Want to Make Your Nonprofit More Innovative and Tech Savvy? Acquire a Startup

How acquiring a social sector startup can increase your organization’s impact

Established nonprofits struggle with innovation, technology and design, but often have scale and credibility. Nonprofit tech startups excel at innovation, technology and design, but often have limited scale and credibility. The solution therefore should be obvious: traditional nonprofits and startups should join forces to marry old and new assets and talents.

Over the past decade, technology-driven nonprofits like Charity Water and Samasource are on the rise, and rightfully so. Their founders, Scott Harrison and Leila Janah, respectively, have captivated mainstream and nonprofit media. While no organization is perfect, these nonprofit startups have figured out what many traditional nonprofits struggle with. Their captivating websites, innovative use of technology, and digital outreach serve as a siren song to the next generation of donors. And while these organizations are not up for acquisition, it’s important to remember that they were once small startups with big ambitions, too.

“M&A is vital to every industry — it’s how companies evolve to better meet the needs of customers cost-effectively. Why should nonprofits, with deep social and environmental impact goals, be any different? If anything, our sector needs more combinations and spin-offs, in order to build more dynamic and effective organizations,” said Janah.

While it is certainly possible for long established nonprofits to build many Digital Age capabilities in-house, buying through acquisition might be faster, cheaper and less of a headache. It also might cause the kind of culture shift that 20th-century nonprofits need to remain strong and relevant in an era of digital outreach, media and donor relations.

Our sector needs more combinations and spin-offs, in order to build more dynamic and effective organizations.

Retrofitting technology, for example, on a more traditional, nonprofit would be exceedingly complex. If the upfront research and planning for things like digital identity and multi-channel outreach didn’t scare away management, the implementation and cultural challenges just might. On the flip side, while acquisition isn’t a cakewalk, it does circumnavigate some of these implementation issues. You can at least put the nonprofit entrepreneur on a three-year contract to lead tech transformation and innovation from within the organization, which would be likely be cheaper, faster and more authentic than any outsourced solution.

A bit of good news for those interested in acquisition: the number of tech nonprofits worldwide is reaching record highs, according to Shannon Farley, the co-founder of the nonprofit accelerator Fast Forward. Both Janah and Harrison consider themselves players in the tech arena, with Harrison even calling Charity Water a “tech company.” Fast Forward is now tracking about 300 such organizations, with numbers growing about 15% per year since 2012. We can likely expect a lot more growth in the future with Google.org, BlackRock and others investing in Fast Forward’s nonprofit tech accelerator.

What Makes Nonprofit Startups Attractive to More Traditional Organizations

There are a host of core traits that make tech startups particularly valuable to more traditional organizations. At Samahope, a subsidiary of Samasource, I experienced this firsthand as a member of the management team. Samahope connected donors with doctors providing surgical care to the poor (think Kickstarter + Doctors Without Borders), and it illustrates exactly how startups can add value to traditional organizations:

  • Technology & Design in the DNA: Nonprofit tech founders, many of them recent graduates, have technology and design in their DNA. Tools like Wordpress, MailChimp, Classy, Salesforce, Klout, and G-Suite make it easy for nonprofit entrepreneurs to quickly establish and manage a digital brand on a budget, without backend IT, design or communications support. Samahope’s national #HonorYourMom campaign was supported by affordable, user-friendly technology and a small five person, tech savvy team (as opposed to hiring an expensive agency with expertise in online campaigns).
  • Relationships with Corporate & Individual Funders: Nonprofit startups are forced to go after individual and corporate donors, the “holy grail of fundraising,” because they are often ineligible for government grants. Success in this highly competitive funding arena is an enormous asset, with many fundraisers struggling to move from B2G to B2C. Because of its consumer- and employee-friendly product, and demonstrated impact, Samahope was able to build deep relationships with corporate donors, like The Cigna Foundation and TripAdvisor.
  • Data Driven Decision Making — At All Levels: With no margin for error (and no time or money to waste!), nonprofit startups have to experiment to see what sticks and learn quickly. That means using Google Analytics, A/B testing, focus groups and other data-driven methods to ensure that the organization is getting the most out of its website, digital advertising and content marketing. At Samahope, all decisions — from web UX/UI to image selection— was intentional and data-driven.
  • New Talent Pool: People make things happen. Legacy nonprofit organizations can’t expect major culture change unless they hire people to lead and model that change from within. It might sound ludicrous to hire someone from the startup nonprofit world to lead innovation or sit on your board, but that person could be the next Leila Janah or Scott Harrison. Samahope was co-founded and led by Shivani Garg Patel, now a Principal at the Skoll Foundation. As a friend and former colleague, I can attest that Patel carried the organization, going to great lengths to personally drive its success.

While startups have a lot to offer, the benefits to a potential acquisition can go both ways. Specifically, relatively unknown nonprofit startups are able to scale their products and services faster in partnership, resulting in greater impact. Samahope ultimately joined forces with Johnson & Johnson to help create the basis of Caring Crowd. Johnson & Johnson was able to benefit from Samahope’s experience developing a global health crowdfunding platform and brand. At the same time, Samahope was able to scale faster, getting closer to reaching its initial vision of reaching one million patients.

What Should the Sector Do About It?

As many have advocated before, traditional nonprofits should embed proactive M&A into their strategic planning process. According to one study by The Bridgespan Group, there is a striking divergence in M&A rates when you compare large nonprofits (with budgets greater than $50 million) with their for-profit peers. The rate of mergers and acquisitions among the larger nonprofits drops to just a tenth the rate of M&A in larger for-profit companies. Nonprofit leaders would be well-advised to play catch-up, and consider the benefits of increased collaboration.

Success comes in many forms: changing the culture and practices of an established organization is arguably just as impactful as growing one from scratch.

Similarly, accelerators like Fast Forward and Y Combinator should encourage their nonprofit founders to consider acquisitions as part of their own “exit strategy” or long-term business planning. Success comes in many forms: changing the culture and practices of an established organization is arguably just as impactful as growing one from scratch.

There is no silver bullet to making the social sector more innovative, but there is little doubt that collaboration with tech startups is a strategy to get there.

Chase Behringer is the Founder of CMB Advisors

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