With roughly one million nonprofit organizations operating in America, each seeking support via a shrinking pool of grants, contracts and donations, many suggest that the time has come for groups to merge as a way to bolster services, consolidate costs and achieve better economies of scale.
Amen to that. It is indeed time for every nonprofit employee, volunteer board member and advocate to discuss mergers… but not in the way most suggest.
In the traditional sense, the “two-become-one” version of mergers isn’t an illegitimate consideration. Few disagree that there is duplication in almost every aspect of the nonprofit sector. But there is also duplication in the for-profit sector. Why don’t we hear the same call for consolidation? Because our country celebrates small business and champions its role in strengthening local economies. Why treat the nonprofit sector differently?
Too few understand that nonprofits are small businesses — businesses that employ over 10 millionAmericans and contribute billions of dollars in taxes.
To challenge this misconception, nonprofit groups should look to mergers in much the same way traditional businesses do — to champion their role and further their ability to grow, employ and strengthen communities.
Towards those ends, I would suggest that all nonprofits consider the following five levels of mergers:
1. Backroom Services — As organizations grow and hire additional staff, they ultimately require human resource professionals that ensure employees are adequately trained, evaluated and compensated. If groups merged their resources to hire a common HR team, they could better focus funds on front-line activity without compromising professional services provided to organization’s individual staffs. This same idea would work for accounting, as well as IT services. In fact, some groups have formed lucrative social enterprise businesses to provide these exact services to fellow nonprofits.
2. Associations — Every group should consider joining a state or national association. This allows them to benefit from group purchasing as well as comparing best practices from others who share their passion. But beyond that, association members can leverage resources by hiring a full-time advocate to champion their cause at the city hall or state house. By hiring a person to represent a shared agenda, groups could ensure that legislators benefit from detailed data which would help replace legislation based on anecdotes, with policies built on proven ideas.
3. Banking — Nonprofit organizations are major sources of outside investment in every community, and the combined revenue of nonprofit businesses account for millions of dollars in annual deposits (in some cities that’s actually hundreds of millions). Imagine if nonprofits merged their banking business and shopped the combined cash-flow. They would gain significant financial and leadership leverage, effectively earning seats on bank boards and access to capital. Nonprofits could finally escape the “grant system” and scale social enterprise businesses more rapidly, which would create more good paying jobs and help strengthen local economies.
4. Commerce — What if nonprofits merged their volunteers and asked them to consider how they spend their money every day as a form of philanthropy? Imagine a national “nonprofit seal of approval” for businesses that paid a living wage, had proven green policies, provided healthcare or re-invested profits back into the community. Then nonprofits could tell the 63 million people who volunteer annually, “Every time you spend your money at a business that bears our seal, you not only decrease the need for many social service programs, you increase money flowing back into the community.”
5. Votes — Historically nonprofit organizations, unlike their for-profit counterparts, cannot engage in partisan politics. But nonprofit employees can. This is the highest form of merger for nonprofit employees to consider. Every group has their own issue, cause or constituency, but there are strategic moments when it is advantageous to move beyond individual interests and embrace an all-boats-must-rise strategy. The upcoming election cycle is one such opportunity. As the third largest employment sector in America, with roughly 10 million employees, those who work for nonprofit organizations must ask every candidate to detail how they would channel the energy, ideas and entrepreneurial spirit of the nonprofit sector — just as they would for the business community. No plan for economic recovery is viable without our work, so we must compel every candidate that seeks our votes to acknowledge our collective role in the American economy.
Now is the time for nonprofits in America to consider mergers. When we stand together, our votes are essential; our role in the economy unquestionable and our agenda unstoppable.