Nonprofit Mergers Make Cents

Whether its banks, technology, or media organizations, companies are resorting to mergers as a means of making more dollars and cents. So it makes sense that non-profit agencies should consider the same course.
In fact, a severe decline in charitable giving is forcing non-profit organizations to scramble like never before for much needed revenue. The debacle of state and federal deficits is resulting in major cutbacks, particularly in services for the poor and needy. Sadly, during times of cutbacks, non-profit agencies receive increased requests for services.

Faced with more demands and fewer dollars, the non-profit community must radically change its way of operations or face the growing possibility of closing its doors. Non-profits need to transform into smart business models. Why not borrow the best ideas from the corporate world? Service agencies must develop creative partnershipsif they hope to survive in this new environment.

A common response to dwindling resources is for charities to beef up fundraising efforts, slash program costs and work harder to let the community know of their plight. The long-term result is more competition among charities fighting for diminishing dollars, creating an alarming adversarial environment within the non-profit sector that has traditionally upheld values of partnership and collaboration. It’s like desperate dogs fighting for table scraps tossed onto the floor.

These tough times, however, give non-profits a unique opportunity to think outside of the box, to become social venture businesses strategically positioned in a shrinking world of support. Rather than increase efforts to compete against one another why not seek alternative solutions to trim costs? Why don’t we share expenses? Share office and program facilities; share management staff. Instead of hiring five CEO’s to operate five different agencies, why not have one CEO operate five organizations? Likewise, share CFO’s, development directors and administration staff.

A new trend is popping up throughout the country where agencies “co-locate” their services and staff under one roof—sharing the cost of facilities and staff. This new movement combines social service programs into one shared facility. This model of integrated services is quickly becoming a new and innovative response to an impoverished state of funding.

Here in Los Angeles, nearly two-dozen public and private service agencies have joined efforts with PATH (People Assisting The Homeless) to develop a unique cutting-edge co-location model called the PATH Mall. Here we provide a shopping mall packed with social services for people who are homeless. Those in need no longer have to travel all over the county to access services; they just have to walk down a mall corridor for assistance. The cost of operating one such facility is vastly more efficient than paying for two-dozen facilities.

An even more dramatic merger model is based on non-profits developing formal strategic alliances. Agencies share the cost of staff management and overhead. A new type of non-profit merger occurs where several agencies share the cost of executive leadership, fundraising and financial management.

In the last few years, four Los Angeles-based non-profit agencies went through traditional mergers. Foundation House merged into PATH, and Homestead Hospices merged with Project New Hope, both in response to the declining economy. Today, PATH and Project New Hope have developed a strategic alliance—the PATH Partners—where one staff leadership team operates all of the agencies’ operations. Facilities are shared through the co-location model, fundraising costs are reduced, the donor base is strengthened and overhead costs of management staff declines. Each agency maintains its mission and unique name identification, but shares the cost of staff management and facilities. We call it the “co-management” model.

The result is more resources allocated to program operation. Consequently, more people in need of services are served more economically. It is a solution-oriented response to our changing philanthropic environment.

While politicians fight over spending cuts and donors struggle to keep benevolence strong, non-profits do have an alternative. We can change our ways in these changing times. These attempts in strategic alliances simply make sense—and hopefully increase revenue.