Charrissa Lin

How to Keep a University Alive

University bubble chart
University bubble chart

Several years back, we had the opportunity to work with a small, niche university.  The big question that they were trying to answer was about sustainability – what could they do to establish a more sustainable model for themselves? If they didn't resolve this question, they feared they would have to close.

As a part of their beliefs, they highly valued small class sizes, which was integral to the learning experience that they offered.  So, while increasing class size might have been an obvious first lever to pull, such cost efficiency through class size wasn't the answer for them.

To understand their positioning, we conducted some peer research, specifically of colleges and universities that prided themselves on small class sizes.  We looked at ones who were financially sound and sustainable and then looked for markers of their success.  All of the successful, sustainable  peers with small class sizes varied from our client on one (or more) of three key levers:  average tuition, overall student population, or endowment.  Our client didn't have a strong position in any of these levers, and thus was living in a no-man's land (see diagram above). The successful institutions didn't all have the same model, but they were all finding a way to support the costs of maintaining small class sizes by pulling one or more of these key levers.

What did this mean for our client?  It turned out they couldn't easily pull any single one of those levers strongly enough in short order to close their financial gap and stay open.  They valued providing access to college to a larger breadth of household incomes and couldn't jack their realized tuition way up. They couldn't dramatically increase their endowment in the short run given the fundraising challenges, and their overall student population could only grow incrementally over time.  As a result – they needed to pull all three of the levers – in smaller amounts and gradually. And that's what they did. By paying close attention to increasing tuition where they could, growing their endowment through well-planned fundraising, and increasing their student population while maintaining small class sizes, they were able to establish their sustainability. The thus moved from the no-man's land into a zone of success.

To state all of this in simple terms: if your organization is struggling to achieve financial sustainability it can be useful to look at peers (especially those with similar values) to see if you are operating in a “no-man’s land.”  And if you are – what combination of levers can you pull to get yourself out?

Should We Merge?

Merging road sign 2
Merging road sign 2

Recently, mergers and acquisitions have been a hot topic among my clients.  This concept has come up any number of times – almost always suggested by a Board member and motivated by for-profit corporate thinking.  Mergers and acquisitions do serve a purpose, but they are complicated and challenging to execute well in the for-profit sector, and potentially even more so in the non-profit sector.

First – I bristle when the concept comes up as a direct and solitary question, “Should we pursue a merger or acquisition?”  It is my firm belief that this question should only be an execution question to fulfill a strategic direction.  Why do you want to merge?  What goal are you trying to achieve?  Most non-profits run so lean that simply achieving cost savings is not a likely outcome of a merger and, therefore, shouldn't be a primary objective.

Of course, there are many strategic directions where a merger or acquisition could potentially be helpful – if an organization is seeking to build out complementary services, enter a new market, gain access to clients or donors that it can’t reach right now, etc.  And sometimes, foundations or other funders look so favorably on consolidation that they will provide additional support to organizations that are merging.

Having said that – there are a number of challenges relating to mergers that come to mind:

  • Even if two organizations offer similar services to similar clientele, the two organizations may have different models for how to provide their services.
    • Generally organizations have strong beliefs about their models of service, so major differences can be hard to bridge.
    • Fundraising does not often follow a simple 1+1 = 2 equation.  If an individual, foundation, or corporation is giving to both organizations – it is unlikely that they will give the total amount to a combined entity.  (Conversely, mergers and acquisitions can be useful when there is a dominant funder like the government. Working with a larger, combined entity might benefit that funder and the combined entity might be in a better position to capture greater amounts of funding.)
    • Culture fit matters even more in non-profits than in for-profit combinations
      • The Boards need to see eye-to-eye, and feel comfortable and aligned.
      • The staffs must feel that their cultures will mesh.  Oftentimes a non-profit's major assets are its people, and losing those people might greatly reduce the value of the combination.

A straight acquisition might be easier than a merger, as the acquiring organization can define the culture and the service model.  Mergers of two similarly sized organizations can be very challenging and time-consuming to execute. In these cases, true strategic value needs to be clearly identified to make it all worthwhile.