How Strategic Nonprofit Mergers can Advance an Organization’s Purpose

I once read about a board president who proudly proclaimed, “Why would we merge? We would lose our independence and identity. We have our own unique way of doing things and I don’t want to be taken over by some other group. This will never happen while I’m president.”

This organization closed six months later.

In our sector, we are not rewarded for admitting our struggles. We are not rewarded for rapid cycle learning, failing forward, or innovation. We aren’t even rewarded for partnering. Instead, the sector is fueled by what I might call the 99% success rate fallacy that goes something like this – “Dear Funder, We have a unique approach compared to every other organization you might consider funding. What we are doing is nearly always working for nearly everyone we serve. Please give more.” In short, we are rewarded for presenting solid proposals that project that we are unique, have it all under control, and we are excelling on all fronts. We simply need more money.

After 30 years of leading and working in nonprofit organizations, I finally have the courage to say this: We are not all that unique, everything isn’t always under control, and we are rarely excelling on all fronts. Adequate funding is one essential piece, but that is not enough. We need to explore different strategies if we want to thrive organizationally, and more importantly, have greater impact collectively.

Embracing New Approaches

Nonprofit leaders tend to be an optimistic group. Regardless of the size of the issue, challenge, or crisis, we are up for it. And when times are tough (and let’s be honest, times are always tough), we are optimistic enough to believe that if we could just get our board members to fill a few more tables at the annual event, or we could hire that full time grant writer, or we could get our government contractors to actually pay for the true cost of services, all of our challenges would evaporate and we could advance our mission, vision, and goals the way we have always sought to. When those strategies don’t materialize to the degree we had hoped, and we start to see more red than black on our financial statements, an exhausted yet brave board member or Executive Director might reluctantly say, “Do you think it’s time to explore a merger?”

But what if we changed that approach? What if instead:

• We honestly look at the silos, fragmentation, and duplicative efforts of our sector and ask ourselves if there’s a better way to utilize the resources we do have.
• Each of us commits to making all strategic decisions, including those about mergers, based on what best advances our reason for existence, not based on what keeps our organization in existence.
• Funders invest in the cost of organizations utilizing mergers, alliances, and other partnership opportunities as strategies to make greater collective impact.

Strategic Impact Strategic Planning

At Childhaven, we started our last strategic impact planning process by asking ourselves an important question:

• What would we do differently if we made all major strategic decisions based on what advanced our purpose, goals, and impact, as opposed to what simply advanced our brand, budget, and organization?

The question stems from a belief that the ultimate fiduciary duty of our board members, and myself as CEO, is to advance our purpose, not merely to advance the 114-year-old organization known as Childhaven. According to a 2021 American Law Institute article, Restatement of the Law for Charitable Nonprofit Organizations,  as described in the Nonprofit Law Blog:

“A fiduciary’s good faith belief in what is the best interest of the charity must be objectively reasonable in light of the charity’s purpose. Thus, the best interests of a charity may not be in its perpetuation; rather, in some instances, a charity’s purposes may be better carried out by its dissolution and the transfer of its assets to another charity to be used for similar charitable purposes.”

Mergers as a Strategy

In the nonprofit world, few words are used more frequently than “strategy” or “strategic”. Based on many years of research, I have adopted this simple definition: A strategy is an approach used to achieve a major objective, overcome a major challenge, and/or mitigate a major risk. In this context, when you take away the emotions around it, a merger is nothing more than a strategy to help you achieve your purpose, address major challenges, and/or mitigate major risks.

I have been fortunate to be a part of many merger conversations – some of which we executed, and some we didn’t. At Childhaven, we completed three mergers in just over three years, including two that closed over Zoom on June 1, 2020. The ‘why’ for each organization has been different, and although there can certainly be multiple and overlapping motives to merge, I believe they typically fall into one of three categories.

1. Mergers as a Strategy to Advance Purpose

I call these purpose-driven mergers because the ‘why’ isn’t about helping an organization survive, or even what each organization stands to gain. The ‘why’ is simply, “We will advance our purpose more by combining rather than by competing.”
In these rare merger scenarios, both organizations enter into the relationship from a position of strength, with each running well, achieving goals, and scaling impact. They aren’t merging because they have to – they are doing it because they are constructively dissatisfied with the status quo and believe the community will be better served as a result of the merger, even if that means one or even both organizations dissolve in order to make greater impact through a new organization.   

2. Mergers as a Strategy to Address Significant Gaps

We live in a world that is increasingly volatile, uncertain, complex, and ambiguous. Giving USA recently released their annual giving report which found that giving has dropped 10.5 percent after inflation, marking only the fourth time that donations have fallen since data collection began in 1956. Considering this, in combination with the continuing proliferation of nonprofit organizations (which now number 1.8 million in the US alone), perpetual staffing challenges, and uncertainty about the economy, we should anticipate increasing headwinds for the foreseeable future.  

Every organization has areas of strength, and areas of weakness and challenge. For mergers in this category, the ‘why’ is driven by a desire to fill their internal gaps with the strengths of another organization. That may sound something like, “We are strong in board governance, philanthropy, technology, and communications. Another purpose-aligned organization is strong in human resources, advocacy, government contracting, and medical billing. Together we make a much stronger whole.” Mergers in this context are simply a strategy for complimentary organizations to come together in order to benefit each other, their staff, and the community.

3. Mergers as a Strategy to Mitigate Major Risks

Unfortunately, it has been my experience that most nonprofits begin exploring the merger strategy only after everything else has been tried and failed. Instead of a merger being approached from a position of strength when times are good, or even as a strategy to help address organizational challenges that are preventing it from reaching its full potential, they are entered from a position of fear. The fear of not making payroll, the fear of not being able to afford the right Executive Director, or frankly, the fear of going out of business becomes the primary motivator for merger exploration.

The trouble is, at best, mergers take three to twelve months to execute. We need to start these conversations when we are confident that our organization can be an asset and not a liability to potential merger partners. Better late than never, but much better early than late.

Weighing Your Strategic Options

At Childhaven, we believe in the power of partnerships. Sometimes partnering means sharing staff, facilities, technology, legislative agendas, or knowledge. Sometimes partnering means merging. We believe we should at least consider the merger strategy before launching any new major initiative. When the benefits of a merger strategy outweigh the benefits of other strategies, we pursue the merger. When the benefits of other strategies outweigh the merger strategy, we pursue other strategies. It sounds simple, but it requires ongoing open-mindedness to the idea of merging as a strategic option.

Here are common nonprofit objectives and examples of strategic options that could be considered.

Celebrate Mergers as a Successful Strategy for Scaling Impact

The Nonprofit Quarterly reported that, in a study of nonprofit mergers, over 90% of the participants entered the merger to increase depth and breadth of services and improve long-term financial viability. An unrelated study of 25 nonprofit mergers found that “in 88% of the cases, the parties to the merger (representing both acquiring and acquired organizations) concluded that the organization was better off in terms of mission, services, and/or financial health.” This means the vast majority of mergers achieved their primary objectives. This success can positively impact all affected parties in the following ways:

Given this, the question all board members and senior leaders need to be asking is, “What’s the best strategy to realize our purpose and serve the community?” with mergers being one of the strategies explored. If your purpose and the community are objectively better off by not merging, then by all means, don’t merge. However, if your purpose and the community are objectively better off by merging with a complementary organization, I believe nonprofit leaders have a moral and fiduciary obligation to pursue the merger.

The time to start the merger strategy conversation is now. You have nothing to lose – and your organization, staff, and community potentially have a lot to gain.