‘Too Many Nonprofits’ Is Not Our Biggest Problem

“There are too many nonprofits.”

“Yes,” someone else will chime in. “There are too many nonprofits.”

It’s a comment I hear frequently in gatherings of funders, and when it’s said, I notice, many people nod.

We heard this from some foundation CEOs when my colleagues on our research team interviewed them about the current context last fall, and I hear it frequently in my travels and meetings. David Callahan, whose writings about philanthropy I appreciate and frequently (but not always) agree with, made the same argument last year in Inside Philanthropy, suggesting that many organizations are inefficiently duplicative or just “mediocre.”

The vision, I guess, is that, after a purging, the resources that had gone to the “mediocre” organizations that cease to exist somehow gets redeployed to other nonprofits — the exemplary ones. Of course, it’s more complicated than that. These judgments are highly subjective: one person’s mediocre organization is another’s exemplar.

It’s true there are more than 1.5 million 501(c)(3) charitable organizations in the U.S., and, admittedly, that is a big number. Still, I don’t really know if that’s “too many” or not. Who am I to say, after all? Presumably if a nonprofit has enough funding to exist, then some set of supporters has deemed that organization worthy of support.

You don’t have to support them. I don’t have to support them. But if others do, isn’t there an argument to be made that this is what makes our pluralistic, diverse, sometimes messy nonprofit sector special and strong, with donors free to make their own choices about who to support?

Yet the idea that “there are too many nonprofits” remains a common lament.

A Sense of Overwhelm?

I have heard this sentiment more and more in recent months, as we at CEP have shared data about the degree to which nonprofits across the country are reeling (and we’ll be sharing more data tomorrow — more on that later in this post). At some level, foundation leaders feeling like there are “too many nonprofits” makes total sense: foundations, after all, are seeing increased demand for funding as a result of the ripple effects of federal funding cuts and other challenges, as our research has shown. It’s legitimately overwhelming.

But I also worry that “there are too many nonprofits” could become a way, consciously or not, to avoid engaging — and acting in proportionate response to — the brutal realities facing nonprofits, a reason to step back and say “well, the nonprofit sector needs to be culled anyway.” It sometimes can feel like a rationale, if not a rationalization, for discreetly easing away from a sense of responsibility for the situation.

I am not saying there aren’t nonprofits here and there that don’t accomplish much and probably should — at least if it were up to me, which it isn’t — wind down. That is likely true — and of course the same holds for businesses. (Question: When is the last time you heard someone say “there are too many businesses” in the U.S. even though there are more than 30 million of them?) It’s also the case, of course, that it is funders themselves that often are responsible for the creation or backing of new organizations.

I am also not saying that there aren’t areas in which there is too much unproductive duplication. Nor that there aren’t some organizations that should merge; that is true, too, I am sure. I have met with funders in communities who are clear about the ways in which the sheer number of overlapping organizations working on similar issues creates confusion — and challenges. Many are offering support for the exploration of mergers among their grantees, and that’s laudable. (I would offer the caution however, that mergers, whether in the for-profit or nonprofit sectors, often fail to yield the hoped-for efficiencies or “synergies.”)

I also know that there are many communities in this country in which there actually aren’t enough nonprofits. I am thinking of a rural area I visited in Texas a couple of years ago, for example, where the community center (which was also the senior center) had to send volunteers on 90-minute drives to bring food to the housebound. That same organization had to act as a shelter for victims of domestic violence, because there wasn’t anyone else doing it (and people just started showing up, seeking a safe place). The organization played many other roles, too, and the staff said they felt overburdened and under-prepared to fill all the needs — because the region lacks an ecosystem of nonprofits. 

My take is that many of the nonprofits that are on the very edge of being able to continue to exist right now are, in fact, organizations whose closure would have enormous costs: people in need not served, rights not protected, art not created, land not conserved, community-building events not held, hotlines unanswered, museums not open, concerts not held.

Lives not saved.

Judging by media reports, a growing number of nonprofits have closed or paused operations already, and communities are paying the price. Then there are the job losses, which continue to mount among nonprofit workers who represent 10% of the U.S. workforce.

In Defense of Smallness

Many nonprofits are small, it’s true. But there is no shame in that. On the contrary, it is their smallness, often, that has allowed these organizations to be effective and efficient. They are rooted in, and trusted by, communities they serve. Their work keeps city neighborhoods and rural communities ticking. It is often the case that merging these small organizations into some larger entity, even if possible, would actually make them less effective and efficient, not more so.

Scale, it turns out, is not the universal remedy to our ills in the nonprofit sector.

Like the air we breathe or the water we drink, we often don’t really pay attention to the small, effective nonprofits all around us. But they matter enormously.

We need to engage that reality rather than falling back on bromides like “philanthropy can’t fill all the gaps” created by federal funding cuts. (This is surely true, as I have discussed in other posts, but hardly a reason to do nothing.)

New Data on the State of Nonprofits

I say all this because a report we at CEP will release tomorrow shows that nonprofits are in deep, deep trouble. Two thirds of nonprofit leaders say they have concerns about their organizations’ financial stability. Two thirds.

Burnout, already at crisis levels, has increased sharply in the past year among nonprofit leaders, driven by the challenges of the current context, including the brutal funding landscape. Funding cuts have hit nonprofits hard, and nonprofit leaders describe a fundraising environment that is extremely challenging, with foundation funding more and more difficult to secure.

The responding organizations are members of CEP’s nationally representative Nonprofit Voice Panel, comprised of U.S. nonprofits that receive funding from at least one foundation that gives at least $5 million or more annually. So these organizations have made it through at least one foundation’s vetting process and been deemed worthy of support.

And yet they are reeling.

A Plea for Action

It is this reality that has led me to call for foundations to step up their giving and act as counter-cyclical forces in a way they uniquely can. It is this reality that makes me worry deeply about the consequences of nonprofits’ challenges for communities across the country. It is this reality that makes me call on donors with means (individuals and institutions) to do more than they planned, more than they thought they would — everything they can.

Nonprofits aren’t just sitting back and waiting to be saved. Far from it, our data shows how organizations are responding with resilience and creativity. More than a third, for example are either considering sharing operational functions like HR or accounting with another organization or are already doing so. Some 15% are, in fact, considering a merger.

I spoke to donors and nonprofit leaders in Memphis, Tennessee last week at the annual meeting of the Community Foundation of Greater Memphis, giving them a sneak preview of some of the data in the report we will release tomorrow. Looking for inspiration as I prepared, I turned to the music of the many great musicians who hail from that storied city.

I found myself listening to Otis Redding, whose records I used to put on the turntable (again and again) as a child. One line from a song I hadn’t listened to in decades jumped out at me.

“You don’t miss your water ‘till your well run dry.”

Nonprofits are this country’s water. Let’s please, please, please not let the well run dry.

Phil Buchanan is president of the Center for Effective Philanthropy, author of  “Giving Done Right: Effective Philanthropy and Making Every Dollar Count,” and co-host of the Giving Done Right podcast.