Are There Too Many Charities?

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Are there too many nonprofit organizations in the United States?  This question invariably produces in me a mental cramp.

There’s typically so much confusion and ideology rolled into the question, that it’s better discussed over an ice-cold beer and a bowl of salted nuts.  The short answer is, “By what metric?”  The longer answer requires some careful unpacking of assumptions.

This question is often asked by a funder concerned about the proliferation of nonprofit organizations in a given geographic region or field of interest (e.g., environmental advocacy).  He raises the question because he worries that there’s too few charitable dollars to support an ever-increasing number of organizations.  Isn’t there too much overlap in their missions?, he wonders.  Shouldn’t more of them consolidate their operations and merge?

Here’s a few things for funders (and nonprofits) to consider:

1.  Most charities are charities on paper only.  Don’t go by the number of organizations granted 501(c)(3) status by the IRS.  They were incorporated by good-hearted people driven by the desire to make a difference in the world.  In most cases, that desire didn’t extend beyond the filing of papers with the state attorney general.

2.  Charities with real revenue streams are there for a reason.  And you might be one of those reasons.  A newly incorporated nonprofit organization will coast along on volunteer support for months, even years.  Having established a track record, there may come a time when it will turn to the donor community for help with that next step in its evolution.  If the charity makes it past this awkward transitional stage, it’s because it was able to convince a large enough segment of the donor community that there was a real need for its services.  Who’s to argue with that?

3.  Hooking up with an established charity is easier to say than to do.  A funder might ask a newly minted nonprofit why, instead of incorporating as a new organization, it didn’t simply join forces with ABC, Inc. and provide services under its aegis, obviating the need for the creation of a new charitable entity.

I remember trying this on several occasions.  The conversation with the established nonprofit went something like this:

NEWCOMER:  I’d like to do X, Y, and Z under your aegis.

ESTABLISHED NPO: Really? Do you have any experience doing X, Y, or Z? or do you have any funders to support you?

NEWCOMER:  No, but I have enormous passion and a lot of great ideas.

ESTABLISHED NPO:  Well, then, bugger off.

4.  Mergers between nonprofit organizations carry significant opportunity and other costs and seldom deliver the anticipated efficiencies. A full discussion of this topic would turn this into a monograph rather than a blog post.  If you disagree, by all means leave a comment.  In the meantime, you might want to read this, for starters.

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Ultimately, whether or not it’s the best solution for society, the market will decide.  It’s us individual donors, and it’s institutional funders and other rainmakers who will or will not open their purses for a given charity.  Won’t we simply end up voting with our dollars?

Whatever the role of the nonprofit marketplace in deciding this question, we need to be responsible with the advice we give would-be nonprofits.  We should exhort them to consider becoming a program of ABC, Inc. rather than a separate organization.  We should remind them of the challenges of establishing, running, and sustaining a charitable entity in the increasingly crowded nonprofit marketplace.  And we should encourage them, if at all possible, to continue doing their work on a volunteer basis or to explore alternative models, like the Tides Center.

But beyond that, how far should we go to stifle an exuberant desire to address a clearly articulated social need?

I offer the above as an answer to one variant of the original question, “Are there too many charities?”  A more interesting version of this question, in my view, is addressed by Gerard Alexander in a recent Weekly Standard article.  Mr. Alexander worries over the effect of a large Independent Sector on the national character and economy.  He clearly has a flair for the dramatic as he implicates the nonprofit sector in “the New Left’s long march through our national institutions.”

Does he make a strong case?  That, dear reader, must wait for another post …

Comments

[BS]

Interesting question, of course, but not sure if it's a matter of too many charities. Maybe it's not enough effective ones...or enough effective ones to keep up with all the problems they're trying t solve. I can't base this on any thing more than a hunch. But it seems that charities or nonprofits keep springing up to address the same work that other are doing because they think they have a better way. (The "new new" thing.) Unfortunately innovation in the nonprofit sector isn't the same as in the business sector or subject to the same tests. Without any system -- market or otherwise -- to help the less effective "innovators" or even the long-standing ones "fail," we really can't tell if there are too many--or like I suggest, not enough able to get the work done that needs doing.

[Maria Gajewski]

While the number of nonprofits may not exceed market demand at this time, it does seem that the number of orgs requiring leaders will soon exceed qualified candidates. That alone may force a wave of mergers and consolidations, regardless of the efficiencies lost.

[Sally Wilde]

BS: The nonprofit sector has certainly had (and will have again!) its episodes of faddishness. Funders sweep aside still-promising ideas in the same cavalier manner that art critics of the 1950s declared "the death of painting" (and to similar effect).

Maria: I've read the BridgeSpan Group study you refer to. I'm plagued by the suspicion that people of my generation might be suffering from MASN (Mass Acquired Situational Narcissism): the unfounded but persistent idea that we are irreplaceable. I suspect that when the time comes we’ll experience no leadership crisis whatsoever. The next generations will gleefully push us out of the way and remake the sector according to their own principles. Oh happy day!

[Phil]

Albert, very helpful. Our DSVP constantly raises this issue of "scaling" the charities we support and helping them get to "critical mass" by mergers and acquisitions. I sometimes wonder if families might buy each other out to create greater efficiencies.

[Rob Johnston]

Another approach to the challenge of too many organizations may be to increase the efficiency of those in place. There are huge opportunities for the work of many charities to be made more efficient by shared back office and infrastructure.

FEGS [fegs.org] in New York operates a network of charities and supporting businesses that enables it to deliver a wide range of social services at efficient scale. In this case, FEGS owns the businesses (which operate in human resources, information technology, and other support areas), and the businesses serve the wider market in addition to the FEGS nonprofit efforts. The result is that instead of 7 or 8 small IT departments, the FEGS nonprofits all are served by a substantial IT business. The FEGS businesses are staffed with professionals devoting themselves fulltime to their work in HR or IT. They are paid salaries comparable to the market they operate in, and they run the business to maximize its return. When one nonprofit needs a social worker, the FEGS business can advertise, attract multiple candidates, and place several of them in addition to providing one to the nonprofit in need. Those kinds of efficiencies could be shared by nonprofits in lots of urban areas.

[Albert Ruesga]

I'm in complete agreement, Rob. More and more organizations (for-profit and otherwise) are providing these services to nonprofits. Association management organizations have been doing this kind of thing for years. It simply doesn't make sense for every would-be nonprofit to hire its own accountant and IT department and HR professional and newsletter writer and so on.

[BS]

There's a big difference between efficiency and effectiveness. You can be very efficient at delivering services but still do no good. It might be harder -- and probably is more costly -- to deliver effective service.

[Albert Ruesga]

Efficiency and effectiveness are not the same, but the former can very strongly affect the latter.

I'm a volunteer for an organization that recently went the outsourcing route described by Rob Johnston, above, and we'll never turn back. In a small shop (and most nonprofits are small shops), it's simply not a good use of a staff member's time to have him or her spending twenty hours out of each week trying to figure out why our mass e-mailing software isn't working properly, or mastering all the details of QuickBooks, or doing any number of fussy things that draw attention away from work that can more directly advance mission.

You can't have an effective organization when you have all the right people working on all the wrong things.

[curtis brown]

Too many charities? There is no doubt that the data proves that to be true no matter how you slice it. You bring up good points though that an attempt to partner with an existing org is met with disdain and resistance. That attitude is changing among the new entants to the field. I just helped two group merge and its been a huge success. We are working to create more.

Also, I with a consulting firm from the US that is producing a capacity building report for foundations and nonprofits. We just finished the initial draft of this capacity building report. We deal with some of these issues in it. I believe it has some ground-breaking ideas in it. It also challenges some core assumptions in the field today. I would love to get feedback from you or other readers on the document and any case studies you may have that connect with any of the ideas. The base report is only 30 pages with a few extras. This document is still in draft format and we are looking for feedback. We are very hopeful that this document will provide a new framework for working with nonprofits. Discussion on the document is going on at www.nonprofitrules.wetapint.com The pdf for download of this document can be found at: http://nonprofitrules.com/Newrulescapacity1.pdf and is also attached. My email for contact is curtis at nonprofitrules.com
Many thanks in advance.....

[Ole Rogeberg]

Hi,

interesting post - as I argue in my own post on lifeyears.blogspot.com (see URL) I think this is closely related to the argument on efficient markets raised recently on tacticalphilanthropy.com. Would be very interested to see what solutions for this issue you come up with in the future.