This post was written by one of the many nonprofit leaders who will be presenting at the 2020 BoardSource Leadership Forum May 7-8 in St. Louis. We hope to see you there!
The sad truth of today’s nonprofit sector is that it has become more challenging for nonprofits to obtain financial support. Fifty percent of nonprofits have less than four months cash on hand, and only 45 percent are able to meet demand. I believe that these are signs that the overall health of the sector is declining and that the current environment does not support the long-term sustainability of nonprofits. This is a problem that will ultimately impact hundreds of thousands of people.
As nonprofits consider strategies to adapt to this new problem, strategic alliances need to be an important consideration. The term “strategic alliance” has a broad definition encompassing varying levels of commitment including, but not limited to, re-aligning resources, collaborating to increase efficiencies, or even a merger.
In its truest form, strategic alliances are mutually useful relationships among nonprofits and are most often intended to strengthen mission and impact by coming together for a common purpose.
Despite the potential benefits though, strategic alliances do not come without pitfalls and challenges. In fact, the success and salience of alliance efforts and their long-term effectiveness for improved allocation of resources is often debated. In my experience, boards that conduct thorough due diligence to mitigate risks and show commitment to supporting management throughout the process see long-term success.
I’m often approached by nonprofit directors seeking advice on leading practices for strategic alliance due diligence activities. There is no one-size-fits-all approach, but I have outlined below two key considerations:
- Will a strategic alliance further our mission? Despite the unique nature of nonprofits, I encourage nonprofit boards to begin evaluating the opportunity by analyzing factors like the ones for-profit boards consider in M&A oversight. This includes synergies, cost savings, efficiencies, and work force issues, among others. Directors also need to carefully review various information related to the other entity, including articles of incorporation, bylaws, board policies, audited financial statements, audit reports, contractual arrangements, litigation, insurance coverages, and other material documents. These will allow you to identify potential challenges and determine if the entity is the right fit for the organization.
- Why and when should my nonprofit consider a strategic alliance? It is a nonprofit director’s obligation to mitigate risk and oversee opportunity. As such, directors should regularly review the nonprofit landscape for areas of opportunity and strategic growth through alliances. However, timing and execution are critical. Throughout my experience working with nonprofits, strategic alliances are often triggered during times of financial crisis and vulnerability, stagnation, management turnover, and funder encouragement. Strategic alliances should not be rushed into as a result of external factors or pressures. Instead, ample time should be taken to conduct careful analysis and engage leaders, staff, funders, and other stakeholders to generate the buy-in critical to the alliance’s success.
I can think of countless examples of nonprofit strategic alliances that are successful and just as many that have failed. At the 2020 BoardSource Leadership Forum, I look forward to leading an intimate roundtable discussion on strategic alliances and analyzing how and why some nonprofits got it right and others did not. The more time we, as nonprofit leaders, spend talking about strategic alliances and the role that boards should play in contributing to the success of alliances, the better we will collectively contribute to building financially healthy nonprofits that foster community vitality.