Five years ago, one of the city’s most celebrated youth service agencies faced a conundrum. The Door was an innovative grassroots group that had consistently won lavish praise and funding for its teens-only services like legal aid, homework help, and a sexual health clinic. It was doing great work, but its management was a mess, blazing through four directors in six years.
Though still in business, The Door was also floundering financially. “It had been subject to periodic financial challenges, some real heavy-duty difficulties,” says Bob Howitt, a former executive director and board member for the organization. At one point, the group almost failed to meet payroll.
That’s when Howitt, then board chair, approached Michael Zisser, a member of The Door’s board and the executive director of University Settlement, with what was then considered a radical idea: combine the two organizations. Bring University’s management expertise and fundraising savvy to The Door; take advantage of The Door’s teen programs to enhance University’s college prep work.
As Zisser recalls, merging among nonprofits was a novelty at the time: “Everyone said, “‘What are you doing?'”
Today, few nonprofit executives would be shocked. Organizations serving the city’s most vulnerable are confronting diminished government spending, withering foundation support and a penny-pinching donor base–all while facing increased demand for services. The hunt for creative ways to maintain programs has gained urgency. Groups usually seek to expand their reach by winning new contracts or starting new programs. Now, nonprofits are increasingly considering an approach that used to be reserved strictly for the money-makers: Merge.
“Many nonprofits are struggling to survive at all,” notes Chuck Hamilton, executive director of the Clark Foundation. “It’s clear to me that a lot of organizations just aren’t going to survive. That means they either go out of business, or there’s a collaborative merger possibility.”
Hamilton says he’s seen lots of activity behind the scenes. “I started to ask grantees if they’d ever thought of mergers–probably a dozen executive directors–and every single one had thought of it, been approached, or it was a vague goal for the future,” he says. But for many nonprofits, says Hamilton, “‘merge’ is still a four-letter word.” To help bring the topic out of the closet, Clark sponsored a conference on mergers this past June, drawing about 125 executives and board members from around the city.
Mergers inspire skittishness, not least because they are labor-intensive and sometimes risky. “It’s really harder than getting contracts,” says David Campbell, a vice president at the Community Service Society, who has researched nonprofit governance.
Indeed, the initial skepticism Zisser encountered was, as much as anything, a product of the size of the project the two groups were taking on. At the time of the merger, University boasted a staff of 178, serving about 10,000 clients ranging from infants to senior citizens, an annual budget of $10 million, and a 115-year history. The Door, founded in 1972, served 6,000 teens a year with the help of 127 staff and $5.5 million in annual funding.
When the two groups joined forces in 2000, The Door became a “member” of University Settlement in a parent-subsidiary model, with each group retaining its own legal identity. In their new form, the two groups serve about the same number of clients, yet they’ve boosted their combined funding to $21 million and their combined staff to 455. (All of that increase has been on University Settlement’s payroll.) They also share an administrative office and several staff, including Zisser as their executive director. He is careful to note that the increased funding isn’t a direct result of the merger, but Zisser admits that the new structure helps in that realm as well. “The funding community sees you as being proactive,” says Zisser. “Funders like to know they’re giving their money to a well-run organization.”
With the merger, the two groups are better able to weather cutbacks. They share a human resources department, technology support and a development staff–resources neither group had before. The merger has also enhanced services. University had been running a successful college prep program, but the collaboration opened up new possibilities, says Joseph Collins, who coordinated the program at University before moving to The Door. “We have kids who aren’t documented and who couldn’t get into college, and we couldn’t [address] that at the settlement. Now we’re able to do more than provide help on an application,” says Collins. Kids can now get physicals for their college applications, get help finding a job to make ends meet or access legal services to get a green card. Says Collins, “Everything we dreamed of doing at the settlement is a reality.”
As in the human dating game, not every organization is likely to find merger bliss. Financially, many are past the point of no return. A group that has downsized programming and is scrambling to keep afloat does not make an attractive partner.
But organizations tend not to broach the topic of merger until it’s too late. “The community-based nonprofit sector is too resourceful for its own good,” laments Sean Delany, Executive Director of Lawyers Alliance for New York, which arranges legal assistance for groups exploring mergers, and recently published a handbook on the topic. “They keep things going on fumes until the point comes where they are no longer viable as partners in mergers.”
One reason groups are so reluctant to explore their options while they still have them is the intense rivalry within the sector for scarce resources. “There’s enormous competition” between nonprofits, says Fran Barrett, executive director of Community Resource Exchange, a technical assistance group for nonprofits. “We would have maybe six or eight groups that are going in for one grant. There’s always been enormous competition, but I think it’s stepped up now because people are looking for money.”
There’s a certain value to the competition–it keeps groups lean, goes the logic, and helps keep costs down. But it can also prevent organizations from thinking about the big picture. For funders, Campbell points out, the world looks very different: “There are questions about whether there are too many organizations to deliver services efficiently,” explains Campbell. “If you have 25 mental health centers, is it more efficient to deliver services with 10 organizations instead?”
Cash isn’t the only resource groups are competing for; they must vie for top leadership talent, too. Turnover in the sector is intense: Of 300 nonprofit executive directors, nearly half plan to leave their position within the next five years, according to a recent study done by United Way of New York City. The same study found that 60 percent of 300 senior staff surveyed thought they could make a better salary at another nonprofit.
Leadership challenges don’t end, of course, once a merger is sealed. Merging disparate organizational styles isn’t easy. Seemingly inconsequential aspects of a nonprofit’s work can turn out to be formidable stumbling blocks. “What is the work style? Do we go to lunch? Do we take vacation?” explains Barrett. “It’s very easy for people to go onto the moral high ground of ‘we work harder than they do.'”
Two years ago, South 40, an employment services group geared toward ex-offenders, joined up with the Osborne Association, a multiservice agency for prisoners and ex-offenders. A single organization now gives clients employment help and social services, without an outside referral.
Initially, the culture clash was jarring, says Ann McLaughlin, who was promoted to director of South 40 Employment Services after the merger. “It wasn’t smooth,” she admits. Osborne, says McLaughlin, was fairly professionalized and had a regimented infrastructure; South 40 was more casual. Another difference was the way each group approached its work. “In employment, we are very no-nonsense, because nobody’s going to hold your hand at a job,” says McLaughlin. At Osborne–which offers services in mental health, housing, substance abuse, even case management–“they can hold their [client’s] hand because that’s what the client might need.”
Sometimes, a merger threatens not just work style but an entire program. Mergers mean relinquishing control, and open up the possibility that a project or even a program area will lose its appeal under the new organization. Though nobody aims to downsize programs, it sometimes happens as a partnership evolves–and that’s a risk that groups entering into partnerships just have to take, says John Vogelsang, associate director of the Support Center for Nonprofit Management. “I’ve had a number of phone calls where people start to realize that’s a risk,” says Vogelsang. “And they decide, instead of a merger, to do a joint venture but keep their organizations separate.”
With so many pressures to maintain the status quo, the number of groups pursuing “strategic collaborations” has yet to surge, even as interest in mergers intensifies. The Lawyers Alliance, which provides and coordinates legal assistance for nonprofits seeking to merge, has seen “a remarkably consistent level of activity,” says Delany. Five years ago, the group secured assistance for eight collaborations in a year; in the past year, it has handled only three more than that. “There’s a lot of talk. Many have called here,” says Delany. “But few have gone through with the process.”