As the nonprofit sector continues to respond to the changing climate of unknown government funding, we are likely facing a period ahead where organizations will be faced with the tough decision to close up shop or to look at this as an opportunity to enhance their mission by being vulnerable enough and open to the idea of how a partnership or merger might actually serve their mission better than they ever could as a stand-alone organization.
The spectrum of collaboration and partnership is wide and diverse, with everything from sharing back office or partnering with a fiscal agent, to what many perceive as the extreme of a merger. The fear around this word drives far too many organizations to die on the vine, having never been willing to consider a merger as an option.
Far too many times we hear staff and board leaders talk about mergers as the “dreaded M-word.” Unfortunately, this view of the world often means the people they serve will be the ones that lose.
Merger considerations: The good and the bad
Mergers and partnerships can enable organizations to save money, become more operationally efficient, enhance or expand their service offerings, increase impact, and so much more. But, unsurprisingly, they shouldn’t be approached or entered into lightly.
On the flip side, organizations that fail to do their due diligence may face financial risks, cultural clashes, mission drift, or even loss of funding.
Donors and funders appreciate when an organization finds the best and most efficient way to best serve their mission but are rarely willing to suggest or demand that an organization entertain the idea of a merger or partnership. One of the considerations that must be reviewed is the issue of overlapping funders/donors as many funders in particular will often reduce the amount of funding to something less than the total that they previously provided to the two separate organizations.
Many organizations enter into merger discussions with another partner organization assuming that the legal and accounting work is what will be most difficult – when the reality is that the most significant work is focused on the blending of two different cultures and management structures. When merging, how do both organizations maintain some semblance of their culture, brand, and identity? What happens when pride gets in the way?
With a long enough diligence period and sufficient runway to host healthy and meaningful discussions with staff and board leadership these two different cultures can become a single, stronger organization.
Is a merger my best option?
There could be endless reasons for an organization to consider a merger, but the top ones include:
- Crisis. The organization can no longer sustain on its own‚ possibly because of funding changes or something external. Internal dysfunction is also a possibility, such as a lack of board engagement in fundraising, an unattractive case for support to donors, or others.
- Growth. When an organization needs to grow, things may be going successfully, and the needs are outpacing the supply of service that the organization can provide, leading to the discussion of partnering or merging with another entity to strengthen the size, scope, or mission of the organization(s).
- Sector efficiency. Two organizations identify (by themselves or through a suggested partnership by a funder, donor, board member, etc.) that they could complement each other’s mission and decide to partner, or they recognize that they are duplicating services, and the market (service/program need and/or funding landscape) is not sufficient for them both to sustain or survive. Self-identifying the need to merge is usually very slow because of the emotional investment of the staff, leadership, and board, and their commitment to the organization. The internal acceptance of the need to merge is often introduced by some external factor: a funder, donor, consultant, etc.
The opportunities in a merger are endless. Don’t wait until it’s too late to find the right dance partner to make a difference.
Stay tuned for our next blog on merger success, featuring an LSA client!