With the economy in the toilet, the topic of nonprofit mergers is on the rise in the foundation community. Here are five quick ideas for how foundations can help make mergers happen:
1) Combine. Make it known that if two existing grantees agree to merge, you will guarantee them a multi-year grant for a total of at least 150% of the combined current amount of your funding.
2) Cash out. Offer to provide an ED with a year of severance pay if they merge their organization with another and are willing to cut her/his own job (i.e. have the other ED become the head of the combined organization).
3) Consult. Create a publicized merger fund to cover the cost of hiring a consultant to identify merger opportunities for any current grantee.
4) Conspire. Partner with other foundations supporting an issue area (e.g. early childhood education) and agree to tell your grantees together that you will be making 75% fewer grants going forward but each grant will be 400% of your average grant last year.
5) Connect. Host an event for all the board members of your grantee organizations to educate them on the need for mergers, have them meet their peer board members and start discussions.
BONUS IDEA: Lead by example and merge with another foundation to show how you were able to cut overhead costs by 50% and therefore give out more money to the community. You can even use idea number two (cash out) and give the cut staff a year of severance pay.
Corporations are often able to scale by identifying which solution will meet 80% of the market's needs. They realize it is rarely doable to find a solution for all 100% and pursuing it would be too costly. The gains are to be made by focusing on the 80% and ceding the remaining 20%.
Public policy often works the same way. You can't create policy to meet the needs of every American. At best, it can serve the needs of 80% of the population. Nothing on a large scale can ever meet every stakeholder's needs.
The nonprofit sector is often left to deal with the remaining 20% of the market--the most challenging part of the population, which has been left un-served. It is not uncommon for nonprofits, and those they serve, to feel like society and "the Man" have left them exposed to the elements. This naturally creates resentment and an underdog mindset.
It is therefore not surprising that most nonprofits create models designed to meet the needs of ALL the 20% left exposed by macro policies. These programs are intended to be optimized and focused on each individual's needs rather than to most efficiently serve 80% of that remaining 20%. Although focusing on only 80% would de facto enable them to serve more people at a lower cost, following this logic would be an acceptance of the decision-making strategies used by large companies and the government (those bodies that initially left nonprofits' target populations un-served).
Over the last decade an entire generation of "social entrepreneurs" has bucked this assumption, has adopted the 80/20 mindset and has been able to build scalable organizations that are generally more efficient and effective. They are often criticized by traditional, local nonprofits for using solutions that don't fit the exact needs of a particular neighborhood or child.
This criticism is fair, but the reaction should not be a call to shut down these national organizations or to have them change their strategy for further customization. In order to best serve the under-served, society must both support these organizations that effectively meet the needs of 80% AND support local nonprofits which are needed to catch the remaining 20%.
For example, if there are 100 million people in need, public policy is responsible for serving 80 million (80%). That leaves 20 million people (20%) under-served and exposed. The social entrepreneurial segment of the nonprofit sector can then focus on serving 80% of that population, or 16 million. That leaves 4 million (20%) to be served by small local nonprofits--society relies on these organizations to fill in the gap. These nonprofits have the hardest job--customizing their solutions for individuals and working on the most challenging situations.
That is the architecture of our safety net when it works. We need to recognize the reality of the structure and consider it a success when the government and social entrepreneurs can provide solutions for 80% of us. We must also celebrate local nonprofits who are asked to do the hardest part of the job securing the safety net and not criticize them for being inefficient or call for their consolidation. They are part of the equation we need.
I was reading Business Week this past summer and came across a cool tool designed by Ben Dattner. He calls it a "User's Manual to Your Manager" . At the Taproot Foundation a number of us have used it and have found the tool to be very useful and thought provoking.
We adapted it to our culture to make it fit. Here is a draft of the user manual I created for my team. User's Manual to Aaron Hurst
My Style I love action. It is how I learn and what I appreciate in my colleagues. I judge others based on the action they take and their forward motion.
When to Approach Me I like to solve problems and also to remove barriers, which obstruct others' ability to move the ball forward.
Approach me just about any time and I will let you know if I can't engage at that moment. I'd rather you asked than assumed I can't.
Communicating with Me Be crisp about what you need (articulate whether you are looking for my input, decision and/or brainstorming). I hate false alignment so speak up if you have an issue.
How I Make Decisions I make decisions quickly based on my values as well as the logic and data I have on hand. I don't care who provides that data or logic and will often reverse my decision as soon as I see data or logic that clearly points out another direction as the better choice--that is, as long as the new approach is still aligned with my values.
What I Will Not Tolerate Like Reagan, I trust and then verify. If I find reason not to trust you, it is hard to rebuild my confidence. Easy ways to lose my trust: not admitting a mistake (I make them daily), giving me misleading information, negative surprises, misrepresenting the Taproot Foundation, treating other people poorly and being too hierarchical.
Feedback If you need feedback, ask me for it (I am not consistent in giving feedback). If you have feedback for me, tell it to my face (or over the phone) not over email/IM or in a group email. Sharing your feedback with me will make me respect you more - not less.
How I Develop People I like to help people grow by giving them opportunities to prove themselves. Such opportunities must stretch beyond the tasks they have already reached a comfort level at completing. I will continue to delegate responsibility and projects to you until I see you sinking or failing to meet my standards.
I realize I am not the right mentor for most people and will try to leverage my network to find you mentors that can speak to your professional development needs.
How to Help Me I move quickly and have a terrible eye for detail (but I highly value having details addressed). Therefore, help me make sure the details are covered and don't assume I know which details need to be addressed.
For similar reasons, I am great at starting projects but need partners to ensure they follow through to completion. If you are taking over one of my initiatives, be aggressive about getting the information you need from me to be set up for success in completing the effort. I will likely already be thinking about the next initiative, and you will need to force me to download everything about the effort I am handing off to you.
NBC has taken product placement to a new level (check out NYTimes article on the topic). Products are not only integrated into shows but product placement has actually become a core part of the design and writing for shows. It can be a really effective strategy. For example, "The Matrix" movies completely flipped my image of the Cadillac brand. Some fight this innovation and see it as corrupting the integrity and art of television. I see that as a pretty high standard to set for pop culture.
To me, product placement looks like an opportunity. First cars, insurance and soda are placed in your favorite shows. Then...let's do it pro bono.
NBC, in your next sitcom, have one of the characters regularly participate in pro bono service. If it is with the Taproot Foundation, I can write you a receipt for the fair market value of the product placement. You can then write that donation off.
Now, I am not looking for our logo simply to appear on the show. I want to see doing pro bono with the Taproot Foundation be part of the plot. In case you lack the imagination, here are a few potential tie-ins:
A mid-life crises turns character into a pro bono junkie
Couple meets on a pro bono project and finds true love in their shared values
Character works at the Taproot Foundation (make sure they are really attractive to make this part realistic)
Roommates met when one was doing pro bono service for the other's nonprofit. Now they are zany roommates from different sectors.
Reality TV. Think "The Apprentice" where all the projects are for charities.
Do you have any ideas for NBC on how to do product placement for pro bono service and the Taproot Foundation?
Every year The Wall Street Journal publishes their Corporate Recruiters Survey that identifies traits, which top companies seek in MBA graduates. It is no surprise that the top five are all aligned with pro bono service (and especially the Taproot Foundation's team-based model).
1. Communication and interpersonal skills Working in a client-services setting and across sectors requires and strengthens an individual's communication and interpersonal skills.
2. Ability to work well within a team Our pro bono projects require a team of strangers to quickly storm, norm and perform. Successful pro bono volunteers have to be able to thrive on a team.
3. Personal ethics and integrity This one is pretty self-evident.
4. Analytical and problem solving skills Applying your craft to a new sector strengthens and utilizes these skills and keeps them fresh.
5. Work ethic Pro bono volunteers love their craft so much that they want to use it to help others after they are done with their 10-12 hour work day.
The bottom line: pro bono service on a resume is a good indicator of a good candidate and worth a serious look.
Nonprofit Sector Facing Shortfall in Ability to Plan and Execute Effectively to Tackle Challenges of Economic Crisis
Pro Bono Consulting Could Provide $1.5 Billion in Services to More than 200,000 Nonprofits Nationwide
San Francisco-November 6, 2008--Nonprofits today are often ill-equipped to make the decisions necessary to operate efficiently and effectively, according to a new study conducted by the Taproot Foundation, the national leader in strengthening nonprofits through pro bono consulting services. Despite facing a severe crisis of reduced funding and increasing demand for services, only 50% of nonprofits surveyed have a strategic plan, and less than 40% spend any time on tactics critical to strategic execution, such as analyzing competitors or potential partners, evaluating earned income opportunities, or identifying risk mitigation approaches.
Strategy management--a range of management activities that foster decision-making and resource allocation to maximize the intended organizational outcome--is crucial to the long-term health of nonprofits, particularly during economic crisis. When nonprofits have the capacity and expertise to make strategic planning a priority, they consistently report a significant positive impact on their performance, an impact that can make a crucial difference in a tight economy. However in the 2001 recession, according to the Nonprofit Finance Fund, more than 40% of nonprofits experienced operating deficits that lasted for several years, signaling in part the lack of clear strategic direction and execution. Opportunity to provide $1.5 billion in pro bono consulting support Nonprofits cite limited resources as the primary cause of their inattention to strategy planning and execution. In times of constrained budgets, nonprofits often feel compelled to focus on fundraising simply to sustain operations.
The Taproot Foundation's research identified an approach to significantly close the gap between need and execution in nonprofit strategy management: pro bono strategy support. Pro bono consulting projects that leverage the skills and expertise of professionals in the community have been proven an effective resource in other areas, including legal assistance, marketing support and HR programming.
For strategy management, the Taproot Foundation identified more than 200,000 mid-sized nonprofits that could benefit from pro bono services. This segment, composed of organizations with revenue of at least $250,000, includes the majority of the nation's social services agencies. The need for pro bono support is greatest in this segment, where organizations typically cannot support staff resources or afford paid consultants for strategic management activities. Nonprofits welcome this support-87 percent of those surveyed indicated that there is at least one strategic management problem for which they would immediately seek pro bono support.
With up to 2 million business professionals that have the skills needed to support nonprofits with pro bono strategic management consulting, and assuming very conservative billing rates and average hours of service, the total opportunity is estimated at $1.5 billion in available services. This $1.5 billion, a funding stream greater than the annual combined giving of the 20 largest community foundations, could significantly strengthen the nonprofit sector.
"This is a challenging time for nonprofits facing pressures on funding but increased demand for services." said James W. Shepard, Jr., co-author of the report and COO and VP of Programs of the Taproot Foundation. "In today's environment strategy management and execution is not something that can be put off until tomorrow - it's essential to the nonprofit's ability to survive. Pro bono consulting is an efficient, effective way to give nonprofits the support they require as the safety net for our communities in need."
Pro bono consulting has a positive impact on nonprofits Strategy management tools give nonprofits the ability to:
o Understand the true costs of operations so they can see where they can cut costs, strategically trim programs or staff and operate more efficiently. o Identify opportunities to merge or align with others so the total impact to the community is maximized and protected. o Leverage data to inform decision-making regarding program focus, targeted execution and impact measurement. o Track and analyze trends in the external environment--including client base, competitors or potential partners, political and fundraising challenges--to gauge appropriate, proactive responses.
For example, in a recent engagement, a pro bono team helped a San Francisco Bay Area organization that provides donated surgical services to the area's uninsured to clarify and call out key strategic priorities. Management's data-heavy approach was powerful in day-to-day operations but muddied long-term strategic thinking; by isolating the most important metrics in a quarterly scorecard, the management team could better understand what the data was saying about their mission, strategies, tactics, and performance indicators. As the ranks of the uninsured grow, improved communications between staff and board will help push the organization's most important initiatives to the fore.
About the research The report, made possible by a grant from Deloitte, was conducted by the Taproot Foundation and the views expressed in it are those of the Taproot Foundation and not necessarily those of Deloitte. The Foundation's research included a national survey with 225 responses, and interviews with more than 60 strategy management and consulting experts, including David La Piana, La Piana Associates; Bob Searle, the Bridgespan Group; and Greg Dees, Duke's Fuqua School of Business.
The report includes an assessment of the need in the nonprofit sector, recommendations for developing pro bono best practices, warnings about the top reasons why pro bono engagements fail and a skills map showing where the skills of for-profit professionals can make the most impact on a prepared nonprofit. "Pro Bono Strategic Consulting: The $1.5 Billion Opportunity" is available on the Foundation's web site at http://www.taprootfoundation.org/SM_whitepaper.pdf.
We have elected a new President who promises to bring real change. He's
already done so symbolically. Winning the election was no easy task
and neither will be the task of delivering on the to-do list he created
throughout this two-year long campaign--a list that lengthened
significantly over the last few months with developing news of our
deteriorating economy.
Obama engaged millions of Americans in
his campaign. They donated their money, time and skills in ways, and
in volume, never seen before. He is now asking them to continue their
service by aligning with his agenda to rebuild the infrastructure of
this nation.
For those of you who spent countless dollars and
hours supporting this historic campaign, take a quick breather and then
continue being engaged!
Within the next year, I challenge each of you to:
Match
your 2008 donations to Obama with donations to charities in 2009. You
have proven you can afford to make the contribution. Don't stop now.
Donate
your time and skills to support an advocacy campaign or to build the
infrastructure of a local nonprofit. Take your learning and passion
from the campaign and bring it to an organization that needs the help.
Help to identify the next generation of breakthrough political leaders and encourage them on their path.
The supply and demand for pro bono services is inversely correlated to the strength of the economy. With the fall of the market, we see a sharp increase in:
- people in need of services from nonprofits - nonprofits in need of professional services to help sustain their revenues and identify ways to increase efficiencies AND - talented business professionals raising their hands to donate their skills
Since September, we have seen a bump in the demand for our Service Grant program and an equally large (if not larger) increase in interest from business professionals seeking to serve.
We often see the greatest examples of civic engagement during tough times. The silver lining amid all the suffering is that these times cause us to reflect and put our lives in to perspective. We see how close we are to having our reality collapse and suddenly have compassion for those we had beforehand only read about in the paper--those who once seemed so foreign.
It is in these times that the government, corporations and philanthropic leaders must create vehicles for the newly compassionate to convert their intention into action. Some individuals will only engage in a short window of service, which will end when the headlines change. For many more professionals, it will be the start of a life-long commitment to service, their community and to society as a whole.
America needs to engage these citizen professionals. They are the next social entrepreneurs, politicians and community leaders. They will be our children's role models.
As the stock market tumbles, conversation about the need for nonprofit mergers and acquisitions grows. Why can't nonprofits merge like companies do all the time? This month's headlines are dominated by stories of Wall Street mergers. Why doesn't it happen in the nonprofit sector?
While I don't have the data, I suspect that more mergers happen in the nonprofit sector than in the business community. Mergers of huge companies make headlines regularly, and it fuels a belief that mergers are rampant in the corporate world.
However, comparing a homeless shelter to Wachovia is off the mark. A homeless shelter is more like a local restaurant or a car wash in scale. When was the last time you saw two car washes merge?
With small businesses, the reality is that rather than merge they usually fail and go out of business. Later, another entrepreneur comes along, rents the space and tries again.
While we can all emotionally stomach a local restaurant closing, we find it criminal when a nonprofit closes its doors. Community members can accept having one less restaurant where they are able to enjoy a glass of wine, but for those seeking services from a local nonprofit, there may not be another option to replace the closed organization.
That is unless we can fund the next closest shelter to double their capacity to serve (and that would have to be done at a lower cost than creating a new nonprofit to replace the one that closed). There is still a cost here in human suffering as the remaining shelter will not have the capacity to meet all the new demand over night. It could be months or years before that happens.
So, we are back where we started. Why can't the stronger shelter acquire the other one as it falters and is on the brink of collapse? More often than not it does just that and assumes the remaining funding, staff, facilities and clients of the other organization.
This is precisely why I suspect there is more 'm and a' activity in the nonprofit sector than in small business.
Community Awareness and Treatment Services in San Francisco is a great example. Over the last few decades they have acquired the critical programs of failing nonprofits left and right. They are now holding companies for tons of critical services.
What have you witnessed? Is this aligned with your experiences?
One of our star volunteers forwarded us a great Op-Ed from USA Today titled "Where are the Patriots?". It tells of past heroism during national crises, which came in the form of pro bono work performed by professionals. It correctly points out that this sort of heroism is missing this time around while companies are lining up to make a profit from our collective pain, rather than serving society.
With the economy in the toilet, the topic of nonprofit mergers is on the rise in the foundation community. Here are five quick ideas for how foundations can help make mergers happen:
