Exploring Alternative Operating Models for Nonprofits
A PNY recent session discussed how funders can support grantees in exploring alternative operating models. During the session we explored what kind of financial, technical, and strategic assistance is needed to facilitate successful transformations to help organizations weather funding cuts and heightened uncertainty in the political environment.
Take-Aways for Funders
Funders play a pivotal role in shaping the health and resilience of the nonprofit ecosystem. Building on this understanding, the session highlighted practical ways to help grantee partners assess their structures and strategies in a rapidly shifting environment and ensure that philanthropy is not unintentionally contributing to the challenges nonprofits face.
Shift the mindset
- Acknowledge heightened risk: Business model uncertainty has risen dramatically due to shifting liabilities and the external landscape. .
- Funding sustainability: Rather than celebrating and funding growth, funder should support and value difficult decisions that might lead to reducing programs, cutting costs, or streamlining services.
- Don't see merger and acquisitions as cost-savings: They require significant, dedicated resources and support for the process itself.
- Core infrastructure is vital: Invest in the core functions (e.g., finance, HR, legal, and evaluation) of grantees and of anchor organizations, including intermediaries.
Support the exploration of alternative business models
- Start conversations: Ask grantees about scenario planning and how they are preparing for external threats.
- Invest in preparation: Support grantees in strategic planning that includes assessing alternative models.
- Fund the process, not just the outcomes: Due diligence and exploration (e.g., assessing alignment, legal costs, and strategic fit) requires dedicated funding, even if a formal merger doesn't occur.
- Recognize creative models: Encourage the exploration of a variety of models that meet the moment.
The Session
Hilda Polanco, Practice Leader for BDO’s Nonprofit and Grantmaker Advisory set the stage with an overview of why organizations explore alternative operating models, and the range of risk and organizational change they require.1
A thoughtful assessment of the external risk landscape should assess: Expected Impact; Areas at Risk; and Potential Models of Redefinition.
Credit: BDO Nonprofit and Grantmaker Advisory
Why explore a different model?
Common triggers, ranging from leadership transitions to revenue drop and fatigue from operating in survival mode for prolonged periods, can lead nonprofits to consider different operating models.
Credit: BDO Nonprofit and Grantmaker Advisory
Options for operating models exist on a spectrum. Organizations could consider outsourcing certain services, fiscal sponsorship, or back-office shared services. On a more structural level, they could also consider program asset transfers, collaborations, alliances, and mergers.
Credit: BDO Nonprofit and Grantmaker Advisory
How can nonprofits navigate a change in operating model?
Following BDO’s presentation, a panel discussion moderated by Itai Dinour of the Carmel Hill Fund, Michelle Yanche, Executive Director of Good Shepherd Services, and Jeremy Kohomban, President and CEO of Children’s Village, reflected on the key ingredient in their experiences with acquisitions and the power of collaboration when stepping into unfamiliar territory.
Strategic planning and mission alignment are key to taking on big change, but funder support and board involvement can provide the necessary guidance to see it through. Good Shepherd opted for a merger with Groundwork, a Brooklyn network that serves youth and families living in or near public housing. Good Shepherd’s thorough due diligence included conversations with Groundwork’s funders, government agencies with whom they had existing contracts, elected officials, and members of the community.
The boards of both organizations played a critical role. Members from Groundwork’s board joined Good Shepherd’s board, bringing along their expertise and commitment to the mission. For Good Shepherd, the existing capacity of their board as well as consulting support made the difference.
“Fortunately, we had board members who understood the mergers and acquisitions process from their own professional expertise …We were (also) fortunate to have the infrastructure, and that’s a key asset that’s needed to make things work successfully.”
— Michelle Yanche, Executive Director, Good Shepherd Services
Children’s Village opted for a non-merger model when acquiring Harlem Dowling, a historically Black-led child welfare agency with deep ties to the community. With Harlem Dowling facing a severe liquidity crisis and imminent closure, the board supported this focus on Dowling’s financial health.
From there, the leadership restructured Harlem Dowling’s debt. Further, they invested in city land recovery and provided shared services for finance and human resources. As a result, Children’s Village was able to help preserve this historic institution with an independent 501(c)(3) status, with Children's Village’s president receiving a nominal $1 annual salary to provide oversight.
“We are so thrilled that they survived, and that their legacy will continue. Our board recognized that if we had merged… there would have been a footnote in our history, not an organization that sits at City Hall, participates, and is still remembered as the oldest organization of color.” — Jeremy Kohomban, President and CEO, Children’s Village
Although their methods differed, both Children’s Village and Good Shepherd prioritized acquisition readiness. With an understanding that every organization should see itself as both a potential acquirer or acquiree, they were able to do scenario planning, which allowed them to identify which focus areas to protect, including housing and after-school programs, which services would need relocation, and when to exit government contracts.
How can funders resource intermediaries?
Laurel Dumont of the Solon E. Summerfield Foundation (SESF) shared how SESF’s board decided to release an additional pool of funds to spark a collaborative effort among youth-serving intermediary groups in New York City. Recognizing that many youth development nonprofits in the city were turning to intermediaries with similar ‘how to’ questions, SESF decided to resource these intermediaries and bring them together under one coordinating body. This led them to be better positioned to supporting the youth development field at large. Through the newly established Coalition for Youth Development Intermediaries, they cut duplication, coordinate updates more efficiently, and now offer capacity building, training and support to a large number of nonprofits.
“It felt like every other organization that we were talking to was facing the same kinds of questions… ‘How do we plan for this?’. We realized that a lot of people were turning to intermediary organizations. And there’s a lot of inefficiency in that, so what we wanted to do is resource those intermediaries that were carrying so much for the field.” — Laurel Dumont, Senior Director of Grantmaking for Solon E. Summerfield Foundation (SESF)
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Across these examples, organizational readiness, honest assessment, and courageous collaboration are themes that emerged in allowing nonprofits to navigate uncertainty and safeguard their services. But nonprofits cannot do this alone. Funders who invest in core capacity, support exploration, and coordinate their efforts can help ensure that vital community institutions not only survive moments of instability, but emerge stronger, more connected, and better positioned to serve New York for years to come.
1For a deeper dive, you can read insights from Polanco and her colleague Jennifer Pedroni’s past session on Reframing Financial Due Diligence.