(Illustration by David Plunkert)
Scores of management books have been written about change management, organizational culture, and scaling up. Strategic partnerships, by contrast, have yet to receive such attention. They offer social impact leaders another set of tools to help them build the resilient infrastructure their organizations need to tackle challenges and achieve their goals.
Some strategic partnerships require fundamental changes to corporate structures. Mergers and acquisitions bring two entities together into one. Joint ventures develop a new entity that the partnering organizations operate together. Other partnership strategies retain the extant corporate structures while establishing durable connections between entities. Shared staff models, colocation, and other types of back-office collaboration allow nonprofits to operate independently but share critical functions.
Asset transfers are yet another tool in the strategic partnership toolbox. They are like the flathead screwdriver—simple, effective in a wide range of circumstances, and more versatile than its simplicity suggests. Asset transfers are distinct from other strategic partnerships in two ways: The partnering organizations are in active collaboration for only as long as it takes to implement the transfer, and transfers can be wielded effectively on their own or within a range of different contexts, including mergers, dissolutions, and the development of federated structures.
Leaders often transfer tangible assets (e.g., property, vehicles, equipment) that appear on their organizations’ balance sheets. These visible, well-documented assets are often transferred during mergers and dissolutions, where the organization that initially acquired the asset ceases to exist. But leaders are also thinking more broadly about their catalog of assets and the circumstances in which transferring them can make an impact. While leaders of for-profit companies use assets to generate revenue, nonprofit leaders leverage assets to generate social impact and fulfill their organization’s mission. Such assets go well beyond tangible assets and may include programs, proprietary technology, valuable relationships, creative processes, and intellectual property. While some intangible assets don’t appear on balance sheets, they play an integral role in their organization’s capacity to serve their communities and advance their missions.
In the nonprofit sector, transfers of such assets rely upon an agreement by both parties. Programmatic asset transfers often bundle multiple types of assets, including physical assets, financial assets, creative processes, technologies, and intellectual property. They may also transfer relationships with employees, volunteers, contractors, and community members.
We have done extensive research into programmatic asset transfers. They are a powerful tool for organizational growth and change—something every social impact leader should have in their kit. Such leaders often have ambitious organizational goals, and to achieve them, they may need to acquire a program from another organization or allow another organization to acquire a program from them. In what follows, we offer insights and lessons based on our research to guide social impact leaders and to encourage the growth and better use of this vital tool.
Food and Jobs
Our research into programmatic asset transfers was part of a larger project examining sustained organizational collaborations. The research project sought to understand how successful sustained collaborations (i.e., those that produced a measurable positive impact for the organizations and community) differed from less successful ones. We examine a range of collaboration types, including alliances, shared projects, shared services, mergers, and asset transfers. The research took place during the summer and fall of 2023. We conducted 118 interviews with funders, staff, board members, consultants, and legal counsel involved with 45 sustained collaborations. We selected 20 from this group for in-depth case studies, all publicly available online (sustainedcollab.org/collaboration-stories). In this article, we draw on our analyses of the eight cases that included asset transfers or statutory mergers.
One of our in-depth case studies that illustrates how asset transfers can result in more significant social innovation and impact concerns Uplift Solutions and the Share Food Program in Philadelphia, Pennsylvania. To get a more concrete sense of the topic, let us consider their story.
Uplift Solutions was a nonprofit founded in 2009 by Jeff Brown, president and CEO of Brown’s Super Stores, to address the problem of urban food deserts—regions, neighborhoods, and communities that lack stores selling fresh, healthy food and produce. It opened supermarkets in such areas and provided aligned workforce development programs to train grocery and food service staff, including some individuals returning from incarceration. In 2018, Uplift Solutions created the Philly Food Rescue program to have a greater impact on food insecurity in the Philadelphia area. Program volunteers retrieved unsold food from consumer-facing businesses and distributed it to local nonprofits that served food-insecure individuals. A food rescue app, licensed from 412 Food Rescue in Pittsburgh, coordinated the volunteers who picked up donations from neighboring businesses and delivered those donations to nonprofit partners for distribution. Philly Food Rescue staff established relationships with grocery stores, convenience stores, caterers, and restaurants; created partnerships with public housing, assisted living, community centers, and other community meeting spaces for distribution; and built an extensive volunteer network.
Philly Food Rescue delivered an estimated 130,000 pounds of food per month using hundreds of volunteers, and struck government and corporate partnerships with Philadelphia Housing Authority and Acme, Giant, and ShopRite grocery stores. Although the program successfully addressed an unmet need in the Philadelphia community, it did not attract a corresponding level of financial investment from area foundations. In 2019, Uplift President and CEO Atif Bostic realized that the organization could meet its mission more effectively by prioritizing workforce development and finding a partner organization to take on Philly Food Rescue.
Also based in Philadelphia, the Share Food Program (Share) is one of the largest independent food banks in the country. In 2019, Share was an approximately $13 million food-access organization. Most of its revenues were tied to government contracts or grants. Every year, the organization distributed millions of pounds of food to hundreds of thousands of clients with the help of an expansive partner network of community-based organizations and school districts. In light of ever-growing demand, Share experienced ongoing challenges in sourcing food from retail organizations and wanted to expand its food acquisition, distribution, and logistics capabilities.
George Matysik, Share’s executive director, had already begun conversations with several potential partners about the prospect of merging to increase his food bank’s collective capacity, when Bostic began looking for transfer partners. Matysik had also already identified “food rescue”—the retrieval of unsold food from area businesses—as a potential source of growth. But Share’s reliance on government funding impeded their exploration of more innovative programs, such as alternative, less accountable ways of distributing food (e.g., community food fridges). Federal rules regulated the distribution and control of food donated by the US Food and Drug Administration. Then, one day, Bostic called Matysik about Philly Food Rescue. Acquiring the program gave Matysik a unique opportunity for service innovation without allocating significant resources for new program development. What’s more, Philly Food Rescue’s logistics technology also offered Share the potential to boost the sophistication and interconnectedness of its other programs.
Transferring the Philly Food Rescue program enabled Uplift Solutions to focus its resources on mission-aligned priorities. Where it had formerly navigated a bifurcated slate of programs addressing food insecurity and workforce development, it could employ its entire organizational capacity based on the latter. In 2022, it emerged with a new mission-and-vision statement that better reflected its strongest workforce development programs. These statements imagined a world where all people, including at-risk youth and those with criminal records, have meaningful opportunities to reach their full potential. In the same way donating ill-fitting clothes opens up closet space for others’ benefit, transferring programmatic assets can open up administrative bandwidth, making it available for greater impact.
When to Consider Divesting Programmatic Assets
There are many strategic reasons to transfer programmatic assets, and not all transfers are as straightforward as the Philly Food Rescue Program’s. The common thread among all potential transfers is that each allows the nonprofit leader to unleash the potential impact of a program, service, or other asset by untethering it from a misaligned organizational structure. When thoughtful leaders identify languishing assets that are not reaching their potential or are misaligned with the organization’s goals, they can work to rehouse them at organizations where they will thrive. Our research indicates three circumstances that may inspire a leader to offload a programmatic asset: program incubation, strategic redirection, and greater program impact.
Nonprofit leaders should consider themselves stewards of program assets on behalf of the community and ask themselves, Is there another organization that could make this program more impactful?
Program incubation | Innovation and sustainability are different goals, and achieving them requires different capacities, business models, and infrastructures. Developing new programs that serve communities in new ways, creating original processes for collaboration, and pioneering solutions to long entrenched challenges all require a commitment to creativity, risk, and embracing uncertainty. Providing consistent community services every day, ensuring safety and compliance while adhering to necessary protocols, and doing ongoing routine maintenance on facilities and equipment require a commitment to predictability, stability, and repetition.
When an organization develops a new program, service, or process, transferring that fully incubated asset allows that organization to continue to innovate and focus on new solutions. The asset will ideally continue to thrive in an organization with the scale, structure, and attention it needs. The transferring and receiving organizations can each benefit from the transfer in different ways, and, by extension, the nonprofit sector as a whole can benefit when its capacity for innovation through program development and service delivery is managed more effectively.
Atif Bostic at Uplift Solutions sees programs as assets to be stewarded for the benefit of the community. He believes mission-driven leaders should be thoughtful about the holistic scope of their legacy. “Sometimes when we think about our legacy, it is caught up in the work that we do at the moment,” Bostic says. “We think about legacy as the longevity of that one piece of work that we need to remain attached to, versus the legacy of the impact that we can make through the portfolio of work we do and how that impacts the greater good.” In contemplating the transfer of Philly Food Rescue, he considered his organization, the community, and the legacy he would create. Bostic was able to better serve the program and the community by transferring it, and the ongoing growth and impact of Philly Food Rescue in its new home are part of Bostic’s legacy of developing and launching meaningful programs.
Strategic redirection | Leadership transitions, shifting community demographics, emergent technology, external pressures, and new funding opportunities can all change a nonprofit’s goals and priorities. In reviewing and evaluating their slate of programs and services, leaders may discover assets that, while effective in their own right, no longer align with their organizations’ missions or areas of focus. A legacy program misaligned with current priorities or capacities can have a greater impact at another organization that is more dedicated to it while freeing up administrative capacity at the transferring organization to focus on its core work.
The asset transfer of the Youth and Parent Leadership Development (YPLD) program is a good example. The YPLD program in Los Angeles was a fiscally sponsored project of Asian Americans Advancing Justice, an organization dedicated to promoting the civil and human rights of Asian Americans. It worked with students in schools and focused on advocacy. Asian Americans Advancing Justice had incubated and fiscally sponsored several nonprofit organizations at a shared, rented space it operated. But in 1999, founding director Stewart Kwoh decided to step down. The leadership transition led to a strategic redirection, in which the organization narrowed its mission and redirected its core focus away from incubating other nonprofits. Asian Americans Advancing Justice then notified many of the organizations it sponsored, including the YPLD program, that they needed to find another benefactor. (For more on the recipient of the program, see “Organizational culture change” below.)
(Illustration by David Plunkert)
Greater program impact | Another reason to transfer a program is that another organization can manage it better. The potential receiving organization may have deeper expertise, other programs that create synergies, or the management capacity to grow the program. Nonprofit leaders should consider themselves stewards of program assets on behalf of the community and ask themselves, Is there another organization that could make this program more impactful? If the answer is yes, then it makes sense for those who could benefit from the program to transfer the asset.
Take, for example, the Beyond Foundation’s decision in 2021 to accept an asset transfer from the El Rio Community Health Center, a health-care provider in Tucson, Arizona. The center housed Meet Me at Maynards, a weekly fitness meetup of about 800 Tucsonans per month. The Beyond Foundation offered free opportunities to help people in Tucson be active and healthy. At the time, Meet Me at Maynards founder Jannie Cox was looking to retire from her role after 14 years and recognized that the Beyond Foundation could help boost the program’s impact. Cox sought and found a community partner that could sustain her initial vision and expand it to other activities at the intersection of movement and community.
“I look at the photos and see the people on those hikes [one of Beyond Foundation’s signature programs],” Cox says. “I know many of them came from Meet Me at Maynards or Meet Me Wednesdays [a second Maynards meetup]. I see it all just really working symbiotically.”
The Impact of Acquisition
Asset transfers seek to align programs, services, processes, and other assets with the organizational management best suited to house them and enable them to flourish. Like repotting plants, programmatic asset transfers allow organizations to achieve their full potential while giving assets the conditions they need to thrive. Specifically, organizations considering a programmatic asset acquisition can hope to advance at least four goals: innovation, culture change, program quality improvement, and organizational growth.
Innovation | The integration of different resources can often spark innovation. Programmatic asset transfers enable the acquiring organization to bring in new resources and capacities. This infusion creates opportunities for innovation that would not have occurred if the organization had attempted to create the asset on its own. By receiving the Philly Food Rescue program, Share was able to figure out how to close remaining gaps in its food distribution. Share tried using volunteers, as Philly Food Rescue had done, but quickly learned the solution wasn’t scalable. Instead, Share partnered with DoorDash to manage its logistics. Today, Share is one of the largest DoorDash users in the United States.
Organizational culture change | Organizational culture is vital yet often overlooked—invisible when it is healthy but as obstructive as a brick wall when it is not. Programmatic asset transfers, which bring new staff and ideas into an organization, can be valuable for shaping and strengthening organizational culture.
The asset transfer of the YPLD program from Asian Americans Advancing Justice to the Asian Youth Center offers a good example. The Asian Youth Center was founded in 1989 as the Asian Task Force by the United Way of Greater Los Angeles. It was formed to meet the social service and health needs of Asian families and youth in the San Gabriel Valley, specifically low-income, immigrant, and at-risk youth. The center focused on education, employment, and social services, and later adopted a greater focus on juvenile justice.
“The Asian Youth Center has not traditionally been an advocacy organization,” says Michelle Freridge, its executive director. “This program [YPLD], at its core, is a leadership and advocacy program that teaches youth and parents how to become advocates in their community and their schools. It’s an empowerment advocacy approach to things. Historically, the Asian Youth Center has been just a direct-service organization, and our initial funding and affiliation was with law enforcement to do gang prevention, intervention, and suppression with a more traditional social-service approach.”
By accepting the transfer of the YPLD program, the center could update its mission, vision, and values to prioritize empowerment and cultural advocacy. The asset transfer alone wasn’t enough to transform the organization. Freridge’s team gave its program leaders a lot of cross-training so that they were all exposed to the empowerment advocacy approach of the YPLD program.
Program quality improvement | Providing high-quality programming and services to the community is an important goal. Acquiring programmatic assets can allow an organization to improve programming quality by leveraging available resources to support the asset and create synergies with aligned programs.
The asset transfer of Learn All The Time to the Andy Roddick Foundation (ARF) illuminates the benefits of this approach. Learn All The Time was a 20-year-old network of out-of-school youth programs in Austin, Texas. The ARF, a philanthropy started by American tennis champion and Austin resident Andy Roddick, was primarily a program funder focused on “safe and supportive relationships, fostering learning and growth, and promoting youth voice and leadership.” It was a funder of Learn All The Time. As the foundation grew, it became interested in launching a quality-improvement program for out-of-school programs. Through the asset transfer, the ARF acquired a learning platform for out-of-school-time quality improvement. Learn All The Time worked with the ARF to develop quality standards for out-of-school-time providers. Then it implemented those standards in out-of-school-time providers in the network.
“I have been part of the network for 20-plus years. I couldn’t be prouder of how the Andy Roddick Foundation supports our partners today,” says Jaime Garcia, current president and CEO of the ARF. “Instead of monthly committee meetings with volunteers, we can have a full team of paid staff members develop a vision, create a strategic plan, and consistently drive the work forward.”
Growth and scale | For organizations on a growth trajectory, developing a new program, curriculum, or other intellectual property in-house is not the only way to expand services. Being on the receiving end of a program transfer can help thriving organizations scale their impact, expand their reach, or meet community needs more quickly. As one nonprofit leader told us, if nurturing a new program is like working with a garden spade, acquiring a fully developed program is like using a backhoe.
The Philly Food Rescue program’s transfer from Uplift Solutions to Share unleashed its potential in this way. Share significantly expanded the impact of Philly Food Rescue by providing it with better logistics, infrastructure, and support from an organization dedicated wholly to food security. Before the transfer, the program rescued approximately 45,000 pounds of food per month. Once the program was integrated into Share’s infrastructure, it regularly rescued 500,000 pounds of food per month.
Need for Funder Support
Another important lesson of our research is that strategic collaborations in general and asset transfers in particular require funder support. Too often, funders have thought about these activities as administrative rewiring. But asset transfers, when done right, can be significant catalysts for social innovation and impact for both sides of the transfer.
In fact, our research found that nonprofits could not have explored or implemented sustained collaboration without the support of these funds. They enabled the nonprofits to hire the technical expertise and project management capacity to make these collaborations happen. If more funders recognize the essential role of sustained collaboration in general and programmatic asset transfers in particular, they can further realize the sorts of social impact benefits our research has identified.
Funders have thought about these activities as administrative rewiring. But asset transfers can be significant catalysts for social innovation and impact for both sides of the transfer.
One of the most potent ways in which funders can support programmatic asset transfers is by joining pooled funds dedicated to supporting nonprofits through sustained collaborations generally. For example, the Share and Uplift Solutions asset transfer was supported through the Nonprofit Repositioning Fund, and the Asian Youth Center asset transfer was supported through the Nonprofit Sustainability Initiative. Both of these are pooled funds that support dozens of sustained collaboration efforts each year.
However, funders need not wait to create or participate in a pooled fund. The ARF and Learn All The Time asset transfer was facilitated by Austin Together, a foundation that supports nonprofit organizations as they explore formal collaborations. (Austin Together, though not a pooled fund, has funders who serve as advisory board members.)
Three Myths
Misunderstandings of the purpose and nature of asset transfers abound. We have found that three myths can cause setbacks.
Myth #1: Only tangible assets can be transferred, and only during a dissolution or acquisition.
If nonprofit assets are considered broadly as the way nonprofits generate impact, situating programmatic assets in the organizational structures in which they can be most productive is clearly in the best interest of the sector and the people and communities it serves. So why doesn’t it happen more often?
Many leaders don’t consider transferring assets until they’re facing closure, and even then, the only assets considered tend to be those that appear on the balance sheet. Other types of asset transfers are rarely implemented because they’re rarely discussed. This tendency perpetuates the myth that they can be used only for sunsetting an organization. The language, guidance, and instructive examples of effective asset transfers are harder to find in nonprofit leadership programs, strategic planning processes, and capacity-building workshops. Our research seeks to change that.
Social sector leaders too often focus exclusively on creating new assets, partly because the concept of asset transfers is not incorporated effectively into the culture of nonprofit business leadership.
The underutilization of programmatic asset transfers occurs also because of how nonprofit boards tend to define success. Many executives and boards of directors hold themselves accountable for preserving the organizational structure that they inherited. If one accepts this definition of success, transferring programs can feel like failure.
However, another mindset is possible. Nonprofit leaders and boards can see their role as stewarding assets on behalf of the community. They can explore all options available to ensure that those programmatic assets make the most significant social impact that they can, including when they are transferred to another organization.
Myth #2: A self-sustaining asset won’t affect the receiving organization’s bottom line.
Many programmatic assets have designated funding sources that meet their operating costs. For the transferring organization, such an asset may appear financially neutral, neither earning nor losing money. Board or staff members supporting this myth may argue that significant grants or contacts are already associated with the asset or may point to donors who intend to continue supporting the program after the transfer. Too often, people believe that the resources that sustained the asset at one organization will continue to do so at another.
But revenue projections are challenging in even the most stable circumstances, and the increased uncertainty associated with asset transfers creates additional risk. When contracts or grants designated to fund staff salaries are not renewed, those positions are left unfunded. And individual donors may be less committed than they claim. In every case we studied, the transferred asset required financial support from the receiving organization, which developed new funding sources, leveraged its operating reserves, or both.
For example, when the YPLD program was transferred to the Asian Youth Center, it brought enough revenue to cover three months of operating expenses. After the transfer, the Asian Youth Center financially supported the program from its reserves for more than a year. The Asian Youth Center eventually secured additional funding, and the YPLD program received new grants as it was integrated more fully into the organization’s operations.
Social impact leaders exploring asset transfers can correct the myth of the self-sustaining asset by ensuring that budget projections are accurate and transparent and consider a variety of contingencies, as part of exercising due diligence over the transfer. Board members and senior staff at both organizations should review these projections carefully, and the receiving organization should ensure that it has sufficient financial reserves and capacity to absorb the costs of the worst-case scenario presented before moving forward.
Myth #3: Large nonprofits can save an ineffective programmatic asset simply by receiving it.
Sometimes well-intentioned leaders believe they can rescue a program on the verge of sunsetting by adopting it. They assume that their well-run nonprofit will be able to fix the inefficiencies or poor management of the programmatic asset and make the unsustainable program flourish. But a program that isn’t viable won’t suddenly become sustainable in a new home.
Programs sunset for different reasons. Some may suffer a fundamental design flaw. Others may confront a significantly altered community landscape or be too niche to attract interest from funders to sustain them. Sometimes a program faces too much competition from other programs in the same sector. A program may not be able to demonstrate that its activities have any measurable social impact. Perhaps a program that was critical to a neighborhood 35 years ago is no longer needed by its current residents. A new administrative home solves none of these problems.
Social impact leaders can avoid this rescue myth by understanding how each program functions and how its impact fits within the sector’s landscape. With appropriate due diligence, a potential receiving organization can best understand the unique challenges of the acquired asset and whether its organization is uniquely positioned to address or modify the asset to leverage its potential impact better.
Four Lessons
Programmatic asset transfers can help social impact leaders to better achieve their missions, but only if they pursue them with clear eyes. In addition to flagging myths, our research uncovered four general lessons about asset transfers that all such leaders should remember.
Lesson #1: Consider the legal implications and engage professionals.
Asset transfers require a different level of due diligence than statutory mergers, in which the receiving organization absorbs all of another organization’s assets and liabilities. Unrelated liabilities do not come with an asset when transferred outside a statutory merger. Nevertheless, the inheritance of assets may bring significant costs, contractual or legal liability, HR considerations, and other issues worthy of thorough vetting.
Programmatic asset transfers raise the following questions:
- What evidence is there of the asset’s value?
- What are the true costs of maintaining the asset?
- What physical assets (e.g., facilities, vehicles, equipment) will transfer with the program, if any? If so, do any liens on the physical assets exist?
- Is any liability attached to the physical assets?
- What are the value and condition of the physical assets?
- What deferred maintenance has accrued?
- Do any contractual or code compliance issues need to be addressed?
- What funds will be transferred with the asset?
- What staff positions will be transferred with the asset, and are unions or other contracts associated with these positions?
- Under the current business model, what are the forecasted financial expectations after three months? Six months? One year? Two years?
While an attorney is invariably involved in due diligence, a management consultant can help with financial forecasting and other projections. This type of technical assistance is necessary for helping nonprofits determine whether the asset transfer will provide a strategic benefit and whether the receiving organization has sufficient reserves to absorb the risks and costs associated with the transition. Additionally, the transferring organization must do some due diligence, often with the help of a facilitator, on potential partners, taking into account their financial position, organizational reputation, and mission.
The degree of technical assistance required depends on the size and complexity of the assets being transferred and the associated organizations. For example, the Philly Food Rescue program’s transfer to Share was a relatively small transaction. Due diligence focused on the technology contracts being transferred, whether any claims against the program had been made, and understanding the employment contracts of the people working for the program. Due diligence would be more extensive in asset transfers involving multiple programs, staff, or contracts. Establishing the appropriate level and depth of due diligence for any asset transfer is the responsibility of the organizations’ boards and leadership, with guidance from counsel.
Lesson #2: Determine whether staff will transfer with the asset.
Staff transfers are a central concern for many programmatic asset transfers, and thinking carefully and distinctly about the positions that will be transferred and the individual employees that currently fill those positions is vital to the health of the organization. Although staff are essential to the value of many programs, they may not move from one organization to another when the program they support is transferred. Staff members may want to stay with their original organization because they value its culture, leadership, work policies, or benefits, or their long-term relationships with colleagues. Other individuals may find a welcome opportunity to make a career pivot in the asset transfer. Staff might have cross-program responsibilities that need to be reevaluated when one of the programs they support transfers and another does not.
Clear and careful communication with all affected staff is a must. The receiving organization’s leadership should meet with staff members regularly during the exploration and due diligence phases. These meetings must address their concerns about contracts, compensation, and benefits. Equally important are conversations about what staff value about their work, concerns about transferring to a new role, and their goals to continue supporting the transferred program. Compensation structures and the philosophical missions of the receiving and transferring organizations are also important to consider. Compensation rates are rarely the same at two organizations, and the cost of achieving compensation parity can be substantial.
Conversations about fit and values are as central to successful asset transfers as those about compensation and benefits. Many employees opted to stay at Uplift Solutions during the transfer of Philly Food Rescue because of its remote-work policy. During the transfer of the YPLD program to the Asian Youth Center, conversations about conflicting values were front and center. “The staff joining Asian Youth Center from the Youth and Parent Leadership Development program had these very liberal political values that included things like defunding the police, anti-law enforcement, and anti-probation biases that were going to be in conflict with the relationships that we already had,” Freridge says. “For example, we had a police chief on the board.” Ultimately, a more extended conversation about values and power had to be worked through before the program could be transferred.
Transferring staff who work across multiple programs is complex and requires unique arrangements. Staff may agree to consult on the transferring program while continuing to work full-time for the transferring organization. They may continue to serve both organizations as independent contractors or by working through a contracting firm. They could also work part-time for both organizations, or the organizations could develop a shared staff agreement. The receiving organization could develop part-time responsibilities into full-time positions. Each of these scenarios, and the many others that organizations and employees might consider, has budget implications that must be evaluated in the due diligence for the program transfer.
Lesson #3: Carefully manage grant- and contract-funded assets.
Some of the most challenging programmatic asset transfers rely heavily on grants or government contracts. Funders, including governmental agencies that are party to relevant contracts, should be involved in early conversations about transferring any asset for which they provide significant funding. Because the grant or contract is with the initial entity, new commitments to the program must be secured if the funding streams will move with the program, and the process of moving grants or contracts from one entity to another is rarely quick or simple. In some cases, funders may not be willing to support the program if it moves to another organization, or the receiving organization may not qualify for a funder’s support. In other cases, funders may have an existing grant or contract with the receiving entity that complicates the transfer. These challenges are not insurmountable but must be included in the due diligence process.
Assets supported by contract funds require detailed cash-flow projections. These projections help to determine the timing of the asset transfer. Contract-related funds must often be spent before the transfer occurs, and a gap between the transfer date and when new contracts begin may form.
Lesson #4: Carefully consider the “make” or “transfer” conundrum.
The make-or-buy question is often discussed in business schools. In these cases, students weigh factors that would induce them as future managers to create or develop a good or service, rather than purchase or contract the same good or service from another vendor. Relevant factors include in-house expertise and capacity, cost efficiency, the volume of the good or service needed, and the opportunity for reverse engineering.
Social impact leaders face similar quandaries when they encounter strategic opportunities. Entering a new program area, building a new interorganizational network, or developing a new technology all give leaders two options: create or acquire. They can choose to build a new asset from scratch or seek out an existing programmatic asset that may be available for transfer. Social impact leaders benefit from analytical methods similar to those of their for-profit counterparts.
To perform quantitative analysis on these questions, leaders estimate the direct and indirect costs of developing the asset internally; the staff time, materials, and training needed to develop the asset; and the costs of accepting a transferred asset (e.g., search costs, legal fees, operational costs associated with integrating the asset into the existing operational systems, and any additional costs associated with modifying an acquired asset). A comparative financial analysis of asset creation or acquisition options is a core component of due diligence for asset transfers.
Social impact leaders should rely on more than just financial analysis when considering the make-or-transfer question. A proper qualitative analysis may require answering the following questions:
- Would building the expertise and skills needed to launch this asset be strategically valuable for the organization beyond developing the asset itself?
- Does the organization have sufficient time to develop the new asset? Will such work detract from more important strategic priorities?
- Does the asset have intangible benefits that would be difficult to replicate, such as a well-recognized name, relationships, cultural competency, or trust with important stakeholders?
- Will the culture of the asset benefit the organization or detract from it?
Ultimately, deciding to create an asset or seek an asset transfer from another organization relies on leaders’ weighing the strategic answers to these qualitative questions and doing cost analysis. In the social impact sector, leaders too often focus exclusively on creating new assets, partly because the concept of asset transfers is not incorporated effectively into the culture of nonprofit business leadership. Social impact leaders have many options for developing and acquiring assets, and a thorough analysis in the early stages of asset planning can be an exceptionally valuable use of time.
Read more stories by Michelle Shumate, Lindsay Kijewski, Kate Piatt-Eckert & Christine Thompson.