay area where the two stations are based.

All their work was done and now it was time for the boards to vote for the merger and then it happened. In a closed-door session the board of KAZU, the CSU Monterey Bay Foundation, unanimously voted against merging with KUSP. The Board did not explain how they arrived at their decision, but many possible reasons come to mind.

Many nonprofit mergers go down due to staff and board leadership decisions that have to do with the following issues:

• Mission impact: worries over how the mission may change and the loss of focus to the mission, particularly when a small nonprofit is merging with a larger institution

• Loss of identity: an inability to let go of the nonprofit brand and its organizational history including its stories that people cherish and don't want to lose

• Program cuts: fears that specific services which the nonprofit have created for their clients will be changed or lost if the nonprofit is no longer there.

In David LaPiana's excellent book The Nonprofit Mergers Workbook, Part I, he discuses other barriers including the loss of autonomy and self-interest:

Merger threatens autonomy, which is the lifeblood of most nonprofit organizations. In a sector offering low compensation, long hours, and the stress and uncertainty of continual fundraising, independence is one of the very few rewards available to nonprofit leaders...Whether it is board members fearing loss of attachment to a beloved organization or cause, or staff fearing loss of status or even loss of employment, self-interest is  a legitimate and major issue that an lead to many breakdowns in merger negotiations.

In all of these cases, a good facilitator can help the boards and staff work through the roadblocks, both emotional and otherwise, as they go through the merger process. A good merger facilitator will flush out all the issues early in the process and work with both parties to determine if the problems can be overcome or not.

Better to know the merger partner has no intention of merging sooner, rather than later. Unfortunately for KUSP and KAZU, they went all the way to the altar before discovering that they probably never really had a commitment to begin with.

Believe in Miracles: A Poem for the End of a Long February, 2008

From The Cure at Troy, by Seamus Heaney

Human beings suffer,
They torture one another,
They get hurt and get hard.
No poem or play or song
Can fully right a wrong
Inflicted and endured.

The innocent in gaols
Beat on their bars together.
A hunger-striker's father
Stands in the graveyard dumb.
The police widow in veils
Faints at the funeral home.

History says, Don't hope
On this side of the grave.
But then, once in a lifetime
The longed-for tidal wave
Of justice can rise-up,
And hope and history rhyme.

So hope for a great sea-change
On the far side of revenge.
Believe that a further shore
Is reachable from here.
Believe in miracles
And cures and healing wells.

Call miracle self-healing:
The utter, self-revealing
Double-take of feeling.
If there's fire on the mountain
Or lightning and storm
And a god speaks from the sky

That means someone is hearing
the outcry and the birth-cry
Of new life at its term....

This was excerpted from Seamus Heaney, The Cure at troy: A Version of Sophocle's Philocetes (Noonday Press, 1991).

Cost of Serving Government Grants Drives Nonprofit to Merge

"It's overwhelming what the government requires you to do as a nonprofit with a small office staff," said Rob Stemple, Marketing Director for the former Somerset County Blind Center, which is now a division of the Susquehana Association for the Blind and the Vision Impaired (SABVI), in Somerset, Pennsylvania. Well said. Small nonprofits are particularly vulnerable to the difficulties of managing complex, onerous government contracts with lean staffs who are usually carrying out multiple responsibilities. Does this mean that small nonprofits should not have government contracts? No, but it is important for organizations to carefully assess the costs of contract compliance before agreeing to accept a government grant which could have onerous contracting requirements that small nonprofits are unable to meet. It takes deep back-office operations with talented professionals (paid the way talented people usually expect to be paid), to meet complicated contracting demands. What should small nonprofits do? Well in this case, Somerset County Blind Center chose to become a division of another nonprofit so they could focus more on the mission and less on the paperwork. In this case, it was a happy ending because both organizations were able to expand their missions and secure their futures.

Human Service Agencies Merge Back-Office Functions to Save $20M Annually

Tough economic times are forcing all nonprofits, large and small, to think creatively about how to cut costs. One extremely unique example of this creative thinking was recently announced in Chicago where nine of the largest and oldest nonprofit United Way agencies agreed to form a cooperative partnership to share back-office functions for their nonprofit organizations. The nine founding organizations' combined budgets total over $300M and include the Metropolitan YMCA, Hull Housing Association, and Heartland Alliance (formerly Travelers and Immigrants Aid).

An article in Crain's Chicago Business on Feb. 4, 2008 explained that the nonprofits involved in this new cooperative expect to save an average of between 2% to 4% of their operating expenses, for a total estimated savings of $20M annually. The group claims that the primary savings will come from the benefit of combined purchasing power, and not from lay-offs.

"We're in dire straits right now with all of these factors coming to a head," said Laura Thrall, CEO of Metropolitan YWCA. "The savings are important because of what it will allow us to do." Co-op members plan to shift back-office savings into programs where demand has been far beyond funding capacity for some time.

The co-op has its costs, however. The Chicago Community Trust is committting a grant of $400,000 towards establishing the cooperative and the members themselves have agreed to pay a fee of 0.13% of their revenue for the next three years to cover the costs of the cooperative venture. The group is hoping to grow and entice more nonprofits to join them, though, in which case the cost savings could potentially be even more significant.

A Poem For February 6, 2008

Hello! It is snowing quite heavily here in the Midwest as I write this to you the morning after Super-Duper Tuesday. The trees outside my window are sagging with the weight of the wet snow...

As you know, I like to share poems that help restore the spirit for people who are doing the difficult work in the nonprofit sector. Here is a favorite writing that was given to me by a former board chair when I left a leadership position.  I hope it brings you the same joy as it has brought me.

George Bernard Shaw - One True Joy in Life (partly from the Dedicatory Letter, in Man and Superman)
This is the one true joy in life, the being used for a purpose recognized by yourself as a mighty one;
the being a force of nature instead of a feverish, selfish clod of ailments and grievances,
complaining that the world will not devote itself to making you happy.

I am of the opinion that my life belongs to the whole community and as long as I live it is my privilege
to do for it whatever I can.

I want to be thoroughly used up when I die. For the harder I work, the more I live. I rejoice in life
for its own sake.

Life is no brief candle to me. It is a sort of splendid torch which I've got hold of for the moment and I
want to make it burn as brightly as possible before handing it on to the future generations.
-------------------------------
If you have a favorite poem that you have "leaned on" during difficult times, please e-mail it to me and I will post it on my blog. - Jean

Nonprofits Merge to Grow Efficiently

Over the holidays, several articles hit my "in box" about nonprofit mergers. Year-end is a big time to finish up mergers in order to to start up the combined organization in the new fiscal year. One of the more interesting mergers I read about was between Renaissance Entrepreneurship Center ($2.2M/year, 16 staff) and Start Up ($350,000/year, 3 staff), both in the Bay Area.  An article about the merger appeared in the Silicon Valley/San Jose Business Journal on Dec. 24th and explained that the purpose of the merger, as we have seen in other articles in this space, was to take advantage of the each organization's geographic placement in the market. "This is a way for Renaissance to provide programs on the Peninsula without reinventing ourselves," said Sharon Miller, CEO of Renaissance and the person who will be the CEO of the merged organization.

According to Miller, the two organizations together will serve expanded populations and geography, and though they will be eliminating some overhead costs no staff will be laid off as a result of the merger at this point in time. Total expenses for the merger ran to $250,000 which will be covered through grants from the Silicon Valley Community Foundation and the Omidyar Network. This is an example of what I think of as efficient growth: why write a lot of grants and take years to build up your geographic foot-print when there is a potential partner in the very market where you would like to expand your services that you could merge with, instead? If the potential partner has similar mission, programs, delivery mechanism, outcomes, and financing method, why wouldn't you consider a merger?