Fulcrum Advising

Partnerships

Many social initiatives are facing an increasingly competitive landscape as they work to sustain their existing impact and explore growth. Sometimes the answer is to work with others. However, there are many types of strategic partnerships (what I call the Operational Hows) to consider.

I am also concerned that there is a rush toward mergers in the nonprofit space. Mergers can be a great solution to certain challenges or opportunities, but I worry that this enthusiasm places the emphasis on completing a merger rather than on reaching the right decision.

The goal of exploring any strategic partnership is not a strategic partnership; it is each organization arriving at the right decision about what best meets its own needs.

A. The Strategic What, Potential Who, and Operational How

Any exploration of a strategic partnership should begin with understanding those needs – the “Strategic Whats” that define the value each organization is seeking to create through a partnership. The Strategic Whats to consider are: growing or protecting Scale, Success, and/or Sustainability. There are other reasons, but I think all of them are in service of one of those goals:

Core Strategic Whats

  • Growth in Scale:
    • Expand serving existing populations or new populations.
    • Expand serving existing geographies or new geographies.
  • Growth in Success:
    • Improve existing outcomes through expansion of or changes to the existing program model.
    • Broaden the definition of success to achieve additional outcomes through expansion of the program model.
  • Growth in Sustainability:
    • Increase revenue from existing or new funding sources.
    • Change the cost structure of a program.
    • Grow in scale to reach economies of scale.
    • Sustain leadership and staff.

Enabling Strategic Whats

  • Brand/reputation.
  • Access to relationships, including funders and customers.
  • Proprietary intellectual property and technology platforms.
  • Access to critical expertise.
  • Filling critical talent / leadership roles.
  • Access to facilities or other capital-intensive resources.
  • Licensing / authorization for a specialized purpose (such as providing a specific program or qualifying to apply to an RFP).
  • More leverage with funders, customers, policymakers, and other stakeholders.

One warning: organizations should be very cautious about pursuing strategic partnerships for financial efficiencies. Exploring and implementing a potential partnership can involve a range of additional costs (e.g., due diligence support, legal fees, transaction fees, severance, rebranding). Most nonprofits are already under-resourced, so there is often very little “fat” to be trimmed. Two bad balance sheets usually don’t become one good one. One good and one bad balance sheet also don’t necessarily become one good one. “Cost efficiencies” also does not always mean “cost reduction”: if an organization is ultimately seeking a partnership to scale the number of beneficiaries it serves, total costs may rise even as the cost per beneficiary served goes down. Cost efficiencies are possible, but the assumptions behind them should be rigorously tested. On a more positive note, organizations that grow through partnerships may find themselves with more leverage when purchasing goods and services because of volume, or with more leverage in negotiating the pricing and terms for the programs they offer.

Additionally, while the above framing is focused on growth, sometimes organizations are focused on partnerships to preserve their status quo.

Last, an organization should consider what value it could bring to the table in a partnership – what are the Strategic Whats a potential partner may be seeking that an organization could meet?

Starting with the Strategic Whats helps you determine the Potential Whos. The Strategic Whats of your organization become the initial criteria to use in conducting a landscape scan of potential partners. Because of existing relationships, some organizations already have a sense of which potential partners to consider. They could be existing peers, competitors, or a combination of both. They could also be organizations with which they have an existing partnership that could be deepened. Other organizations will need to do a landscape scan to identify potential partners.

Both then help determine the potential range of “Operational Hows” that could be considered. What two organizations want to achieve determines the operational structures available to them for how to achieve it.

Here is one way to frame the range of Operational Hows to consider (click on each box to learn more):

Going it alone is an option to always consider (and to compare as an alternative to other Operational Hows being explored in due diligence).

Many partnerships are client/vendor relationships where one organization purchases from another (this can also include outsourcing).

Some organizations pursue formal partnerships to give them access to a market or opportunity.

Some organizations pursue a formal partnership to co-create / co-deliver value.

Some organizations become a single legal entity through a merger or acquisition.

General Level of Effort
General Level of Commitment
  • Organizations should always start by asking if an opportunity can be pursued without a partnership and what would need to be true to make some type of partnership more compelling than going it alone.
  • In negotiations, this is the Best Alternative to a Negotiated Agreement (BATNA)*.
  • However, going it alone may not always be an option.

* BATNA is explained in “Getting to Yes: Negotiating an Agreement Without Giving In” by Roger Fisher and William Ury. On a personal note, this is not a book you want to gift to your child until they are out of the house.

  • Can an organization achieve its Strategic What by successfully selling to an organization as a vendor?
  • Can an organization achieve its Strategic What by successfully buying from an organization as a vendor?

Note, this very much can blur into the skills an organization has in business development.

  • A formal partnership where one organization creates opportunities for another organization to scale through the first organization’s network of relationships, which it may monetize / charge for or share in the revenue from success in engaging with its network.
  • For example, access/promotion as THE preferred vendor to a large network by the network’s owner, which gets a portion of any revenue.
  • Two or more organizations create a formal, contractual partnership to create content and/or deliver content. This usually has formal branding and a contract articulating responsibilities, investments, and revenue sharing. This can be done without creating a new, third-party organization (though that is an option).
  • The creation of a single legal entity, which can happen through: (a) dissolution of one organization, with its assets becoming part of another; (b) a partner-subsidiary relationship; or (c) creating a new entity that both organizations join.

There are a number of other options that aren’t on this list, including:

In practice, organizations may look at their Strategic Whats, the Potential Whos, and the Operational Hows iteratively rather than in sequence, as long as they ultimately end up in alignment.

B. A Brief Digression into Research on Mergers

I first became interested in nonprofit mergers in 2008 during the financial crisis and ended up publishing “Nonprofit Mergers and Acquisitions: More than a Tool for Tough Times,” which explored the propensity of nonprofits to merge. At the time, I included “Acquisitions,” which is a merger by another name and says more about the power dynamics between the organizations involved. Sometimes referring to it as an acquisition can become a barrier to completing a merger.

In this 2008 analysis, I pulled merger data from four states – Massachusetts, Florida, Arizona, and North Carolina. The merger rate of nonprofits over an 11-year period was 1.5%. That may seem low compared with the for-profit space, but the for-profit merger rate at the time was 1.7%.

However, the merger rate for Child and Family Services was 7.1% (using just Massachusetts data) because the CFS market had (and I suspect still has) the following characteristics:

  • There were many small nonprofits in the CFS space.
  • There was a high degree of competitive pressure because performance was measurable, and funding tended to be impersonal – 85% of it came from government.
  • There were some barriers to “organic growth.” Almost all youth were being served in some way (though not necessarily served well). The market was asset-intensive in terms of facilities and talent. It took a long time to build networks of trained providers (for example, foster parents). It took time and a great deal of funding to build facilities where many services were delivered. Local “brand” mattered a great deal. Last, it was a highly regulated area of service.

Consider this in the context of charter schools. When this was published in 2008, I recall speaking with a leader of a large Charter Management Organization who essentially said that they had no reason to pursue mergers, even though their market had a lot of similarities to CFS. However, they were able to acquire funding to open new schools despite the presence of existing schools (in fact, they got funding because of the poor performance of existing schools). In 2008, charters were generally able to acquire facilities, and opening a new school one grade at a time led to stronger results than taking over a failing school.

Fast-forward to today, and there is a rising tide of mergers in the charter school sector. There are clear high-performing and low-performing schools, and accountability for performance. Not only are facilities a scarce asset, but so are authorized charter seats in some geographies. Some charter networks require a minimum scale to be sustainable. Some want to be able to provide a complete PreK-12 feeder pattern. Over time, charter schools also have to prepare for leadership transitions, which present an opportunity to consider mergers.

In retrospect, this was not such a brief digression.

C. Exploring a Potential Strategic Partnership

“To thine own self be true.” – Shakespeare

  1. Due diligence should be a structured process. In planning due diligence, consider:

    • Who has what role in decision-making over the course of exploring a potential partnership? Note that it is essential to involve the board early and often in these discussions when a merger/acquisition is being considered.
    • Who is responsible for staffing and leading due diligence? Where does your organization need to bring in external resources for expertise and/or bandwidth?
    • If you are using a third party, is their role to facilitate across all parties or to represent just one of them, and do all parties have a shared expectation about that arrangement?
    • Who needs to be aware of due diligence, and where does your organization need to maintain strict confidentiality?

  2. Some organizations need to start with a landscape scan and light due diligence. Some organizations immediately identify one or a shortlist of organizations to consider in due diligence. Others will need to conduct a landscape scan to identify a pipeline of potential partners.

    Some light due diligence can be conducted based on desk research and informal discussions (both with a potential partner organization and those who know them). Leverage your organization’s Strategic What to screen non-viable options out early.

  3. If things are serious, invest in a formal process of due diligence.

    • Due diligence is both an exploration and a negotiation:
      • Begin by having each organization lay out its Strategic Whats, including, for each, what is non-negotiable (though what is considered a non-negotiable could change in negotiations).
      • Be open and respectful in negotiations. Be honest and candid. Work toward finding common ground.
      • Exploring a strategic partnership can be intensely personal. How people show up in due diligence tells others how they are likely to be as a partner.
      • Negotiations usually have power dynamics. Be aware of them, but don’t necessarily shy away from them.
    • Due diligence can be intense:
      • Be prepared for rapid swings in likely outcomes – breakthroughs and breakdowns can come swiftly.
      • Time can be both an ally and an enemy. Formal due diligence is intensive and costly (even if the only cost is leadership’s time), but sometimes taking the time to work through negotiations is the only way to achieve successful terms that meet the needs of both parties.
      • Some due diligence may start with a focus on one Operational How and evolve to another.
      • Have honest, direct conversations about risks and how to mitigate them (and whether each organization is comfortable with the risks being assumed).
    • Keep in mind critical stakeholders and resources:
      • Confidentiality can be critical, even when it means excluding many staff in an organization.
      • Board participation is critical in more intensive partnership options such as mergers, as the board owns the final decision to commit the organization to action.
      • Have good legal counsel – be it for a merger or even for just client/vendor partnerships where buying/selling is involved.
      • Have good financial modeling and accounting capabilities (both to assess your organization and a potential partner).

    Again, the purpose of due diligence is not to arrive at a strategic partnership. It is for each organization to determine the best path forward to meet its own needs. Sometimes during due diligence, there is pressure, or a mindset, that a due diligence that does not deliver a partnership has failed. In reality, sometimes successful due diligence is avoiding committing to a strategic partnership that has a high likelihood of failing because it will not meet the needs and/or non-negotiable terms of your organization and/or the other organizations involved.

    This again underscores the importance of being clear on your organization’s Strategic What as a lens through which to evaluate opportunities. In the for-profit sector, organizations exploring partnerships with a strong Strategic What are more likely to achieve financial success because their Strategic What: (a) provides clarity on who to consider as a partner; (b) provides clarity on the terms that must be met for a partnership to be compelling; and (c) sets the social contract between both parties about the terms of the partnership and key steps to set up a successful implementation.

  4. Implementation is more likely to succeed when it is worked out during due diligence.

    “When we look carefully, there are no small details.” – often attributed to Michelangelo

    Due diligence should consider all elements of a partnership – especially in considering mergers. Things that seem low priority in due diligence can become significant sources of tension and even reasons for failure in implementation. Pay particular attention to internal organizational considerations. Organizations in due diligence may focus on common strategies and programming, but compensation schedules, benefits, titles, etc. will matter a lot to staff.

    If certain items are “tabled” until after an agreement, that should be said explicitly, with a commitment to address them later. Some of these items will be contentious no matter when they are determined in the process. Change is hard. Not everyone gains.

  5. Strategic partnerships are an opportunity for people to decide “who is and who is not on the bus.” Some people may not agree on the need for a partnership. Some may not agree on the structure of a partnership. Some may not agree on their role as part of a strategic partnership. I think a lot of people – particularly when considering a merger – see it as an opportunity to exit poor performers, and it can be. But it may cost one or more organizations some strong performers as well.

  6. With mergers, implementation is not necessarily the same as integration. Mergers and acquisitions may have very different types of integration as they are implemented. A combined legal entity can still have multiple, separate brands, boards (as long as one has clear overall fiduciary authority), programs, and policies. In fact, sometimes a brand is one of the strategic assets driving a merger, and separate brands should be kept even as the two entities combine. Sometimes it is important for merged organizations to keep certain programming, practices, or policies separate (particularly if governed by grants or contracts that have different requirements). Integration can also take place gradually.

© 2026 Fulcrum Advising. This work is licensed under CC BY 4.0.

All images are inspired by the paintings of the artist Mark Tansey.