By Yossi Prager
More than ten years ago, AVI CHAI received a report from Professor Joel Fleishman recommending best practices for spend-down foundations. One recommendation was that AVI CHAI invests ambitiously in building the organizational strength of our key grantees, including helping them plan for long-term financial sustainability. We took the advice and incorporated capacity building as a core element of our spend-down strategy. Our boldest efforts have come through supporting the development and implementation of strategic plans and funding nonprofit mergers. As might be expected, the results have been mixed – some wins, some losses and some where time will tell. We want to share lessons from our victories and defeats in the spirit of thought partnership, for the benefit of both perpetual and sunsetting foundations that seek to help grantees thrive.
For AVI CHAI in North America, which has focused on field building in the Jewish day school and summer camp sectors, the need to build organizational capacity exists on two levels: 1) in individual schools and camps across North America and 2) within critical organizations that serve across schools and camps with training programs, curricula, networking and other services. Our most distinctive lessons emerged from this second category – several big bets, grants of several million dollars to enable key grantees to plan futures of programmatic success and financial sustainability.
These big bets came in two forms: 1) we funded grantees to engage consultants to develop strategic and business plans, and then we partially funded implementation of the plans; and 2) we funded the merger of our grantees into or with other organizations. We learned from both forms of big investments what success and risk factors seem most important.
AVI CHAI funded strategic planning – sometimes in partnership with other funders – at five nonprofit organizations. Based on this sample, we have learned that funding strategic planning can be an excellent way of helping an organization set up a potentially-sustainable future. But we experienced failure as often as success.
As an example of success, the Jewish New Teacher Project (JNTP) is a division of a large award-winning nonprofit organization in general education (the New Teacher Center) that embraced the opportunity to develop a division for Jewish schools. From the beginning, in 2002, JNTP generated revenues from both fees from day schools, foundation grants and individual fundraising. Their first strategic plan, which we funded in partnership with the Jim Joseph Foundation in 2013, helped them to develop a new service delivery model that reduced expenses and provided a framework for expanding to new cities. They successfully implemented that plan, exceeding goals for program and fundraising. The two foundations funded a second strategic plan that will shape their direction going forward. The strategic planning process worked for JNTP because of a number of factors that coalesced: a good consultant fit, talented nonprofit leadership, realistic expectations about future revenues, a willingness and nimbleness to quickly adapt business models and the trust of their funders.
From our failures, we learned some important cautions:
- Do not let the process drag on for too long. How long is “too long” depends on the context, but nonprofits need to be careful that time-consuming strategic planning does not become an extended distraction from their core work or dissipate the enthusiasm of key funders.
- Do not fail to include stakeholder input or a funder feasibility study;
- Do not assume that dramatically-increased short-term budgets will ultimately produce dramatically-increased revenue afterward. Effective strategic plans – like that of JNTP – tie their growth to successful revenue generation.
- Do not base the timeline for revenue generation on the funder’s desire rather than realism. In retrospect, we put pressure on grantees to develop timeframes that met our schedule but may have been unrealistic.
In some cases, AVI CHAI and grantees fell into one or more of these traps, and the outcome was less successful than we had hoped. We also came to recognize that, in certain situations, even the best strategic planning process was unlikely to generate successful stand-along organizations. That brings me to the discussion of mergers.
Successful nonprofit mergers are generally considered so rare that many philanthropists do not even consider funding them, especially if there is any resistance to the idea within the nonprofits that might merge. We saw the promise of mergers and believe that they can be successful in appropriate situations if foundations are willing to invest sufficient money and time. In fact, foundations are uniquely positioned to make mergers happen.
Initially, our thinking about mergers arose in the context of two successful curricular programs serving 45,000 students combined that were facing the challenges and opportunities of retooling for a digital world and preparing for executive succession. We considered attempting to build the necessary digital expertise within the organizations and ultimately concluded that it would be more effective and efficient to combine these two programs with organizations that had the necessary educational technology expertise and also provided a solution to the executive succession issues. This thinking led to the creation of iTaLAM (please see this case study) and the incorporation of NETA/Bishvil HaIvrit into the Center for Educational Technology.
In a third case, AVI CHAI brokered the merger of five day school networks into a new organization, Prizmah: Center for Jewish Day Schools. The impetus for this merger was the desire to concentrate expertise, generate efficiency and reduce donor confusion. The creation of Prizmah was by far the most complex of the mergers, almost miraculous in that five organizations (or divisions of other organizations) put their hopes ahead of their fears for the greater good of the field to which they were all committed.
Our experience is that mergers are challenging, time-consuming for the nonprofits and expensive to consummate. In all three cases, the mergers involved conversations that lasted over a year, sometimes two or three. Even passive resistance from one key player can add mightily to the cost, time, and energy needed to drive the process forward. In all three cases, the foundation’s staff invested far more time as honest brokers than we had anticipated. But we also learned that mergers are achievable and, in our cases, worth the effort.
All of these mergers have happened within the past five years, and so it is too early to assess their long-term outcomes. However, I feel confident in saying that all of the combined organizations are stronger today, financially and programmatically, than they would have been as independent organizations.
I see three factors that contributed to the merger successes (to date):
- The synergies were real: each constituent organization brought unique expertise or market reach. In the case of the two curricular organizations, one side brought content expertise while the other brought experience in educational technology. In the case of Prizmah, each of the founding organizations served different constituencies and had developed complementary expertise that could be combined. Mergers make sense when they concentrate resources and talent.
- In all of these cases, AVI CHAI was already a significant funder of at least one party to the merger, and sometimes more than one. Grantee dependence on our foundation forced participation in the process, but two additional factors were critical to getting the mergers done: 1) we generously funded operating expenses of grantees during the merger conversations as well as professional support from consultants, lawyers and fundraisers and 2) we invested a great deal of our own staff time as honest brokers, being a partner at the table.
- The key people at the organizations were able to keep the ultimate goal – benefiting Jewish education – as the #1 priority. There were many heated moments and disagreements, and these were only overcome through inspiring commitment that kept us all at the table.
For AVI CHAI, it was only Professor Fleishman’s advice related to impending sunset, and our growing focus on field building, that pushed us toward partnering closely with key grantees to help build and structure long-term success. I regret that it took thinking about sunset to stimulate our focus on capacity building and our willingness to invest time and money in the long-term future of grantee organizations. I applaud other foundations that came to this realization sooner.
Ambitious capacity building – whatever its form – is a necessary role for foundations if our shared goal is to build a field of effective, sustainable organizations. If you want to learn more about our efforts in this area as you plan your own, please call or email me at AVI CHAI.
Yossi Prager is Executive Director – North America for The AVI CHAI Foundation.