5 Reasons Why Charity Mergers Work

Based on the for-profit track record, charities should stay away from mergers. Given that many academic studies find that a large proportion of for-profit mergers actually decrease profits and efficiency why would charitable organizations risk this path?

As discussed previously merging charities has risks, but I'm increasingly of the opinion that the benefits outweigh the challenges. Here are 5 key reasons why merging can and does make sense.

1. Like-minded organizations that come together to focus on a single issue or cause can accomplish far more than each working alone. What's been called "collective impact" is all the buzz right now in the charitable world simply because it works: just ask Advancing Philanthropy!
2. My contention is that there are simply too many charities - think about the number of different organizations that have overlapping Missions or seek to duplicate the work already being done by another group.  With 161,000 charities and non-profits in Canada alone surely there's room for fewer to do better work with reduced confusion and re-work.
3. In the spirit of reduced confusion, clearly mergers would allow precious donor dollars to be more accurately and effectively applied.  And the obverse is that fewer charities would also allow donor dollars to support more impact and less overhead: two charities that merge into one only need one photocopier, one reception area, and one kitchen microwave, not two of each.  Also, with fewer competing messages for donations it would be easier (and more cost effective) for vital charitable messages to break through and be heard.
4. The charitable world is all about passion, but like money there are only so many volunteers and so many donated hours to go around.  A merged organization would (ideally) draw on the strengths that existed in the originals, ensuring that 1+1=3.
5. The best reason to pursue mergers, collaboration and collective impact in the charitable world is that it's very hard to do.  Albeit a simplification, in the for profit world the firm with enough money can buy out the one that's smaller.  In the charitable world that doesn't work (donor backlash, government regulations, volunteer boards, etc.), and organizations that seek to "merge" need to find common ground and shared passion.  The same volunteers and varied stakeholders that can make decision-making within charities so challenging present natural barriers to ill-considered collaborations.  So the fact that it takes so much work and trust to merge mean that it is likely the outcomes will be better in the long run.  Remember, money can't buy you love...

I'm personally aware of several great examples where charity mergers, collaboration and collective impact are already working well, and expect we'll see more examples in this tough economy. It appears that 1+1 does indeed equal 3.

3 Ways Little Cuts Hurt Charities Most

My last post talked about charities closing their doors not due to a lack of need for their services or offering poor services, but simply due to a lack of funds.  It's also true that seemingly small changes, minor increases in costs, can have a disproportionate impact on charities.  Here are three key ways that "little cuts" can be painful in ways that are different from for profit organizations.

1. Increases in costs, say for example a new fee for garbage pick up, are hard for both charities and for- profit firms to absorb. However, while firms can "pass on" these increased costs to clients, charities have no such option. So for example when the City of Toronto imposes a new garbage collection fee on over 1,000 charities, there's no customer to pay more to offset this cost increase, just a decrease in services to those who can least afford it.
2. Charities have proportionately smaller voice for their size than their for-profit peers (#9 on my Top 10 list of differences). From Boards of Trade to business leaders that have worked within government (and vice-versa), businesses are simply better connected to government. Also, businesses are seen as providing jobs / tax revenue to all levels of government as opposed to perceived as begging from / costing money from all levels of government.  Not the case you say?  Well, in the example of the garbage fee the charities were denied the ability to protest: my bet is that business leaders wouldn't have been treated this way.
3. Another way cuts and increased costs hurt charities most is more philosophical in nature.  By definition charities help those most in need.  So when their revenue is reduced those who suffer from the reduction in services are those who are most at risk. And where charities are providing preventative and proactive supports, keeping people from "costing the system" even more down the road, these extra costs (touted at cost savings) can actually cost the rest of us a lot more in the future.

No doubt that new costs to any organization can be difficult to manage, but the charity and non-profit world is often hurt the most when this happens.

When Charities Fail

Over the last many months I've watched and listened with dismay as many charities have struggled in this economic and political climate.  This isn't a big surprise and clearly many people (including me) forecasted a tough year in 2012. However, like a death in the family, even when you know it's coming it's not easy.

Such is the case with Touchstone Youth Centre here in Toronto. This organization wasn't on my radar as a charity in trouble, but late last month this is what was shared with key partners and stakeholders:

Dear Sir or Madam,

It is with great regret we must inform you that Touchstone Youth Centre will be ending its service as of November 30th, 2012. We are closing due to ongoing financial challenges.

Touchstone Youth Centre has been providing services to youth between the ages of 16 and 24 years old since 1991. We have managed to provide emergency shelter services to over 400 youth each year while providing outreach services to more than 80 youth each month. Unfortunately, as a result of our current financial state, the Board of Directors made the difficult decision of discontinuing service.

The City is seeking a replacement operator for the facility to be in place as soon as possible. It is not possible to have one in place by November 30th. The City and Touchstone Youth Centre will work co-operatively to find safe places for existing clients. Admissions to the shelter will be suspended November 1st to facilitate this process. As soon as the City can choose an appropriate operator, a re-opening date will be announced. This is expected to be late January.

We thank you for your hard work, dedication and commitment to Touchstone Youth Centre. Our partnership with you made us able to make a difference in the lives of homeless youth.

The next few weeks will be extremely difficult for all stakeholders including staff and clients. However, Touchstone Youth Centre will provide quality service up to the last day of service. Any support you can provide us to accomplish this goal would be greatly appreciated. Thank you for all your work and the support you provided us over the past 21 years!

Sincerely,
Susette Clunis
Executive Director


In brief, a vital organization helping homeless youth is effectively going out of business.  I don't know the details or causes behind their "current financial state", but my main concern relates to the similarities and the differences between charities and for-profit organizations.  When a for-profit organization fails and closes its doors, the employees suffer, and in general terms their customers / clients are inconvenienced.  Sort of like the old riddle with a pig and a chicken discussing a bacon and egg breakfast, with a for-profit model the clients are involved but the employees are committed.

Sadly, in the case of charities that fail - for whatever reason - the impact is greater and broader. The employees suffer, but their customers / clients suffer even moreso.  And in most cases these clients are the ones who can least afford the loss.  I appreciate this is an simplification (and for example ignores suppliers to for-profits who suffer as well), but the simple fact is this: a safe and supportive space for homeless youth is discontinuing its services.  By any measure that's not good news.

And it begs the question about how to respond.  My response is to ensure that my donations go where they're needed most, that I vote for officials who will seek and support innovative, effective and efficient ways to deliver services to those who need it most, and that I speak out so that others know what's happening in a vital sector that touches us all.

Penny Wise and Pound Foolish: Expensive Spaces for Charities

There has been some press coverage about the impending rate changes to rent space in Toronto District School Board (TDSB) schools and auditoriums, particularly with respect to the impact on religious groups. For example, rates for unsubsidized groups can be from 5 to over 10 times higher per hour than they are for subsidized groups. I believe the implications of this decision are bad today, and will only get worse over time.

While I appreciate TDSB's desire to address their $110 million budget shortfall, there are two significant issues that such massive increases (even if they don't come into effect for several months) present to all sorts of organizations, the TDSB, and ultimately the entire City of Toronto.

1. If organizations can't afford the increase, they won't rent the space, resulting not in a decrease to the budget shortfall, but actually an increase (having some rental income on a property with utility costs is better than no income at all)
2. Even if organizations in the Subsidized Level 2 tier (not to mention the unsubsidized groups) can find the extra funds required, they may be forced to cut back in other areas, reduce hours or staff levels, or cut back on locations (e.g. for some groups there is a maximum of 3 locations before the subsidy does not apply)

In brief, this means fewer services by organizations that in many cases are trying to serve those who need it most.  For example, you can imagine that some of these people being served in TDSB spaces may ultimately face choices around criminal activity, and due to a lack of supports make a bad choice that winds them up in jail, then this is indeed "penny wise and pound foolish".  It costs hundreds of thousands of dollars per year to incarcerate someone, while ensuring robust organizations are in place to help reduce criminality and incarceration only costs (from the point of view of TDSB rents) a few dollars per hour.

It's truly a shame that our way of calculating the "bottom line" only looks at one number - in this case the TDSB's budget shortfall.  This forces short-sighted choices that cost us more as a society in the future.  Surely the better budget is one that includes societal costs and allows groups that save money over time to flourish. Calculating the true value of organizational and program impacts today in years ahead is hard to do, but surely worth doing if we seek maximum value for our donations and tax dollars.

Charities: The Big Get Bigger

That there are economies of scale is no secret to anyone in the charitable or for profit worlds. As I've blogged in the past, what is less well understood is that the positive, self-reinforcing cycle where bigger organizations generally get bigger is far more pronounced in the charitable world than the for profit sector.  For starters, it is estimated that the top one-tenth of 1% (0.12%) of all Canadian Charities receive 37% of all tax-receipted donations made by all Canadian individuals and corporations. So there are a very few very big charities, and many thousands of very little ones.

The news that an Ipsos Reid and TrojanOne study recently concluded that the Canadian Cancer Society and their pan-Canadian fund-raising event, Relay For Life, gained the top ranked ‘Most Valuable Property’ status helps explain one aspect of why this is the case. In the search for donor support, having sponsors for events (particularly corporate sponsors who can pay top dollar for bigger and higher-profile events) is critical. This study surveyed 1,016 Canadians for their impressions of charitable events, measuring:
1. Personal Involvement
2. Creating the Moment
3. Impact on the Cause
4. Sponsor Fit
5. Responsible Management
6. Heritage
7. Uniqueness

That the Canadian Cancer Society runs a memorable, exciting event is not surprising. And, with hard work and solid advertising, given their size and expertise they can attract many participants. So I'm confident that the Canadian Cancer Society absolutely deserves this 'MVP' status for their event.  But when the survey asks about memorable events in a market with thousands of smaller events that may be just as touching, enjoyable, well-managed and so forth, it's virtually a self-fulfilling prophecy that the only the largest will get enough mentions to "win".

Thus, this survey has the potential to drive more corporate sponsors to support the largest and highest profile events, possibly further challenging the smaller less well known events.  Also, while I appreciate that the survey was not intended to measure "hard" metrics such as attendance or viewership, I also wonder if what was also being proven was another variable: most donors give with their heart and less through research. For example, if this survey had included data on Fundraising costs as percent of donations, would the rankings for "Impact on the Cause" have been the same?

In the end, if this survey drives new donors and fresh perspectives to the charitable world then it has more than served its purpose from my point of view. But it may also serve to further cement the pre-eminence of the biggest, most established event properties: the big will only get bigger. To make it even better next time around perhaps a winner can also be celebrated in categories such as "Best New Property", "Best Small Property" and "Best Value to Sponsor".

Offensive Charity Advertising?

Given my blog entry just last week it's timely to see some research on this front.  A report on offensive advertising issued just this month in the UK by ASA and Ipsos MORI provides the hard numbers behind the sense that charities need to "break through" the media noise, but can sometimes go too far.

The key stat for me?  Only 16 per cent of adult respondents said they had been offended by an advertisement in the previous year.  Perhaps that's too high, but when balanced against the need to ensure vital charitable messages get heard it seems a fair price to pay from my point of view.

Top 5 Reasons Why Charity Marketing Is Different

When the same questions come up several times in a short span of time it usually means it's time to write about the topic. In this case both with clients and friends the topic of charity advertising came up, particularly with respect to why it looks like it does, and why in particular it can be so "edgy", so provocative and (for better or for worse) so memorable?

In no particular order here are the top 5 reasons why charity marketing can be so different:

1. Charities want to break through the other "noise" of all the other advertisers but don't have the financial resources to do so with the purchase of large media weights. And even if they did have the funds for large media buys it might not be advisable to do so. So charities need to be innovative, "edgy" and perhaps a little provocative just to stand out and break through.
2. Charities are passionate about their cause. This creates a sense of urgency and almost a feeling of "we've got nothing to lose" in terms of inspiring new donors and prospects to respond and share the sense of urgency. Obviously this creates a willingness to consider more provocative messaging.
3. Charities are often not as bound by a particular "brand image" than traditional advertisers. Tide, Cheerios or Pampers would take a long time to consider significant changes to their media messages, but charities are less locked-in and willing to try a new direction after one campaign has ended.
4. For charities that can afford (or have donated) advertising agency / professional creative support, charity ad campaigns present a great opportunity to showcase new thinking for that team. The same sense of mission that motivates the charity often infuses the creative team and results in truly memorable work.
5. The corollary of the first reason (breaking through the "noise") is that with limited resources charities are forced to be creative in the ways they communicate.  If you don't have much money then by definition you will seek new ways to market your message - after all, necessity is the mother of innovation.

So in the end, charity advertising looks often looks so different simply because it has to!