A Successful Nonprofit Merger Is Like a Good Marriage—A Relationship Built on Compromise and Mutual Respect
Take a moment to think back to the beginning of any new romantic relationship: you’ve just met, and you’re trying to navigate those early, awkward days. Are you attracted to each other? Do you have much in common? What kind of future could you build together with this person?
Slowly, as the relationship begins to blossom, a deeper understanding grows between the both of you, and you start to dream of a new future, perhaps with this special person alongside you. You may even decide to move toward engagement and marriage.
A successful nonprofit merger looks a lot like a successful marriage. Stick with me for a minute here. In both instances, there is an initial "getting-to-know-you" period. You’re both trying to determine if you’re a good fit. After you both agree there’s mutual chemistry, you move into the dating phase, sharing more information and growing in understanding of each other.
Ultimately, you both may decide to become engaged, or, in the case of a potential merger, you begin the legal and due diligence process, where each party bears its soul, warts and all. And finally—wedding bells ring! You get married.
But now, both for the real-life couple or the newly-married organizations, the real work begins. The two of you must figure out how to make this marriage/merger work, and then the hardest part begins: trying to integrate two distinct cultures into something even better.
A few years after I became the head of New Moms in Chicago, we were approached by Parenthesis Family Center, another local nonprofit who happened to share a geographic border with us and a shared vision for serving young families in our community.
Their board had spent some time reflecting on the long-term goals of the organization and realized that, in order to remain sustainable, they needed to pair up with a larger, like-minded organization that could provide greater business efficiencies, resources and cost-savings than they could ever manage on their own.
Eventually, these conversations led us to the mutual decision for New Moms to acquire Parenthesis, and, for the second time in New Moms’ history, we formed a strategic partnership with another nonprofit. (In 2010, we acquired a local social enterprise called Bright Endeavors who remains part of us today.)
These experiences have given me first-hand knowledge of some of the positives and pitfalls of mergers and acquisitions for non-profits, and I’d like to share three questions I think every nonprofit executive should ask before considering a merger.
1. What Is Our Ultimate Goal?
I’ve shared my experiences with a number of other executive directors, and one thing I always say is one plus one does not equal two. We want to believe that if we bring two organizations together, we’ll have twice the staff, twice the revenue and twice the potential for mission impact.
Unfortunately, that’s almost never true. In a sector where most nonprofit organizations run very lean, there is rarely any “fat” to cut. When most of your expenses are related to personnel costs, it’s very difficult to run a bigger organization without establishing a similar staffing pattern like what you had before.
Ultimately, the efficiencies are rarely so significant that the cost savings alone are a reason to consider a strategic partnership.
From a sustainability perspective, strategic partnerships can have multifaceted results as well. For example, when we acquired Parenthesis, we found that a few of their original donors actually stopped giving because they assumed that since those programs were now part a larger organization—we didn’t need their support! On the flip side, creating a stronger, bigger organization can also open up other opportunities for funding.
However, if your primary goal is to double your revenue, a merger may not necessarily be your best route. Do the work upfront in your due diligence to make sure you really understand what the realistic gains might be for your organization.
2. Are You Holding the Organization Back?
At one point in this process, I told our board that if we really cared about the mission at New Moms, we’d have to be open to new structures and partnerships, even if that meant changing the way we think about our organization. While in this instance we were considering acquiring a smaller organization, the same evaluative criteria of mission-first needed to be our North Star in considering other potential strategic partnerships down the road.
If that meant that at some point New Moms needed to join forces with a larger organization, and my role as CEO or their roles as board members needed to be eliminated as part of that, we needed to be okay with that if it was in the best interest of our mission.
3. What Does the Organization Need From Me to Ensure Success?
Once we answer the first two questions, we move from the dating and engagement phase into the marriage. For us, I think the hardest part of the merger process was the honeymoon phase, just after we merged our organizations. There was so much cultural work that needed to be done to help introduce the newly combined entity to each other, to our donors, to our clients and to our peers in the sector.
In many ways, this phase may be the most important part of the process because the real challenges only start to rise to the surface after you move in together. Internally, there may be some tension among employees of both organizations as they begin working together. For employees of an acquired or merged organization, they are now part of an organization they didn’t choose to work for (and potentially even competed with previously).
The other element of this stage that is so crucial is honesty. In our situation, we spent a lot of time talking about the similarities of both organizations, stressing how similar our missions and even organizational histories were in many ways. We tried to downplay our differences to establish group cohesion, and it backfired on us a little bit.
While it’s good to focus on your similarities, we learned it’s also important to point out the differences and be really transparent about how things would be different, especially for the employees of the organization being acquired. Those employees knew things would be changing as a result of the strategic partnership, but we needed to be clear about cultural differences and the ways in which their work life would change as a result of the acquisition. And we needed to be transparent with the existing New Moms team about the tensions and challenges that were inevitable parts of expanding our work through this partnership.
Several years ago, there was a lot of chatter in the nonprofit world that the sector needed to shrink. Critics pointed to successful mergers in the for-profit world and extrapolated that their nonprofit peers, who were under immense pressure from the changing economy, would follow the same path. But that has not happened. In fact, the nonprofit sector remains currently the third largest employer in the U.S., behind manufacturing and retail.
While the sector continues to grow, there remain good reasons to consider a merger or other strategic partnership if it’s the right solution for your organization. The least successful mergers (and marriages) are between two dysfunctional or failing parties who somehow through magical thinking believe that by joining together they’ll figure it out.
By contrast, successful mergers are those driven by the strategic desire to better scale the mission to serve their clients. They’re drawn into the dream of rethinking what their organization could look like in the future, and they’re willing to make significant changes in order to achieve bigger impact. If we as leaders are prepared to do this, we will find ourselves in a long and happy merger marriage, working together with others in order to sustain and enhance our mission for the long-term.
Laura Zumdahl is the president and CEO of New Moms. New Moms is a Chicago-based nonprofit that works to interrupt the cycle of poverty for both mothers and their children by providing stable housing, job training and family support. Its program model is unique, and it’s one of the only nonprofit organizations in the U.S. caring for women and children in this way. This year marks the organization’s 35th anniversary.
Laura has nearly 20 years of leadership experience in the nonprofit sector, and she has a Ph.D. in leadership as well. Under her leadership, New Moms has doubled in size, expanding its geographic footprint and capacity to transform the lives of mothers and children in Chicago.