Nonprofits Under Pressure: Are Mergers in the Cards?

Well, these are certainly interesting times to say the least. Nonprofit arts organizations have seen their federal grants canceled or rescinded. Granting agencies such as the Institute of Museums and Library Sciences (IMLS), the National Endowment for the Humanities (NEH), and the National Endowment for the Arts (NEA), with a combined annual budget near $700 million, are on life support. Academic medical centers are reeling from the loss of an estimated $1.9 billion of funding from the National Institutes of Health (NIH) and are thus facing huge program cuts and layoffs.

Nonprofits whose missions focus on supporting causes outside American borders are on the defensive – or worse. According to a KFF analysis, the current administration has cut more than $36 billion in USAID’s unobligated funding, including almost $28 billion in terminated awards. Much of that budget was destined for nonprofits to deliver in-country programs and staff. Separately, Republicans on the House Ways and Means Committee have drafted language in the reconciliation budget bill that would allow for terminating the tax-exempt status of groups that the administration unilaterally deems “terrorist supporting organizations.” It’s not a stretch for this administration to argue that nonprofits whose work supports refugees, are aiding terrorists.

When Mergers Become a Necessity

Unfortunately, most nonprofits do not have the resources to go up against the federal government – unless perhaps you are Harvard University with a $53 billion endowment. So, what will happen to nonprofits whose tax-exempt status has been revoked? They could declare bankruptcy and wind down their operations. Another option would be to merge with another nonprofit. In 2008/2009 during the Great Recession when giving declined, we saw organizations with similar or complementary missions merge.

Irrespective of financial stress and political pressure, we’ve also seen organizations merge for strategic reasons. For some, overlapping missions and competition for funds became powerful motivators for a merger. The prevailing wisdom is that more resources directly translate into greater impact. Other nonprofits were incentivized to merge due to anticipated back-office efficiencies and cost reductions. Yet other organizations were just too small to generate the necessary size and scale to compete for scarce funding dollars.

For whatever reason you find yourself contemplating a merger, we have some advice for you: mergers are hard! You need to look beyond the promise of added resources, increased scale and broader reach. While those are important, successful mergers depend on culture. After all, people are often the greatest resource an organization has and it’s important that the two teams mesh. Do the two organizations have the same values? Are both staffs invested in the mission or is one just there to collect a paycheck? While some mergers are presented as a melding of co-equal organizations, the reality is that there will likely be a winner and a loser. Therefore, as you bring everyone together, make sure that there is open and honest communication.

Merging Minds and Machines: A Step-by-Step Guide to Integrating Systems

After people, the next biggest assets are your systems and databases. It’s critical that you take a careful and thoughtful approach to combining these information assets. Here’s a step-by-step guide to merging systems while maintaining your sanity. We will focus on your fundraising CRM systems, though the principles and methods are the same for most other applications.

1. Take a complete inventory of both organizations’ systems

Identify the software solutions that both organizations currently use to manage their businesses: fundraising (CRM, online giving, events, etc.), finance and HR are good examples. Don’t forget to identify any side systems, such as Excel spreadsheets, Access or Airtable databases. It’s often helpful to create a diagram showing how each software is connected in your data ecosystem. We call this a current state data model.

2. Analyze the systems from both orgs

Start to review the systems and data that each organization uses. Get a sense of data cleanliness and completeness in each of the systems. Review existing software for usability, functionality, scalability and overall fit for the combined organization.

3. Build a plan for your combined future

Decide which systems you’ll keep and which will go. Don’t forget licensing costs as you make decisions. Build a plan for merging/migrating the data. Remember that a lot has changed since the pandemic, so some data may no longer be relevant. Diagram what the new data ecosystem is going to look like. We call this your future state data model.

4. Define your data strategy

As you look to merge data from your systems, define some guiding rules. For example, with your fundraising CRM, if you have the same constituent in both databases, you may want to keep only the most recent address, phone number and email address. Or you could decide to only keep the contact info from one of the systems regardless of recency. Whatever you decide, make sure that you’re not making that decision in a vacuum. It should be a team decision.

5. Create or carry over a common logical coding structure

One of the biggest challenges in merging two databases is to define a common coding structure. For example, the structure of a source (appeal) code on a gift may be very different between the two databases. Going forward, agree on how all gifts will be coded. And, if you’re going to do historical analysis on gift history, you may want to recode all the historical gifts to match your new structure.

6. Do a test merge – or two

Even though you’ve got everything planned out, do a test merge (or two!) in a separate instance of your system. Sometimes, a good idea in theory doesn’t turn out to be good in practice. Beware of the law of unintended consequences.

7. Document everything!

Document the decisions you make so future work generations can understand where the data came from and how it has changed. Your documentation also provides a blueprint for how the organization can move ahead confidently and securely.

Emerging Stronger Through Strategic Consolidation

These are indeed trying times for many nonprofits, but they also present an opportunity for strategic recalibration. The organizations that navigate these complexities thoughtfully, emerging with stronger teams and streamlined systems, will be the ones best positioned to continue their vital work, no matter what headwinds they face.

Maximizing the insight within your data and technology is crucial for growth and engagement, and we’re here to help you achieve that.