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.

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.

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.

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?

Mergers Are Better for Growth than Economic Gain

One of the best ways to learn about nonprofit mergers is to read about other people's experiences. One very thoughtful piece I have recently read is called From Corner Cafe to Corporation: The Inspiration Corporation Merger Experience,  which highlights the benefits of a merger as a strategy for growth. The paper was published by Inspiration Corporation, a Chicago-based nonprofit dedicated to ending homelessness through supportive services, employment and training, and housing programs. Inspiration Corporation completed two mergers with two separate Chicago nonprofits: The Employment Project and The Living Room Cafe. The paper, written by Chris Persons, the former Executive Director of Inspiration Corporation, is an in-depth piece (get ready, with attachments it's 56 pages), which describes the motivations for each merger and the process that they went through to complete each one. Inspiration Cafe, the original nonprofit prior to the mergers, grew to become Inspiration Corporation, a citywide nonprofit about twice their original budget and program size. Thus far, Inspiration Corporation feels that they have benefited from the mergers, primarily through the geographic and program expansion the combined mergers created for their organization. The current executive director, John Pfeiffer is firm in his belief that mergers rarely produce significant capital for nonprofit growth or dramatic organizational efficiencies. As John states, "I've seen how mergers can promote the strategic reconfiguration of program offerings - weeding out under performing and overlapping programs, for example - but apart from offering incremental gains in efficiency, and fuller and more marketable program arrays, I'm not optimistic that mergers can deliver significant unrestricted resources for most human service organizations." Capitalizing Inspiration Cafe was not the primary motivator for their seeking the mergers in the first place. Instead, Inspiration Cafe wanted to grow and expand its services to their clientèle which they definitely achieved. Inspiration Corporation, at the conclusion of their paper, states that the organization is not done with its merger activity; they will seek other merger opportunities that meet with their mission and strategy.

Are nonprofit mergers an ethical way to grow?

Nonprofit mergers are getting more press coverage these days, both positive and negative. Two of the latest to receive attention are The Points of Light Foundation and the Hands On Network.  They recently announced the completion of a merger which took effective Oct. 1, 2007. The two boards set ambitious goals for the merged entity, including tripling their National Service Member impact resulting in 30 million national service volunteer hours.

But why seek a merger when the two organizations were doing so much good as stand-alone nonprofits? In an article about nonprofit mergers published Nov. 1, 2007 in The New York Times, the former CEO of Hands on Network, Michele Nunn (who is now the new CEO of the merged organization), said,  "We both could have continued along the route we were on, growing incrementally, but I believe neither of us would have achieved the kind of exponential change we wanted...very few organizations have the scale to tackle the big problems we are all trying to address."

But is growth through a merger an ethical way to increase social results?  Not according to The Nonprofiteer, a blog by a fellow Chicago-based consultant to the nonprofit sector, Kelly Kleiman.  According to Kleiman, today's merger activity appears to be motivated by "ultra skeptical, entrepreneurial donors who expect not an ounce of fat on their trophy charities." The Nonprofiteer goes on to insinuate that mergers are a lazy person's way of growing a nonprofit--that, instead of sharpening their pencils and doing the hard donor work to achieve fiscal stability, some nonprofit executives would rather cut staff from a merged entity.

In my experience, mergers are rarely sought for fiscal solvency.  Many are sought in order to ""get to scale" because sometimes size really does count. Leslie R. Crutchfield and Heather McLeod, authors of a new book, Forces for Good: The Six Practices of High-Impact Nonprofits, argue that the era of simply focusing on management best practices within individual nonprofits is just not good enough to get to any kind of scale on the very serious social problems facing the world today.

But how does a nonprofit get to scale in this capital-starved environment? Certainly good business practices and close attention to marketing and fundraising are important. But another way to reach for scale, which is perhaps quicker or more efficient in the long run, could be through mergers, consolidations and alliances.

Are mergers for everyone? Of course not. Can a merger between two organizations that are aligned in terms of mission, programs and strategy be a tool for social good? There are very real social benefits that a merger strategy can produce for people and communities. In the right hands, mergers may produce more results than nonprofit leaders can achieve by simply sharpening the pencil and doing the donor calls.

What do you think?  I invite you to share your thoughts in the comments section below or to email me with your opinion.

A former CEO's view of merging two nonprofits: 1+1=3

After leading a wonderful nonprofit organization for almost 19 years, I concluded that in order to grow, we would need to merge with a larger nonprofit. That merger between Lakefront Supportive Housing and Mercy Housing, Inc., was completed in December 2005.   A press release about the merger is found here (in Microsoft Word format).

I made the decision to leave Lakefront and the merged entity before we concluded the merger, in order to pursue new professional interests.  Recently, BoardSource, a national nonprofit dedicated to helping nonprofit boards become more effective, asked me to write about my merger experience.

The article, entitled "Merge to Advance Mission," was published in the November/December 2007 issue of BoardSource's journal, Board Member.  The full journal is available only to members of BoardSource, but you can download a PDF of my article here. 

Please share your reactions to it and your questions about it in the comments section below.  (Or, if you're shy, feel free to email me.)

Welcome to Mission Plus Strategy

Welcome to Mission Plus Strategy. I started this blog because I have a strong interest in nonprofit missions and nonprofit strategy. This interest comes by me honestly; for more than 25 years I have worked in the nonprofit sector, mostly as a staff leader.  For almost nineteen years, I was the President/CEO of Lakefront Supportive Housing, a developer of supportive housing for homeless adults and families based in Chicago.  During my time at Lakefront, we developed more than 1,000 units of supportive housing for homeless adults and families.

I left Lakefront in December, 2005 after initiating and concluding a successful merger with a giant in the affordable housing industry, Mercy Housing Inc, based in Denver, Colorado (press release in Word document format).  Since then I have been working as a consultant to nonprofits focusing on issues related to the question: How can nonprofits generate more social value through business strategy?

When I left Lakefront, I was proud of all that the staff and board had accomplished, but I was burned out. I felt like I was spending too much time raising money and managing board members and volunteers, and not enough time focusing on the mission and outcomes. I believed that there had to be smarter, more efficient ways to grow nonprofit value than through fundraising alone.

Don't get me wrong, I understand the importance of philanthropy, it's just that we can no longer rely on foundations for unrestricted capital to grow nonprofits. We have to find ways, through our business strategy, to do that. Here's what I believe about the nonprofit management:

1. Nonprofit organizations should be mission-driven; mission defines the purpose and general outcomes to be achieved by the nonprofit.
2. Nonprofit organizations are in the business of creating social value as opposed to profit value that we see in our for-profit sector. Social value is the value created by nonprofit organizations that contribute to the social well-being of the community or society at large.
3. Nonprofits should be mission-driven, but they also need to understand how to deliver on their mission; that is the art of strategy. Strategy is an elaborate and systematic plan of action to achieve an organization's mission.

By connecting mission to strategy, an organization can:

• create greater results for their constituencies
• align their values directly to the means for delivering mission
• produce a culture of change that can adapt to new strategies as the environment changes
• focus on intended results from programs and services

Perhaps you are asking: what IS strategy, anyway? Strategy is not just the economic means by which we deliver mission,  but ALL the steps in the process: Programs/Services + Delivery mechanism + Outcomes + Evaluation + Financing =  Strategy.

On this blog, I will have links to great articles, books, and studies about specific nonprofit business strategies as well as links to resources on more general nonprofit strategies. I will also write my own articles that pull from my consulting practice working with clients on nonprofit mergers, partnerships, strategic planning, and whatever else seems related to our topic.

And I will take your questions and comments, or your own suggestions, and do what I can to help you find answers to the nonprofit sector's "most persistent questions.” (Sorry, Garrison.)

I want to share the work of some of the great thinkers on this subject, people like V. Kasturi Rangan, a professor at Harvard Business School, and introduce you to Tom McLaughlin and David LaPiana, the leading experts on nonprofit mergers and alliances in the United States.

On the personal side, I want my blog to be a resource for people where we can celebrate successes and commiserate about failures and complain about just how difficult it is to run a successful nonprofit in the United States today.  So, from time to time, I will include an inspirational poem for my readers. I have often turned to poetry as a means for getting through the fires of leading a nonprofit organization.  If you have a great poem that you think my readers and I would enjoy, please share it.

I promise to be a good listener – so please share your thoughts through the comments, tell others about the blog, and sign up to receive posts via email or RSS.  Thanks for stopping by.

I wish to thank my friend and colleague Celeste Wroblewski who generously shared her time and talent to help me set up this blog. Celeste, thanks for being so patient with me while you taught me the basics of blogging.