I am intrigued by Andrew Stern’s article in the latest Stanford Social Innovation Review titled, No Exit The Case for Nonprofit Holding Companies. It dovetails with our upcoming event in Philadelphia, Streamlining Social Good on April 28th.
Stern’s premise is that nonprofits often hit a wall after 5-10 years when fundraising becomes more difficult and leadership transitions abound. In the for-profit sector there is an efficient system for harnessing the value in such an organization – companies are acquired by larger companies and derive benefits from the additional resources these strategic mergers offer. They don’t have to get to scale on their own, as is presumed in the nonprofit sector: Grow, Change or Die! Nonprofits don’t have a similar way to pivot and still retain their value.
Stern suggests that the nonprofit sector needs holding companies, or a strategy for aligning smaller nonprofits with “nonprofit unicorns” or organizations that have developed the financial and leadership resources to provide needed support.
We see some of this already happening with what we call shared services organizations like CultureWorks Greater Philadelphia, the Urban Affairs Coalition and Support Kansas City. I think there is great potential to develop this idea further.
It seems to me that well-capitalized nonprofits may have limitations on their ability to expand in this way – would Boards see it as mission drift? Would they prefer to poach talent and redeploy these resources as they see fit? What is the return for the acquiring entity and how would it be “compensated” for taking on the risk of integration? I wonder if the philanthropic sector would be interested in using PRI’s to bolster this work?
I’d be interested in your thoughts! Come to Philly and let’s continue the conversation.