Shared Services Alliances

Nonprofits creatively combining the back office.

This is my third posting in a series on shared services alliances in the nonprofit sector. Too often when we talk about strategic restructuring we discuss only merger models; but there are a wide variety of partial integration models that are extremely creative and productive. These other models expand the mission of nonprofits but they rarely get discussed. I hope my series begins to address that imbalance.

This month I want to share the story of the David and Laura Merage Foundation, based in Colorado, and their efforts to strengthen the Early Care and Education (ECE) industry by creating an innovative shared service infrastructure called Early Learning Ventures Alliances. This community-based partnership model involves small ECE providers working together to share costs and deliver services efficiently.

I interviewed Sue Renner, Director of the Merage Foundations and of Early Learning Ventures in Colorado, the nonprofit which oversees the establishment of the new shared services alliances for the ECE sector. She told me that when David and Laura Merage began their philanthropic support of early childhood education, they were initially struck by how ECE businesses were struggling on the operations side. The foundation understood that they could fund training for staff, provide materials for the children, and support other program initiatives, but “if these businesses continued to have the ongoing failure rates and market challenges then their investment would be like pouring water through a colander; there would be no sustainability. That is why we focused from the beginning on strengthening operations. We wondered, is there a way to finance working capital where organizations could have more robust business platforms that are so critical, rather than funding essentially debt financing?”

Their answer became the Early Learning Venture Alliances, a group of geographically-based Alliances, each with up to 100 affiliated childcare businesses. Alliances formed a hub operation to provide a broad array of high-quality services to the affiliates in order to achieve economies of scale and increase the capacity of the affiliates. The affiliate members include family child care providers, faith-based centers, and other small providers. Early Learning Ventures provides the Alliances with customized technologies, business consultation, policy and finance reform advocacy, technical assistance, quality control, and collaborative fund development to optimize the delivery of shared services to the affiliates. The goal is to allow providers to maintain their independent identities and to focus on creating strong, high quality programs for the children and families they serve. To date, they have identified seven nonprofits that have agreed to act as the Alliance hub in their geographic region. Each is now writing a business plan, recruiting staff and affiliates, and preparing to launch the Alliance effort in the coming year in Colorado.

Nationally, the shared services movement for the early care and education sector is growing. Today there is a national foundation partnership, called Shared Services for the Early Care and Education Industry, for donors that have invested in this area, including the Merage Foundation, the Annie E. Casey Foundation, and the William Penn Foundation. A third annual national conference (by invitation only) of shared-services agencies and funders in the ECE sector will take place in September in Philadelphia. It will focus on sharing knowledge and experience. Good information about shared services—directed at early care and education, but I think it’s adaptable for other nonprofits – is available online and accessible to the public. Early Learning Ventures has developed a Shared Services Tool Kit which you can access here.

Sue noted that the ECE sector is quite mixed, with 70 percent of the services delivered in small, private businesses, often in home-settings, rather than in the public sector. Early Learning Ventures had a number of hurdles to overcome.  “It’s tricky trying to move the needle. The ultimate goal is school readiness, getting all children on an equal platform.  But trying to have a goal of that magnitude yet limiting philanthropic dollars to nonprofit ECE organizations, a small sliver of the market, and not doing it proactively—it’s difficult to get to those outcomes.”

How an Alliance model operates.

The business realities for these providers are quite difficult. The average childcare center serves about 75 children and employs fewer than 20 people. Let’s face it, when it comes to spreading costs bigger is better. The Shared Service Alliance integrates the services where big matters—financial services, purchasing, human resource services, IT, facilities management, fundraising, marketing/communications, staff development, outcome evaluation, sharing support staff. But where big isn’t better—small classrooms, a low student: teacher ratio, then “small” is the operative word in this model. When it’s necessary to have ECE programs that are rooted in communities so that they allow parent involvement and represent cultural concerns, then local is the operative word. The Shared Service Alliance model allows for large leveraging as well as small size and local values.

Shared service alliances are real. This model of partial integration in order to strengthen early childhood education services is incredibly exciting and one foundation, investing less than $1 million annually, has made this all come to pass. It does not take buckets of money for new integration models to be created and this experience doesn’t apply to just the ECE sector. This Alliance model can be easily adapted to affordable housing, employment and training, mental health services, and so on. If you can make the shared service alliances business model work for micro-businesses like family-owned childcare centers, then you can make it work for any nonprofit consortium. All it takes is some ingenuity and hard work.  Congratulations to the David and Laura Merage Foundation for having the passion and vision to make this happen, and for putting their money where it can leverage the most good.  Click here if you’d like more information about Early Learning Ventures.