Mission + Strategy = Social Value

Announcing a New Blog Series on Nonprofit Co-Location by Mission + Strategy

There is a lot of exciting and creative work occurring with nonprofit co-locations around the country and I thought I would write a series on the topic in my Stanford Social Innovation Review blog. The first posting was published Jan. 11th. It's about a really interesting co-location project in Charlotte, North Carolina which houses nine separate nonprofit organizations called the Children and Family Services Center of Charlotte. Here is a link to the article.  Watch for future postings on this topic coming out in the next few weeks including  an interview with China Brotsky from the Tides Foundation.

There's a very interesting article about the Chicago-based shared service alliance called the Back Office Collaborative, or BOC, in the winter issue of the Stanford Social Innovation Review (http://www.ssireview.org/articles/entry/case_study_change_comes_at_a_cost), summarizing what BOC and its members have been able to accomplish since it was formed in 2008. I recommend that you read it. The article does a nice job of highlighting BOC's significant successes, as well as detailing the pain that the organizations have undergone to get there. To date BOC has created net savings to its members of almost $1.5M. The typical member of BOC gets a 488 percent return on their $6,375 membership fee, quite astounding. Yet, some of BOC's success has come at a significant price, in some instances. After consolidating financial services departments, 35 people lost their jobs which generated over $700,000 in savings. And yes some of those jobs went to India. The founding organizations have been able to re-invest those savings back into the organizations' programs and services, which is what this shared service alliance is all about. Future plans call for continuing this consolidation process, by sharing health insurance, I.T. and Human Resources. There are other examples out there about shared service alliances to give you perspective on how this can be done differently (check out my blog for postings on this subject), but none have achieved the results that BOC has, in this short time. I know that Bryan Preston and his members have agonized over this process; it is never easy to decide to lay anyone off. But if the organizations are more stable, and able to invest more in their services as a result of these changes, isn't that a good thing? Read the article and decide for yourself, and then write me a comment and let me know your thoughts.

Changing the Way Nonprofits do Business by Funding Collaboration

Recently, I wrote a piece about an exciting new funding source for nonprofit strategic restructuring called the Sea Change-Lodestar Fund, which has a national geographic focus. One of my readers informed me about another funding source called the Catalyst Fund, administered by the Nonprofit Finance Fund. The Catalyst Fund also finances nonprofit collaborations, and although it restricts its giving to the Boston area  the founders believe it could be a national model for funding nonprofit collaborations by creating a replicable resource infrastructure to support nonprofit collaborations.

I recently spoke with the Catalyst Fund's Manager Peter Kramer and asked him to explain their goal. "Ultimately, we want to see nonprofits meaningfully change the way they do business in order to further their missions." Peter said that the Catalyst Fund began in September 2010, with a five-year commitment to invest a total of $1.725M by four key investors: the Boston Foundation, Boston Local Initiatives Support Corporation, The Hyams Foundation, and United Way of Massachusetts Bay and Merrimack Valley. The choice of a five-year horizon, he said, was because "This is a new approach. We are taking an active role in providing resources for collaborations and mergers through a central vehicle and in a unified way. If this doesn't end up working how we anticipate it will, then we want the flexibility to be able to try something else."

Peter explained the Fund's unified proces this way. They have a simplified intake and application process, much like a venture philanthropy that is an interative diligence process, with lots of conversations with the applicants to hone their thinking around their venture. "We try to get a good feel for where they are trying to go," said Peter. In these early conversations, the Fund is looking for signs of "seriousness of intent" by the applicants, by which Peter meant, "Have the boards passed some type of resolution for the initiative?" Uninvolved boards are a sign to Peter that there isn't a meaningful change in business occurring and therefore may not fit with the Catalyst Fund.

The Fund also has a pool of pre-qualified technical assistance consultants. "We wanted to be able to pre-qualify consultants so we know that consultants aren't cutting their teeth on the Fund; also we wanted to assure a level of quality going into the engagements." The consultant pool includes various kinds of expertise including facilitation, finance, legal, and governance.

But how do they measure success? "We want to know," explained Peter, "Has the actual technical assistance engagement led to real improvement, expansion, or preservation of participating nonprofits' programs or services? And, we want to know if the nonprofits have made a meaningful change in their business model. But at the end of the five years of the Fund, we want to be sure that more people know about collaboration strategies, and that collaboration is a more accessible and positive tool to nonprofit leaders, whether in good economic times or bad."

During the past year, the Catalyst Fund has made its first round of investments in nine collaborations, totaling $280,000. It's a diverse pool of mergers, alliances, and partnerships from a variety of nonprofits. The Catalyst Fund is underway, and we look forward to learning from its model and if it can meaningfully change the way nonprofits do business by funding collaboration.

Is there a fund to underwrite nonprofit mergers and collaborations in your community? If so, please write a note to this posting and I will try to write about it in the future.

Merger Client Announces New Identity

My client, the Badger Asn. of the Blind & Visually Impaired, of Milwaukee, WI., which merged in 2009 with the Center for Blind & Visually Impaired Children, is launching their new identity today: they are now known as Vision Forward Association. Congratulations! http://www.badgerassoc.org/whatsnew/launch-party-open-house/ .

Announcing a New Consolidation

Mission + Strategy would like to announce the consolidation of The Emergency Fund and The Chicago Alliance to End Homelessness, effective Oct. 1, 2011. This unique strategic partnership brings together the two largest systems-level nonprofits addressing homelessness in Chicago.

A New Merger: Changing Worlds and the Shanti Foundation for Peace

I'd like to announce a merger of Changing Worlds and the Shanti Foundation for Peace, completed with the assistance of Mission + Strategy's consultant Cinda Rierson, among many others. Congratulations to the Executive Directors Mark Rodriguez and Indira Johnson for a job well-done!

A New Source for Funding Nonprofit Mergers and Integrations

It isn't often that a funder calls me up to introduce himself, but that's what John MacIntosh of Sea Change Capital Partners did when he heard that I was active in nonprofit collaborations in the Midwest. John wanted to learn what I was up to and make sure I knew about a unique philanthropic fund dedicated to enabling nonprofit collaborations. The Sea Change-Lodestar Fund for Nonprofit Collaboration is itself a collaboration between the Lodestar Foundation and Sea Change Capital Partners.

The Sea Change-Lodestar Fund's mission is to facilitate and fund sensible collaborations among nonprofit organizations. it is prepared to help cover a portion of the one-time ocsts associated with nonprofit mergers and collaborations. It makes two main types of grants:

• Exploratory grants (generally $25,000 or less) to explore and evaluate a potential collaboration

• Implementation grants (up to $250,000) to cover a portion of the one-time costs associated with implementing a collaboration

John explained: Implementation grants are always made alongside funders of the collaborating organizations, often specialized in sector or from the local geography where the merger or collaboration is happening. Our fund believes in having a high engagement level with the leadership of the collaborating nonprofits, quick turnaround, and a thorough evaluation and approval process.

When I asked John why Sea Chanage was collaborating with the Lodestar Foundation on this fund, he replied, We each bring different things to the table. Lodestar is unique amongst foundations in its focus on collaboration. We were thrilled when they approached Sea Change about working together, and put the issue of nonprofit mergers and collaboration on our radar screen. The team at Sea Change has deep financial and transactional experience in both the nonprofit and for-profit worlds, so this was a very natural step for us to take in our effort to help nonprofits have more impact while also seeking opportunities to make leveraged grants. Sea Change does much of the front-end work, the analysis, the site visits, and speaking to the leadership. We have raised some outside funding for this work, though Lodestar remains the biggest funder and Sea Change the second biggest.

But I wondered how the fund defines "sensible collaboration." John explained that is when two or more nonprofits combine some or all of their important activities in a formal, long-term, or permanent way. It can take many different forms, including mergers, acquisitions, and various forms of alliances and partnerships. A sensible collaboration is one that has the potential to increase the efficiency, effectiveness, or sustainability with which they pursue their missions. We want to help organizations that have gotten to the point of exploring something or consumating a collaboration, to do it.

The really nice thing about this fund is that it is set-up to pay for what they call the "unavoidable but uninspiring" costs of collaboration, such as IT integration, re-branding, severance costs, and lease-breaking - costs that many funders would find an anathema. The fund is not a passive donor, however; it gets intimately involved in some of the transactions when it feels it can add value as an outside party. If the fund feels it cannot add any value it is less likely to fund the transaction. Guidelines state: Our due diligence process is intensive..." - so be sure you want a partner if you approach the fund for support.

And in this age of focus on cost-cutting and efficiencies in nonprofit mergers and integrations, MacIntosh had this to say: The whole question of cost-savings is more nuanced than many people believe. In our experience, saving money is neither necessary nor sufficient motivation for collaboration. Often the level of potential cost savings wouldn't be enough to justify the collaboration, but it's often enough to put the transaction costs in a healthy context. The ability to save money doesn't mean you actually save it, but instead you reallocate your resources to the program side. After all, the goal is not to reduce the budget, but to produce great contemporary dance, educate more children, etc.

The Sea Change-Lodestar Fund for Nonprofit Collaboration, based in New York City, takes proposals on a continuous basis from across the country. Are you aware of other new funds like this one? If so, send me a note so I can post something about it.

 

Back Office Integrations - The Merage Foundation Early Learning Ventures Alliance Model

This is my third posting in a series on shared services alliances in the nonprofit sector. Aside from mergers, there is a wide variety of partial integration models that are extremely creative and productive that nonprofits can use. One of these models is called "shared services alliances."

This month I want to share the story of the David and Laura Merage Foundation based in Colorado, and their efforts to strengthen the Early Care and Education (ECE) industry by creating an innovative shared service infrastructure called Early Learning Ventures Alliances. This community-based partnership model involves small ECE providers working together to share costs and deliver services efficiently.

Sue Renner, Director of the Merage Foundation and of the Early Learning Ventures, oversees the establishment of the new shared services alliances for the ECE sector in Colorado. She told me that at the foundation they were struck by the failure rate and market challenges of these business and that investing in them in traditional ways was like "pouring water through a colander; there would be no sustainability." That is why the foundation decided to focus on strengthening operations. Their answer became the Early Learning Venture Alliances, a group of geographically-based alliances, each with up to 100 affiliated childcare businesses. Alliances formed a hub operation to provide a broad array of high-quality services to the affiliates in order to achieve economies of scale and increase the capacity of the affiliates. Services include customized technologies, business consultation, policy and finance reform, technical assistance, quality control, and fund development to optimize the delivery of shared services to the affiliates. The model looks like this:

The goal is to allow providers to maintain their independent identities and to focus on creating strong, high quality programs for the children and families they serve. To date, they have identified seven nonprofits that have agreed to act as the Alliance hub in their geographic region. Each is now in the process of implementing their operations plan.

The business realities for early childhood providers are quite difficult. The average childcare center serves about 75 children and employs fewer than 20 people. Let's face it, when it comes to spreading costs bigger is better. Yet the Shared Service Alliance integrates the services where big matters - financial services, purchasing, human resource services, IT, facilities management, etc. But where small is better - classroom size, student to teacher ratio, etc., then small is the operative word in this model. When it's necessary to have programs that are rooted in communities so that they allow parent involvement and represent cultural concerns, then local is the operative word. The Shared Services Alliance model allows for large leveraging, while it respects small and local values.

To access a Shared Services, you can go here.

 

 

I Gain and You Gain - The Emergence of "Smart Power" Strategies in the Nonprofit Sector

I am often asked: Why is it important to learn how to collaborate with other nonprofits? My response often has to do with the microeconomic changes that influence our sector, such as the pressure to raise unrestricted funding. But recently I saw a very interesting podcast on Ted.com given by Joseph Nye, a historian and diplomat who made me see the answer to this question in a new way.

Nye explained that the nature of power - the ability to accomplish your goals - is changing in the 21st century. Most countries are used to thinking of power as the ability to act unilaterally. Nye, who was speaking about global power shifts, says however that it's soft power which is the emerging power in the 21st century. There are many problems that are outside the control of individual countries: climate change, pandemics, etc., and that the only way to deal with these issues is through cooperation among nations. The same is true in the nonprofit sector where we are often struggling with failing state governments, the recession, or complex social problems. Nye advised that we have to stop thinking of power as a "zero sum game," where I win and you lose, or vice versa. Today, power could also be a positive sum game: I gain and therefore you gain as well. Increasingly, this is the way we want to think about power in the 21st century, in the nonprofit sector, as well.

How can we work together as nonprofits to produce positive results we can all benefit from? One way is through exercising soft power by creating alliances, partnerships, and mergers between organizations as a strategy to address those chaotic issues that are beyond the control of any single organization. Nye explains that by exercising both soft and hard power, one creates "smart power," the ability to move back and forth between these two strategies. In the 21st century, let's vow to exercise smart power in the nonprofit sector in order to deliver on our nonprofit missions.

If you've read any of my blogs about the Early Childhood Education Shared Services Alliances, you may want to participate in a webinar to learn more about them on Dec. 2nd. The webinar presenters are Louise Stoney and Libbie Poppick from the Opportunities Exchange. Go here to register: https://www2.gotomeeting.com/register/409553491 .