Will Crisis Lead More Nonprofits to "Marry"? Network Aims to Make Mergers Less Taboo

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Rushing to the altar after the first date seldom ends well. Nor does tying the knot during a recession simply to save on expenses.

Yet economic crises have long pushed nonprofits to contemplate the often taboo topic of organizational unions—mergers and other deep partnerships—and sometimes, even forced them into hasty and ill-planned nuptials.

With the social sector facing rising need, falling revenues, and profound uncertainty about the future as the COVID-19 pandemic continues to unsettle our economy and day-to-day life, many organizations are once again facing such existential questions. Enter the recently launched Sustained Collaboration Network. This collective of six place-based initiatives—and one pilot program in the works—seeks not just to save nonprofits from bad marriages, but to transform the organizational dating scene.

For starters, they hope to remove the stigma and the financial risk around discussing long-term organizational collaborations. Knowing that some nonprofits fear these discussions are a cover for funders forcing arranged unions, they emphasize that there is a continuum of possible outcomes, including sharing certain resources or simply walking away. And the network is keen to share what it’s learned at this critical moment.

“From where we sit, this has to be part of the solution set. It is not the solution, but it is part of it,” said Nadya K. Shmavonian, director of the Nonprofit Repositioning Fund in Greater Philadelphia, one of the partner networks. “We’ve got to start doing business a different way. This is not sustainable.”

According to an April survey from the Nonprofit Finance Fund, three-quarters of nonprofits are facing reduced earned revenue, half have seen philanthropic donations decline, and a quarter are getting less government money. Overall, 60% are concerned about their long-term future. And for many, the situation has worsened in the ensuing months.

Late last month, Open Impact and SeaChange Capital Partners, which manages two of the network’s sites, released a report, “Building Capacity for Sustained Collaboration,” that lays out the lessons from the network’s members and makes the case for these conversations amid the “perfect storm” facing nonprofits.

“We’ve wanted this to be a national movement for years, and we just need some help getting us there,” said Shmavonian, who is also a partner with SeaChange.

Thanks to seed funding from the Lodestar Foundation—a longtime champion of this work—and the Ford Foundation, an implementation grant from Fidelity Charitable Trustees’ Initiative, and support from network member foundations including the Ralph M. Parsons Foundation and Lyda Hill Philanthropies, they are taking important steps toward that goal.

How Collaboration Initiatives Encourage Organizational Dating

The members of the Sustained Collaboration Network vary in size and location, but many share certain features designed to ease the power dynamics and associated fears inherent to these discussions. Nearly all the initiatives started with a group of local foundations pooling their funds to support such collaborations. The aim is for these pools to be separate from each institution’s usual community giving, ensuring foundations do not withhold funding with one hand in order to support these efforts with the other.

Another typical element is a confidential application process in which nonprofits are anonymized by the initiative’s manager before foundations review their proposals. Pursuing these discussions is often seen as a sign of weakness, so confidentiality is essential. In Philadelphia, for example, this extended to ensuring the initiative did not operate out of a foundation’s office space.

“They didn’t want people traipsing in to see Nadya. That would raise program officer’s interest: 'Why are those two meeting with her? There’s only one reason they’d be coming to see Nadya,’” Shmavonian told me.

Every initiative manager I spoke with emphasized the importance of clearly addressing nonprofits’ doubts. Nora Hannah, who ran a nonprofit before becoming the director of the Arizona Together for Impact Fund, said many of her former colleagues were skeptical when she first got in touch after the initiative launched in 2019.

“I have to say, their first response was sitting back with their arms crossed, saying, ‘Yeah, they just all want us to merge,’” Hannah told me. “So how we communicate about this is really key.”

If a nonprofit’s application is successful, the next step is an exploratory grant, which typically ranges from $10,000 to $40,000. Discussions can last from three to 18 months. Managers emphasized that the goal is not always to create a partnership.

“We’re not outcome-driven, we’re process-oriented,” said Carrie Harlow, project manager of the Nonprofit Sustainability Initiative in Los Angeles. “That can be really reassuring to leaders. It takes the pressure off.”

The statistics from each site back this up. Most have made roughly twice as many exploratory grants as implementation grants. NSI, for example, has funded 84 negotiation grants and 37 integration grants. Managers say the effort is worthwhile whether it ends in a relationship or not.

“We know the process is valuable. All of the participants in NSI negotiations said they got value out of the process itself,” Harlow told me. “By going through the process, they’re building those muscles.”

Shmavonian puts it in relationship terms: “If you spare someone a bad marriage, you’ve done something really important.”

There is also a major emotional component. Many spoke of the importance of shifting the conversation from organizational sustainability to mission sustainability, as well as addressing staff—and particularly founders’—emotional commitment to the organization.

The initiatives themselves don’t select the pairings, nor do they guide the negotiations. If selected for a grant, a nonprofit must choose a consultant to help it through the discussion or, as the case may be, negotiation process. Some initiatives provide potential matches or a vetted list of technical assistance providers; others prefer total neutrality.

Nonprofits have always worked together, but for the network’s members, sustained collaboration refers to what happens on the formal and long-lasting end of the spectrum. “We’re not looking at small-c collaboration, which funders for 20 years have been pushing,” Shmavonian told me, giving the example of co-hosting a summer festival. “We think that’s fabulous, but that’s not a fundamental shift in your business model that’s permanent or long-term.”

Examples of big-C collaboration might include sharing an office or staff members, back-office cooperation on things like human resources, or fiscal sponsorship. More involved efforts might extend to joint-venture partnerships or establishing a parent-subsidiary relationship. The final stop, of course, is a merger. To facilitate such shifts, funds will issue implementation grants that average $30,000.

Collaboration Funds Nationwide, Many Born of Crisis

In 2011, the UCLA Center for Civil Society hosted a conference on the financial hardships that nonprofits were suffering due to the Great Recession. Similar to today, demand was up and donations—whether from individuals or foundations—were down.

The meeting led to the 2012 launch of the Nonprofit Sustainability Initiative, which is now one of the network’s two oldest members. “The tool resonated beyond just crisis recovery,” Harlow, the project manager, told me. NSI’s 19 member foundations have since disbursed over $4 million to help 242 nonprofits pursue potential collaborations.

Supporters include the four founding funders, the California Community Foundation, the Ralph M. Parsons Foundation and the Weingart Foundation, as well as others including the The Ahmanson Foundation, Ballmer Group, Carl & Roberta Deutsch Foundation, Cedars-Sinai, Conrad N. Hilton Foundation, Durfee Foundation, First 5 LA, and UniHealth Foundation.

The Sustained Collaboration Network’s other veteran member, the New York Merger and Collaboration Fund, also launched in 2012 in response to the recession. It has since given $1.8 million to support 61 prospective partnerships, according to the report, but its first two years were spent helping its clients stay afloat.

Regional emergencies have also helped birth initiatives. A 2015 budget impasse in Pennsylvania helped bring about the Nonprofit Repositioning Fund, which serves Greater Philadelphia, Shmavonian told me.

Outside the network, crisis and change have been driving forces for similar efforts, as well. The Great Recession was also the push for the formation of the Catalyst Fund for Nonprofits in Boston, a five-year initiative run by the Nonprofit Finance Fund (NFF) that supported nearly 42 partnership evaluations, seeding 20 collaborations, including 13 mergers.

In 2013, to respond to the implementation of the Affordable Care Act, NFF partnered with several health-focused foundations to launch the California Catalyst Fund, which helped organizations explore partnerships in the new landscape created by the legislation.

Of course, not all such funds have been born from emergencies. The Lodestar Foundation has long been a guiding light in furthering sustained collaboration. Through a joint project, the SeaChange-Lodestar Fund for Nonprofit Collaboration, it has seeded many individual collaborations and played a role in establishing the New York initiative. The foundation also backed a 2018 conference in Arizona that led to the formation of that state’s initiative, now the youngest operational member of the network.

What It Took for the Network’s Latest Pilot to Get Started

The story of the network’s newest member begins with a glass of wine. Rich Smalling and a friend, both entrepreneurs, had been active in the Austin nonprofit scene for more than two decades. In 2017, they were discussing the challenges facing nonprofits, particularly whether the donor community could keep up with the growth in the number of nonprofits in the region.

“There’s always a whole host of nonprofits that have similar missions,” Smalling told me. “There’s five or six or eight animal shelters, for instance. How do you get them to get together and collaborate more effectively for the community?”

That conversation set them on a mission that would include a research project with the University of Texas, a 2018 convening with the Austin nonprofit community, and conversations with leaders from similar efforts in Dallas and Charlotte.

They were ready to shelve the idea in early 2019, as they still lacked funding. But then a $400,000 grant from the Michael and Susan Dell Foundation, an institution founded by another pair of entrepreneurs, allowed them to launch a pilot project. Additional donors have since bumped the total to nearly a half-million dollars.

The initiative has issued five collaboration grants to date. Candidates range from a specialized healthcare nonprofit considering merging with a larger, more stable operator to a pair of education nonprofits with equal capacity but different strengths. All are still in the planning stages—as is the initiative, which is still looking for long-term funding.

Smalling is not the only one in the network with experience in the private sector. Hannah, for instance, co-founded and ran an aerial photography and spatial imaging company before joining the social sector and eventually landing with the Arizona initiative. For both, it provides a different lens.

“I worked in the corporate sector and mergers were a good thing. It wasn’t something seen as a flaw in how you operated, or weak, or you couldn’t sustain yourself. But in the nonprofit sector, they’re quite taboo,” Hannah told me. “So they tend not to have these conversations.”

What’s Next for the Network—and Nonprofit Collaboration

One irony of the Sustained Collaboration Network is that it has taken foundations working together to create the conditions for nonprofits to consider more seriously doing the same, albeit in a deeper way. Foundations themselves are often quite prickly about strict adherence to their own individual missions and strategies.

“When I was at a nonprofit, foundations were always saying, ‘you should collaborate more.’ But it’s great to see them working together,” Hannah told me.

To date, each site has borrowed extensively from each other in creating their documentation and processes. Many cited this as an essential aspect of the collaboration. Hannah hopes the initiative can take this a step further and start developing joint materials.

“We need to be leaders in collaboration if this is what we’re preaching,” she told me.

It hasn’t gone perfectly. Forefront’s Mission Sustainability Initiative was a founding member of the network, but has since left. The director, Genita C. Robinson, told me they were concerned about a couple of matters, including a lack of definition of the rules of the network, but she still values the relationships she has with network members.

“We could have benefited from using an outside facilitator,” she said. “It’s interesting. That’s the advice that I give to every nonprofit I talk to.”

When asked about the departure, Shmavonian said, “We just were moving in a pace and formality that was different,” adding that she considers them an extended member of the network that would be welcome to rejoin.

The interest in the concept is clear. The Arizona initiative joined just before the report was published, while the Austin pilot came on board shortly after. The network may even spread beyond its place-based roots. Shmavonian told me she is working with a national funder considering starting a single-issue sustained collaboration fund.

“There’s no question that national funders are going to start coming to this, not from a geographic interest, but because they’re focused on climate change or early childhood,” she said.

For now, COVID-19 looms large. It’s mainly manifested in spurring greater urgency among those nonprofits that were already in discussions about collaboration. None of the directors I spoke to have seen dramatic spikes in new interest, though some expect inquiries will pick up in the coming months.

For some in the field, the key is whether relationships are formed for the right reasons. Antony Bugg-Levine, CEO of the Nonprofit Finance Fund, which is not involved in the network, said that even before the coronavirus hit, funders were wondering whether a wave of mergers was coming, given the strains facing the sector. He think financial pressures alone are a poor reason to pursue these relationships.

“If the driving agenda is, ‘We want to have fewer mouths to feed,’ you’re setting yourself up for failure,” he told me. “It goes back into that old mentality that merging is a defensive model to survive when your old business model no longer functions.”

The global nature of the pandemic means that unlike the challenges facing, say, New York City nonprofits after 9/11, “there’s nowhere anyone can hide right now.” Few nonprofits can afford to take on other operations that are not financially stable. Nor is that a good strategy at any time. But he sees immense possibility in mergers that seek to reshape organizations and operations to fit the needs of the future.

“What’s exciting about this time, as well as really scary, is the absolute mission imperative to reimagine how they deliver their services and serve their communities,” he told me. He thinks nonprofits should be asking: “How do we merge in order to serve our community more effectively?”