Are There Too Many Nonprofit Organizations in the US?

The 2017 calendar year has been a very interesting year for me. It seems that I have contacted more prospects and made a larger number of asks than in recent memory. That said, I have also received greater numbers of refusals from an array of individuals, corporations and foundations. The reasons vary, of course, but common themes are emerging. One theme is the response: We are receiving a larger number of asks for a greater amount from a much larger number of nonprofits.

Other refusals imply that potential donors are changing their funding model. The responses I hear are:

• We only give to organizations where our employees volunteer.
• We have given to you for many years.
• It is time to give to others.
• Our mission is not compatible to yours.
• New decision-makers or gatekeepers have their own personal methods for funding and your contact has retired.
• The list of reasons is long and ever changing.

It does feel that in certain markets there could be a point of diminishing returns due to a flood of nonprofits.

According to the National Center of Charitable Statistics, there are currently 1.5 million tax-exempt organizations in the U.S. This 501(c) Agencies Trust blog noted that the nonprofit sector has grown by 20 percent throughout the last 10 years, compared to a growth rate of about two to three percent in the for-profit sector, according to a report published by the PNP Staffing Group.

This report also notes that many organizations are expanding and hiring in the nonprofit sector continues to grow. The number of staff has increased in more than 50 percent of the nonprofits. Employee transitions from the for-profit sector to the nonprofit sector continue to increase as nonprofits become a favored environment to work in or renew a career. In addition, financial and public support for nonprofits is at an all-time high.

Jonathan Spack, CEO for TSNE MissionWorks, authored this article that attempts to address the argument of too many nonprofits, which are the following:

• The growth of 501(c)(3) organizations has resulted in inefficiencies. While the sector has grown by more than 40 percent since the mid-90s, Spack is unaware of any studies that suggest nonprofits are less efficient when there were fewer of them.
• With so many nonprofits doing similar work, the limited resources available are spread too thinly. To the extent there is validity to this claim—future funders must be more courageous in their decision-making.
• With so many applications to evaluate, it’s difficult for funders to make well-informed decisions. Potential strategies for the future to address this issue include more collaboration and consolidations among funders, longer term grants and grants to networks of nonprofits. Can anyone answer what is the right number of nonprofits?

According to this Blue Avocado blog post, the author makes several points to consider in this important discussion: Through mergers of nonprofits, which reduce nonprofit competition, less innovation and excellence would take place. Mergers between nonprofits would increase costs and cost cutting would reduce much needed services. With that said, however, donors and funders would like less nonprofits so funding demands would be less. The author feels a vibrant, rough-and-tumble ecosystem of nonprofits serves our society best. The author states, “Rather than bemoan its complexity, we should treasure our nonprofit marketplace.”

Here are the most 5 egregious myths in the nonprofit sector, according to Social Velocity:

• Good nonprofits don’t make a profit. For a donor, it is far better to invest in an organization with the people and systems necessary to effectively tackle a social problem. (Thus, good finances.)
• There are too many nonprofits. Who can answer this question? If a nonprofit finds that they are no longer adding unique value to that marketplace, then they should do whatever makes the most strategic sense.
• Nonprofits, unlike businesses, are inefficient. The truth is business, government and nonprofit sectors have both stars and screw-ups. The problem is lack of capital required for organizations.
• Nonprofits are outside the economy. Nonprofits employ 10 percent of the U.S. workforce and account for five percent of the GNP. Nonprofits are an instrumental part of the economy.
• Nonprofits have no role in politics. Nonprofits must be advocates for changes to ineffective systems.

Are there too many nonprofit organizations in the U.S.? You can see by this discussion that is a very complex issue. This question should constantly be studied for keeping nonprofits efficient and funders focused on what is best for society. The interface of business and government sectors also affect the ultimate answer to this question. I say, for now, that we defer a response while we seek further inquiry. Regardless of the quantity issue, all nonprofits should strive for quality and be the best they can be for the benefit of society.