Candid Learning - Collaboration Hub

The Merger of and Groundspring: Two Nonprofits Combine Their Complementary Strengths to Increase Charitable Giving and Efficiency

Participating Organizations

● Network for Good Board of Directors, Bethesda, MD ● Tides, San Francisco, CA

Please note that all data below was derived from the collaboration's nomination for the Collaboration Prize. None of the submitted data were independently verified for accuracy. Formation Type of Collaboration:

● Joint Programming to launch and manage one or more programs ● Administrative Consolidation to share, exchange, or provide back office services such as accounting, IT, human resources ● Merger by which governance, programs and administrative functions have been combined but which may or may not have included the integration into a single corporate entity.

Geographic Scope: National Collaboration Focus Area: Population Served: Other Year Collaboration was Established: 2006 Goals Sought Through Collaboration:

● Expand reach and/or range of services / programs ● Maximize financial resources ● Leverage complementary strengths and/or assets

Reasons Prompting Collaboration:

● Competition for funding, donors and/or clientele ● Advancement of a shared goal ● Response to a community need

Who Initiated Collaboration:

● Board member(s) ● Executive Director(s) / CEO(s) / President(s)

Number of Participating Organizations: 2 Nature of Funder Involvement: Funded implementation Were Partners Added or Dropped?: Yes Consultant Role: To draft the governing agreement or provide other legal advice

The merger of Network for Good (NFG) and Groundspring is special for two reasons: it succeeded (most mergers don’t), and it succeeded on a scale far beyond the most optimistic projections. Two organizations that separately raised $37 million a year for a few thousand nonprofits as one generate well over $100 million a year for 150,000 charities.

In the dot-com boom of the late 90’s, small nonprofits were left on the wrong side of the digital divide with no affordable way to reach supporters online. Two nonprofit entities were founded independently to address this problem: Groundspring was founded by the Tides to help socially progressive organizations by giving them low-cost online tools, and NFG was founded by AOL, Yahoo!, and Cisco to provide nonprofits and consumers with online giving tools. By 2004, both organizations had proven successful – Groundspring with a high-touch, training-intensive, subscription-fee model for online fundraising and outreach tools, and NFG with a low-touch, transaction-fee based model. Both were seeing a shrinking of funders and consolidation among the for-profit providers, yet increasing demand for their highly effective and low-cost alternatives to traditional fundraising practices. NFG and Groundspring saw an opportunity to have a greater impact on the nonprofit sector by combining their complementary strengths to increase charitable giving and efficiency. Management

Management Structure: One Executive Director / CEO / President The Chairmen and Executive Directors of each organization outlined and negotiated the critical tenets of the merger. NFG had two small departments: one serving nonprofits and one serving donors. Groundspring served only nonprofits, had sales, training, and customer service staff and outsourced its back office shared services. The Executive Director of Groundspring became the leader of the nonprofit services department and reported directly to the CEO of Network for Good. Donor and Shared Services were provided by NFG and the contract with Groundspring’s shared services provider was significantly downsized.

Network for Good and Groundspring merged in a two-phased approach. The first phase assimilated cultures and operations. Because the organization grew quickly to accommodate sector needs, a second phase was implemented soon after. All aspects of back office product development and marketing were merged into a cohesive sales, training, and customer service structure that seamlessly supports nonprofits, donors and partners from their first point of contact with NFG through their long term use of its services. These transformations fully integrated the two organizations under one COO who now oversees all operations.

Impacts of the management structure: • Collapsing shared services has had major efficiency gains and cost savings. It led to a streamlined and unified experience for nonprofits as well as a drastic increase from 5,000 to 150,000 nonprofits served, resulting in a greater impact on the nonprofit sector. • Expanded and efficiently scaled training increased the average dollars raised per nonprofit from $6 for every $1 spent on our services to $25:1 today. • NFG launched its free training on www.fundraising123.org via webinars and in weekly tips. • Future collaborations allowed NFG to power giving across the internet: GuideStar, Navigator, Change.org, Capital One’s Giving Site, Causes on Facebook, Kevin Bacon’s sixdegrees.org and a dozen other partners. Challenges

Challenges to Making the Collaboration Work:

● Defining and measuring success ● Creating a shared culture ● Addressing lack of staff or allocation of staff resources

Network for Good leveraged Arthur Andersen’s Merger Integration Methodology to guide the Groundspring Merger Plan. Its CEO and Director of HR both developed the methodology while at Andersen. Also, NFG used performance incentives and stay pay packages to reward key personnel. Openness and transparency were themes throughout the merger.

The two organizations strove for consensus when arriving at solutions even if that required more effort. It had been predetermined that if consensus was unachievable during the merger process, the two CEOs would engage the Board Chairmen to discuss more complex issues. Ultimately, though, NFG had the final say. Impact

Internal Efficiencies and Effectiveness:

● Financial savings - Combined / coordinated marketing ● Financial savings - Coordination / consolidation of programming ● Fund development - Access to new / more sources of funding ● Reduction in overall cost per unit of service - Reduction in overall cost per unit of service

Community Impact:

● Increase in number of clients / individuals / organizations served ● Improved programmatic outcomes The primary learning of the merger was that by combining cost-effective, fee-based technology with widely-broadcast free training, Network for Good could not only significantly grow its audience and its own sustainability through earned income, but it could also lower costs and increase for the nonprofits it serves.

Key outcomes of the merger on the organizations: • Reduced combined annual budgets of $5.1M to $3.6M in 2006 • Increased the number of nonprofits served from 2006 to 2010 by nearly tenfold

Key outcomes of the merger on the community: • In 2005, the two organizations drove a sum of $37M to the sector, and now well over $100M to the sector each year. • Increased the number of nonprofits served: just over 4,000 in 2005 to 40,000 in 2009. Model

The merger of Network for Good and Groundspring was proven successful because a careful analysis of the two national organizations was made prior to collaboration, and each partner sought a partner that would help it achieve its core mission faster and more efficiently.

Two national organizations with similar missions can benefit from mergers provided their executive directors and boards seek out partners who have: • similar missions, • comparable audiences, • complementary strengths, • consensus on how to go about the merger, • win-win alignment on goals, • and similar views of how success is measured.

When considering Groundspring as a potential partner, Network for Good thoroughly evaluated both organizations’ core competencies to produce greater collective resources. NFG had developed a strong brand and had only one rudimentary solution for its growing audience of nonprofits. Groundspring had a more robust tool set, training, and a recurring earned revenue stream, but lacked the brand awareness and capital for growth. Each organization saw that the other’s mission aligned with their own and that a merger would bring an advanced collection of resources to the nonprofit sector. A consolidation of back office functions also created a streamlined strategy that efficiently drove all aspects of the organization toward one goal.

Network for Good is already offering merger guidance from key merger experts on when and how to merge in the nonprofit sector through its online learning center. Nonprofit mergers are generally avoided because it is difficult to objectively point to increased value. However, when a merger takes into account the organizations’ similar missions, complementary strengths, consensus on how to go about the merger, as well as goals for the merger, it is possible for nonprofits to escalate their social impact while increasing revenues simultaneously. The merger of Network for Good and Groundspring is an example of how two organizations can truly network for good. Efficiencies Achieved

The quantitative benefits or goals for communities across the country were 1) more resources for nonprofits that 2) were raised more efficiently.

These goals and the changes that resulted from the merger were measured not only in 2006 (the first year of the merger), but over three years that followed the merger: 2006 – 2008. In addition to revenue and expenses which were obviously tracked to measure progress, the four other critical measures that the organization tracked each year were:

MEASURES Earned Income as % of Operational Expenses Total # of Nonprofits Served Total $ of Donations Distributed to Nonprofits Total # of Donors

DOUBLING COMBINED OUTPUT: 1+1 = 4 By all of these measures the organization had great success. Combined expenses went down and donations distributed to nonprofits went up. From 2006 to 2008 the organization went from covering 50% of its expenses with earned revenue to 75% of its expenses covered with earned revenue. The total number of nonprofits served doubled from 16,000 to 32,000. The dollars distributed to nonprofits grew from $35M to $71M. And the number of donors making donations through the combined entity increased from 160,000 to 390,000. By almost all measures the combined entity’s output doubled in three years. During the same time the combined entity recognized significant efficiency gains. This was achieved initially in 2006 (year 1) “simply” by recognizing and eliminating areas of overlap between the two organizations (primarily back office functions) such as finance, accounting, human resources, and IT support. Longer-term savings were more strategic and were not only achieved by reducing areas of overlap, but by recognizing economies of scale.

ELIMINATING OVERLAP The budgeted savings for eliminating back office overlap in year one of the collaboration was $1.5M. Before the merger, Groundspring outsourced its shared services. Network for Good staffed its back office internally and, admittedly, did not provide as high-quality shared services as Groundspring received, but it did so at approximately one-tenth of the cost. This cost-saving opportunity was accurately identified prior to the merger and was significantly reduced in year one.

ECONOMIES OF SCALE After the initial ”synergy” cost savings in year one the organization began to become more efficient through economies of scale. In other words, Network for Good grew its outputs and impact more quickly than its inputs or expenses. An indicator of this increase in efficiency was that payroll as a percentage of earned revenue decreased from 75% to 42% during the same three year period. These economies of scale were realized by either 1) marrying complimentary aspects of each organization or 2) simply taking the best practices from both organizations and applying them for efficiency gains:

COMPLIMENTARY: NFG MARKETING + GROUNDSPRING SALES For example, on the output side of the economies of scale equation, the marketing team of Network for Good had established relatively strong brand awareness and had amassed a broad reach of nonprofits who weren’t yet using Network for Good’s fundraising service, but who were prime candidates. Groundspring did not have a marketing team, but had a team of sales representatives (Network for Good did not) who were calling nonprofits to sign them up to raise money through Groundspring. When the marketing team from Network for Good married its list of interested nonprofits with the sales representatives of Groundspring the combined entity was able to convert more nonprofits to online fundraising and drive more donations through its systems.

TRAINING MOVED TO INTERENT-BASED – LIMITING DEPTH; BROADENING REACH Also on the output side of the economies of scale equation, once nonprofits were signed up for online fundraising they were not always effective at raising money online; they needed training. This is why Groundspring had established its Internet Academy training program. But the training program came with a fee and it was often conducted in person with a small group of nonprofits; two barriers to mass-adoption. In order to reach a broader audience of nonprofits who would ultimately become more adept at telling their stories and raising money for their cause online, the combined entity made five major changes to its training services: 1) it converted all of its combined intellectual property and put it online in an easily accessible learning center, 2) it made it available for free, 3) it put it into bite-size, easily digestible and action oriented units, 4) optimized the content so that search engines would find it for interested nonprofits (search engine optimization), and 5) marketed the free training aggressively. Ultimately this reached a broader based without a great deal of additional expense AND, most importantly, drove more donations because the nonprofits using Network for Good’s products were using them more effectively.

BEST OF BREED CUSTOMER SERVICE On the efficiency side of the equation, the customer service teams of both entities (a significant portion of payroll) implemented more efficient systems (self-service for nonprofits and email rather than telephone) which increased the number of nonprofits each representative could support. This continual improvement effort reduces the expenses required to serve more nonprofits and ultimately drives down the fundraising costs for the sector.

VOLUME DISCOUNTS Similarly, on the scale side of the equation, the increased volume of transactions that went through the combined entities’ platforms enabled Network for Good to negotiate more competitive discounts with credit card companies.

RESULTS = MORE DONATIONS, MORE EFFICIENT, SELF-SUSTAINING With these and other changes the new combined entity was able to 1) recognize immediate savings in year one by eliminating overlapping back-office functions, 2) marry complimentary teams from each entity to increase output, 3) take the best practices from each entity to drive efficiency gains, and 4) recognize economies of scale through volume discounts. The quantitative benefits that resulted by year three were 1) twice as many dollars for important causes than the two entities combined, 2) more efficient delivery of those resources, and 3) less philanthropic money needed to run the Network for Good engine (because it runs itself like a social enterprise with earned revenue covering most expenses). Evolution Network for Good (NFG) – WASHINGTON, DC In 2005, in the DC Area, NFG had significant marketing reach primarily through its corporate founding partners, AOL and Yahoo!. This enabled it to reach a broader audience of small nonprofits to introduce them to its simple and free donate pages (there was a transaction fee associated with each transaction but no upfront fee or subscription fee for the page). However the product it offered (then called Basic DonateNow) offered only the most basic functionality. NFG had low touch, broad reach marketing and a low cost and low revenue product in Basic Donate Now. It was clear to NFG that it was under leveraging its marketing reach.

Groundspring (GS) – SAN FRANCISCO, CA GS, in San Francisco, offered a group of online services including a Donate Now page for nonprofits (called Custom Donate Now). GS’s offerings provided more robust functionality than NFG’s, but they were offered to a much smaller base of customers. In addition to its online fundraising tools, GS also offered its Internet Academy training to nonprofits. This training was very high-touch as opposed to NFG’s very low touch, but broad reach, marketing. While GS had recurring revenue from the subscription fees paid by nonprofit customers, with its limited marketing reach and high shared services costs, GS was having trouble covering its operational expenses with earned revenue. It needed to reach a broader audience in a cost-effective way and it needed to do it fast; it was running out of capital.

COMPLIMENTARY ASSETS GS had a more robust toolset for nonprofits; NFG was seeking this toolset GS had training; NFG had broad reach and little training GS had an underlying business model; NFG had less of one GS’s entire staff was dedicated to nonprofits; NFG had one FTE focused on nonprofits GS had a sales team, but limited marketing; NFG had no sales, but strong marketing GS had little working capital; NFG had sufficient working capital GS had a small base of nonprofits; NFG had a broader base GS had limited corporate support; NFG had deep corporate sponsorship GS had a west coast presence; NFG had an east coast presence GS and NFG had only one funder in common

HURDLES GS served only socially progressive organizations; NFG served all 501c3s GS was built on open-sourced technology; NFG was on Microsoft GS had a “laid back” culture; NFG had a performance-driven culture GS had a west coast presence; NFG had an east coast presence Finally, there was a perception by the GS Board that NFG was not focused on becoming self-sufficient.

The two chairmen and two Executive Directors all met in San Francisco and decided that they could accomplish their respective missions more effectively and efficiently together than apart. GS accepted NFG’s broader focus on all 501c3s and the organizations maintained offices on both coasts. The GS team was essentially “bolted on” to NFG as its new nonprofit business unit. Since GS was outsourcing all of its back office functions this made it easy to eliminate any shared services that NFG was able to provide with its own staff. The legacy GS ED became the head of the new nonprofit business unit and reported to the CEO of NFG. So NFG now had a consumer facing business unit and a nonprofit facing business unit both of which were supported by common marketing, fundraising, finance, HR, and IT departments.

What challenges ("bumps in the road") were encountered in formation of the collaboration and how were they addressed? The most significant challenge encountered in the formation of the collaboration was the integration of the two technology platforms. NFG’s technology challenges were ultimately addressed by hiring a CTO who rebuilt the technology team and chose the legacy NFG platform as the base from which to build the consolidated platform for the organization in small iterative releases.

How does that structure contribute to the success of the collaboration? The critical factors that lead to the success of the collaboration were the marriage of NFG’s marketing acumen with GS’s customizable pages. Without GS, NFG had been very successful at growing brand awareness, but it had neither a sales team to convince nonprofits to get a NFG Donation Button, nor did it have a compelling, customizable donation page. GS had a compelling customizable donation page and it charged a monthly subscription fee for the service. It also had a sales team. By year two of the merger the marketing and sales teams were already working well together in a traditional fashion, but the real magic of the collaboration was not realized until one pivotal workshop:

NFG was conducting a workshop on its fundraising tools and a nonprofit executive director in the audience raised his hand and said “I have a NFG DonateNow button… and it doesn’t work.” The NFG VP of Marketing said that normally if someone clicks on the button they can successfully make a donation. “Oh, if you click on the button you can make a donation” he said “it’s just that no one’s clicking on the button!” He didn’t have a technical problem he had a marketing problem. It was not enough to provide nonprofits with online fundraising tools, they also needed to know how to better market themselves, tell their stories, engage supporters, and raise money online. That moment catalyzed the launch of a series of training mechanisms focused not on the fundraising tools, but on how to market a nonprofit. The online learning center was launched with over 500 articles, a biweekly series of “Nonprofit 911” calls was begun that immediately attracted an average attendance of 800 nonprofits per call, weekly tips e-newsletters were begun, and almost monthly ebooks were published that would be downloaded by the thousands. All of this FREE training resulted in 100 new nonprofits signing up every day to learn how to better market themselves. From a mission perspective this helped nonprofits raise more money more effectively. From a business perspective the nonprofits who signed up were leads for the sales representatives to cultivate and convert to customers. And once the nonprofit customers were armed with the marketing skills they attained from NFG’s training as well as NFG’s customizable online fundraising tools they became much more successful raising money. In fact, in 2009, despite a down economy, NFG customers raised 17% more than they had in 2008 – indicating that the marriage of the training with the tools was having a positive effect. If NFG and GS had been operating independently it is highly unlikely that either would have achieved those results.

How has the success of the collaboration been measured? The success of the collaboration between NFG and GS has been demonstrated every year since the merger took effect, in 2006, because every year donations distributed to nonprofits have increased another 50%. This is true today even through the third quarter of 2010. And it continues to scale. NFG’s costs have grown at a much slower rate than its outputs. But perhaps the most successful measure of all is the fact that today the organization covers almost 100% of its expenses with revenue it earns through fees for service. This means that NFG will be a sustained resource for the sector that continues to drive more social good; instead of the coolest collaboration ever to go out of business.

Copyright ©2021 . All Rights Reserved.