Nonprofits in the international development subsector—and those that have relied on U.S. government funding in particular—are facing the impacts of USAID stop-work orders and subsequent funding cancellations. The possibility of those organizations being forced to close means programs ending, putting communities around the world at risk.
While few organizations have publicly discussed the difficulties they’re facing, some have announced closures or the furlough of a majority of staff, signaling significant financial and workforce challenges for the field. A non-representative, open, voluntary survey run by Accountability Lab and Humentum found that 78% of the 816 respondents (including 672 at nonprofits and 144 at for-profits) that lost government funding said their organization had not secured alternative funding to stay afloat. How can nonprofits navigate this challenging funding environment?
The mergers and partnerships pivot
One way to build nonprofit resilience in the face of these challenges is to explore mergers and partnerships. Organizational approaches to mergers and partnerships in the international development subsector are rapidly evolving. Previously, such efforts were designed to increase competitive advantage; programs were spun off after incubation; and strategic partnerships and joint ventures were set up to “test” new ways of working. Now, the goal is to preserve nonprofit missions—to be able to continue serving communities.
Why mergers and partnerships? Diversification of revenue streams to minimize the impact of funding shocks is neither straightforward nor easy. Organizations that relied on U.S. government funding—which provided for a higher percentage of overhead costs—can’t easily pivot to non-U.S. government grants and contracts, as private foundations and European bilateral donors often cap overhead costs at 10%. This creates a significant gap between operating costs and revenue.
So, organizations are pivoting to possible mergers and partnerships. While they can’t maintain organizations and programs exactly “as is,” mergers and partnerships offer a potential path for navigating the seismic changes in the subsector.
While most organizations have yet to announce the changes they’re considering, in conversations with peer organizations, we’ve seen a new openness to:
- Absorbing and offloading programs that closing organizations can no longer sustain to like-minded nonprofits with similar missions
- Multi-organization strategic alliances and consortia that can increase organizational brand recognition, facilitate “built-in partnerships” among members, and help scale their impact
- Preferred bidding partnerships, whereby partners with shared business development goals have a “right of first refusal” agreement
- Back office mergers to limit operational costs such as accounting and human resources
- Sharing physical office space
Mission-led matchmaking for mergers and partnerships
Together with Accountability Lab, Development Gateway (DG) is exploring how we can support a new wave of strategic partnerships and mergers that enhance resilience within the international development subsector. To do this, we’re identifying potential matches between at-risk organizations and healthy ones that may be able to take on teams, ideas, and portfolios of important work; or between impacted but stable organizations looking for opportunities to become more efficient and diversified through mergers or other forms of strategic partnerships. Strategic partnerships can take many forms. Examples include DG’s experience as an independent subsidiary of IREX, with both organizations remaining independent, IREX-appointed people serving on DG’s board, and DG and IREX establishing joint programming.
Following the matchmaking process, DG and Accountability Lab hope to provide support through the transition, including safeguarding organizational and program infrastructure, data, and intellectual assets.
Resources for adaptation and transition
There are also a growing number of support networks that are building a way forward by providing communal workspaces, professional services, and infrastructure support to ease the transition. Those efforts range from organizations archiving data sets, government websites and resources, and critical public health and human rights resources, to offering job listings and recruitment support networks for displaced teams and staff. These resources are stop-gap measures, however; more innovation is needed to transition the subsector into a new era.
Rebuilding resilience in the international development subsector will require major shifts in how we approach our work and organizational sustainability. While the immediate situation has forced many to rethink their operational models, it has also opened the door to innovative collaborations to preserve vital programs and safeguard institutional knowledge. Through mergers and partnerships designed to increase resilience, we can continue the work of serving global communities by providing humanitarian assistance, advocating for human rights, influencing policy, and building capacity.
Photo credit: fotostorm via Getty Images
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