When should a not-for-profit have an exit strategy?

 

Ending an organization, whether a for-profit or not-for-profit, takes strategic planning and execution. This process can be incredibly complex for not-for-profits because of the IRS and state tax regulations and the hope to align the end of an organization with some level of mission achievement. But before putting an exit into motion, at what point should a not-for-profit develop the exit strategy?

 

 

 

What should guide exit plans

 

Each not-for-profit is created to solve a societal problem. Some organizations successfully achieve their stated mission, such as eradicating polio, developing parklands, increasing student success by a predetermined amount, or growing voter registration and engagement of underrepresented populations. Thus, those organizations that have, or nearly have, achieved their mission are ideal candidates to evaluate ceasing operations.

 

However, few organizations reach the lofty benchmark of fully achieving their mission. Instead, they may find success when the solutions they deliver or pioneered are adopted by governments or other entities to be sustained at scale. As a result, the organization has less or no need to exist, presenting an opportunity to close as mission achievement is adopted by other stakeholders.

 

This was the case for the Johns Hopkins Coronavirus Resource Center, an early leader in real-time global public health data related to COVID-19. The Center decided to cease operations in March 2023, citing consistent declines in public reporting of pandemic data in the U.S. and the federal government’s expanded data capacities. These developments made the Center less relevant as the nature of COVID changed and governments prepared to pick up the work the Center had been doing at scale.

 

Achieving mission impact at scale through stakeholders like the Center did is often an elusive goal which challenges if a not-for-profit can ever have an exit strategy. Social issues such as hunger and homelessness are often protracted. As a result, a not-for-profit addressing the issue is less likely to achieve its mission fully, and government intervention alone probably won’t provide a sustainable solution at scale. Yet in these “protracted issue scenarios,” many not-for-profits actively address the same issue, presenting opportunities for organizations to develop an exit strategy through organizational mergers.

 

For example, hunger is addressed by scores of U.S. organizations—from national entities with large corporate partners and public policy positions to community food pantries run by faith-based groups. When many organizations address the same issue, this presents opportunities for not-for-profits to contemplate mergers to increase the impact of a combined organization versus two standalone organizations.

 

This occurred in 2019 with the merger of FreshFarm and Community Foodworks, two community-based organizations with complementary missions dedicated to supporting farmers markets, food access, and sustainable agriculture in Washington, D.C. The merger created the third-largest organization of its kind in the U.S.

 

 

 

Explore an exit strategy to bypass pitfalls

 

When organizations fail to close when their mission impact is complete, minimal or diminishing, or when duplicate organizations address nearly the same issue in the same way, mission creep can occur, and resources can be inefficiently deployed. Further, not-for-profits may pivot to issues they are unprepared to address, which can diminish their impact or lead to counterproductive efforts and reputational damage.

 

Organizations can avoid these pitfalls by periodically evaluating impact through the lens of an exit strategy. To do so, not-for-profit leaders and boards should identify scenarios when organizational closure may make sense. This way, organizations will have a clearer path forward. For example, one planning exercise is to imagine an organization’s operations are constrained by time, such as one year, five years or ten years, and identify the highest priority goals to achieve the mission in each timeframe. The exercise could include answering questions such as: How would resources be raised and deployed? What partnerships may be needed? How would the organization’s story conclude, and how would mission impact be achieved?

 

By exploring an exit strategy as part of a not-for-profit’s regular strategic planning process, leadership can actively choose if the organization should serve into perpetuity or be time-bound. Some foundations, such as The Atlantic Philanthropies and the Nicholson Foundation, have led the way in developing exit strategies. David Morse, who headed communications for the Atlantic Philanthropies as it began winding down, said, “Decide how you want to end and work backward from there.”

 

An organization’s leadership and network of stakeholders – beneficiaries, donors, staff, partners, and others – can work more closely to identify when and why a not-for-profit should close. It is essential to actively explore an exit strategy as part of ongoing strategic planning and evaluation and to promote this important dialogue with peers inside and outside of the organization. This way, mission-driven organizations can more effectively shift focus from sustaining operations to moving impact to the forefront of decision-making.

 

 


 

Contacts:

 
 
 
 

Our not-for-profit and higher education featured industry insights