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In tough times, we need fewer nonprofitsMonday, January 18, 2010Posted by Nancy Hall, president of 501(c) Solutions, under Big Visions Post the next comment (25 so far) |
Today there are 1,200 more nonprofits in Maryland than there were at the beginning of 2009. You might be thinking, “Great, in this tough economy, I’m glad that all these folks are starting charities to help people.” You may think it is super, but I think quite the opposite. There should be a moratorium on starting nonprofits. And we should get rid of a lot of the older organizations too. In tough times, we need to have fewer nonprofits not more. Let me explain.
When needs are high and available funds are reduced, the dollars going to nonprofits need to be used efficiently and effectively. We need to get the most bang for every philanthropic buck. Bigger, established nonprofits are better positioned to maximize the donated dollars going to direct service. Organizations that already have administrative systems in place can put all new money into programming. New, small nonprofits need to use dollars to create an organizational structure. This is not the most efficient use of funds.
It costs almost a $1,000 in filing fees to start a single nonprofit entity. Those 1,200 new organizations spent over $1 million just to incorporate and to have the IRS review their applications. Not a dime of this $1 million went toward programs. Was this $1 million well spent or should it have been given to an established nonprofit with a proven track record? I know a lot of nonprofits that could have put a $1 million grant to good use—fed some people, created some jobs, protected some children.
New nonprofits suck up volunteer time. Each group needs a board of at least 5 people. For those 1,200 new nonprofits, let’s assume that a board member attends just 6 meetings of 2 hours each. This translates to 72,000 hours of civic engagement in 2009 or the equivalent of 36 full-time jobs. What if the thousands of hours were volunteered at an established nonprofit? Would the impact have been greater if these hours were spent building homes, mentoring kids, restoring a waterway?
There are too many unmet needs to tolerate the squandering of time and dollars on unproven charities and ineffective and inefficient organizations. Philanthropic resources need to go to peak performers. And peak performers need to be receptive to incorporating new ideas into their existing programs.
At the end of this year, I hope to report a significant decline in the number of nonprofits as well as a substantial increase in the services the remaining organizations provide. Please, no more new nonprofits in 2010.
posts
Monday, January 18, 2010 at 9:35 am
It’s not clear if your statistic is based on the number of 501c3 organizations started or if you are looking at some other list. Many of the recently established 501c3’s may not have a mission in the “building homes, mentoring kids, restoring a waterway” category. I can think of any number of small arts organizations, choruses for instance, or fraternal organizations that have 501c3 status. Whether that is a proper use is open to debate but given the current tax law, it is permissable. What larger organization would be willing to take on a small chorus? How would that work and why should only an established organization have that benefit? Perhaps some of the established organizations that have fulfilled or lost their mission should be the ones to dissappear.
Monday, January 18, 2010 at 9:36 am
Nancy – great and bold post. I often give the same advice. Not because we are competing non profits, but in the hope that more of us can partner and work together. I’d rather see the energy and excitement that goes into a start up funnelled into improving existing programs and remaking old out dated organizations.
Thanks for saying what many of us are thinking!
Monday, January 18, 2010 at 9:51 am
Nancy, excellent points across the board. I agree, we need less quantity and, in lieu, more quality of impact from our NPOs.
Monday, January 18, 2010 at 10:32 am
that’s why Fusion Partnerships started a fiscal sponsorship and incubation program here in Baltimore, to support those who have great projects and innovative ideas and provide them with an opportunity to work on them without having to incorporate. This is a growing model in the nonprofit world – some of the others include Tides Center in San Francisco, Community Partners in LA, Third Sector New England in Boston and the Nonprofit Center in Denver. For a complete directory and more information, you can also go to: http://www.fiscalsponsordirectory.org
Monday, January 18, 2010 at 11:08 am
M&A in the civic sector
Nancy,
One of the more interesting differences between the civic sector and the commercial arena is the difference in the attitude regarding mergers and acquisitions.
In the business world, when one entity merges with or acquires another, there is a general recognition that the new organization will be stronger and better able to reach its goals. The event often enriches a number of the parties involved in the transaction, parties are held, there may even be a glass of champagne in the room.
When two social benefit organizations merge, we hold a wake and mourn the loss.
Perhaps a more enlightened approach to organizational growth and change might help address your concern.
Monday, January 18, 2010 at 11:23 am
I thoroughly agree. We seem to be spinning wheels (which do not need to be reinvented) The entire world, realestate, business and charitable organizations have been affected by “the bubble” of the last decade. Let’s strenghten the effective organizations and eliminate the others.
Monday, January 18, 2010 at 2:01 pm
I agree. But doesn’t the OSI policy if funding new ideas contradict your point? Perhaps instead of funding so many fellows, OSI should direct more of its resources to established organizations which take on a new project.
Monday, January 18, 2010 at 4:15 pm
Thank you for beginning this conversation, Nancy. If what you say is true, then it is all of our responsibility to meet this challenge from our own vantage points. Funders, donors, volunteers, regulators, legislators ought not be propping up struggling, ineffective organizations. It would be great if there were financial incentives, like there often is in the for-profit world, to complete a merger. Short of that, we all need to push our own nonprofits to partner with others to maximize the benefit to our customers.
Monday, January 18, 2010 at 8:31 pm
Perhaps start up NPO’s have a blindspot. Most believe that what they are doing is unique, and yet it is very likely redundant. This blind spot could be the result of several things. 1) a general failure to accurately assess what the real outcomes of their existence will be. If they did the assessment, they might realize those outcomes are already being pursued. 2) the would be founder is looking for a way to earn a living while doing something they believe in. That’s not altogether bad, but it isn’t necessarily good for NPO funding as a whole. 3) We tend to buy on emotion and justify with facts. Sometimes we just want to do something ourselves because it feels right. We can always justify it later with real or potential success stories. That still doesn’t mean the resouces required were well spent on the start up.
It’s hard to be critical of someone who just wants to do something good, but I still agree with Nancy that there are better and best efforts with existing, established NPO’s.
Monday, January 18, 2010 at 9:05 pm
As someone who has worked in nonprofits for over 23 years, I agree that there are often times too many nonprofits.
A great number of foundations and government entities continue to try to fund “new” organizations or “new” programs to address community issues instead of the tried and true ones that prove they do good work and have provden success but just enough resources. Why?
Why not ask existing programs how their existing programs and services could be made better? One earlier post includes OSI and its funding of fellows to do create new projects, and this is also true of United Way of Central Maryland which has dropped funding for some existing groups to fund new groups.
While some new groups apply for 501c status for good reasons, others create new groups to do things like youth development where we already have proven groups like Big Brothers Big Sisters, Boys & Girls Clubs, Boy Scouts, Girl Scouts, etc. who know how to do it right. Why spend all of your time building something new instead of funding a partnership to achieve your desired result?
New is not necessarily better, it is just new.
Monday, January 18, 2010 at 9:57 pm
If we really are in service to the core values of our missions then you would think it would be easier to get out of our own way… Often it appears ‘ownership’ stands in the way of forming good partnerships – someone once told me, “If you want control, don’t start a nonprofit!” Nonetheless, many times people start nonprofits with this very thought of control and ownership. Proprietary feelings also make it more difficult for these ‘owners’ of the nonprofit to effectively end the nonprofit because they see it as ‘failing’. The real owners of any nonprofit organization are all of those who share in and support the valued services delivered by the org and those who benefit from these services – in some cases that’s going to mean getting rid of some misguided proprietary feelings and getting down to effective service delivery.
We can then think of partnerships and even ending a nonprofit as: ‘Mission accomplished’ or ‘Beginning new collaborations’ or ‘Addressing the relevant needs of today responsibly’…none of these sound like failure to me.
Monday, January 18, 2010 at 10:46 pm
We need to ask ourselves why new organizations are forming. Are we welcoming new people into our established organizatiions. Are people who have devoted so many years to a particular organization or mission willing to open up and make room for new people-younger people, people of other ethnic backgrounds? Are new people welcomed and asked for their ideas and perspectives? Are they invited to take leadership responsibilites.Often when this doesn’t happen, people go off and start new groups.
Tuesday, January 19, 2010 at 9:19 am
Nancy: I think a good argument could be made that there are too many nonprofits…but maybe not, and it’s not clear either way from the data you present. While I don’t understand you to be advocating taking your argument to its logical end — one and only one nonprofit — there needs to be, nonetheless, a deeper principle than ‘fewer nonprofits means more bang for the buck’ on which to base the claim made; otherwise, there is no stopping the thrust of your argument to that end.
The answer, perhaps, lies in distinguishing, and examining in the context of nonprofit capacity, two kinds of efficiency, allocative efficiency and adaptive efficiency.
Your argument is based entirely on allocative efficiency, that there are limited volunteer hours and limited charitable dollars, and that too much of both are taken up with traveling up the learning curve and with supporting redundant management and governance infrastructure.
Adaptive efficiency, in contrast, refers to the ability to sift through new ideas and to respond to changing environments.
If you mean to say that we don’t need another Friends of the George W. Bush Presidential Library to carve up a finite mission “pie,” then your point is well taken, based on allocative efficiency grounds.
It is almost certain, however, that many new nonprofits are responding to the new and expanding needs of the unemployed, for example, and to the needs of Maryland’s growing Hispanic community. And others, one hopes, or can imagine, have promising new approaches to treating drug abuse and to improving underachieving schools. We want more of those kinds of nonprofits. Or rather, we want more of those services, and it’s as or more likely that we’ll get them with new entrants as we will by expanding the mission or budgets of existing ones. Insofar as the growth in nonprofits reflects those phenomena, a manifestation of adaptive efficiency, the growth is a good thing.
So, while I can, as you know, personally attest to your interest, talent and success in finding solutions to the problem of nonprofit capacity, I respectfully disagree with the premise of your essay.
Permit me to add that I think that even an argument based solely on allocative efficiency has two weaknesses. First, who’s to know when resources are spread too thin in terms of actual resources in existence on a given day? Perhaps the best you can say is that in this financial climate nonprofit executives-to-be should take a careful look at organizations with similar missions before setting off on their own. That’s good, but it needs to be considered in the context of a larger point, that cash is only one category of resources used in the nonprofit sector.
The other very large category of resources, arguably as or more important than money, is people. Consider the possible impact of high unemployment and the emergence into young adulthood of the children of baby boomers. Based on those two factors alone, how clear can it be that the number of volunteer hours available to nonprofits, measured on a kind of ‘volunteer hour per good deed’ meter, is going up or going down?
The second weakness in your allocative efficiency argument is that resources – money, people’s time, talent and passion and myriad other things – are only efficiently allocated when deployed in an activity appropriate to the resource. In the case of my hypothetical hyper efficient single nonprofit that does everything, it won’t do to relegate that genius inspirer of youth and that brilliant lawyer to licking envelopes because all of it youth leader positions and all of its board slots are full for the time being.
There have to be an appropriate number of nonprofit outlets for each skill and for each passion, and we don’t know, even in times when we all agree that financial resources are shrinking, whether we have enough, too few or too many.
Perhaps a way to square the competing concerns is to concentrate more dollars on the kind of work you are doing, building support capacity – back office bookkeeping and HR, for example — that unrelated nonprofits can access. And, counter-intuitively enough, how about a brand new nonprofit whose mission is to maintain a public, easy to access database of local nonprofits, regularly updated with their latest and greatest activities and accomplishments and with a user interface that made it impossible to resist the urge to enter your name as a volunteer. . Doing those two things would enhance both allocative and adaptive efficiency. Now that’s efficient.
Tuesday, January 19, 2010 at 10:57 am
I was surprised about the increase of NPO’s over the past year, particularly since the econmic downturn. Hopefully, the ‘new-bees’ are grabbing some of those federal recovery dollars for their start up work.
I am hoping that out of the wreckage of the ongoing financial systems, NPOs can emerge stronger, with a new found cooperative spirit that leverages strenghts that produces results.
Great article! Pat
Tuesday, January 19, 2010 at 3:23 pm
As the executive director of two newly merged nonprofit organizations (these two have existed for many years separately but with almost the same mission but different methods) I believe that very small nonprofits pay a too high price to stay in business. Most could benefit from a larger group that would handle their financial and reporting tasks until they are large enough to take over on their own, or remain part of a larger entity.
LINC (Learning Independnece Through Computers) and VME (Volunteers for Medical Engineering)merged January 1 and will be in the same space with a new, shared name very soon. I believe that we will be able to take advantage of our reduced overhead to help weather the current economic storm and hopefully to better serve our clients.
I have read the various responses given to Nancy’s article and agree with almost everything said! Which is to say that life is complex and that no matter what we think the best solutions might be, logic will probably not prevail. We will all do the best we can and hopefully look to our missions and our clients first. Educating the public and boards of directors about the role of the nonprofit sector and helping citizens understand their part in the system is our best hope. Our nonprofit sector is very much a reflection of both capitalism (the market will dictate mergers) and the survival of the fittest!
Theo Pinette
Tuesday, January 19, 2010 at 6:29 pm
This is the best Audacious Idea column thus far. I’ve all but stopped reading them–but then I read your title and was intrigued!
The beauty of non-profits is that, for the most part, free market principles apply. As donors tighten their belts and begin to assess where best to make their donation, they’ll donate to the non-profit or cause that they believe will have the greatest impact. Some will succeed and some will fail. (this is why I prefer donations to taxes) However, the more dependent a non-profit becomes on government funding, the less those market principles apply, which is concerning as it taints the “survival of the fittest” rule that Mr. Pinette points out.
I believe the growing number of non profits is also a result of the growing interest in public service work, both by young people fresh out of school as well as by more experienced workers seeking a new challenge after work in the private sector. Many of these people are very talented and have elite backgrounds.
Non-profits offer the opportunity to serve the public while avoiding the perceived red tape/bureaucracy of government. I’m glad you finally shed some light on the waste that takes place in non-profits by virtue of how many of them exist.
I made the choice to pursue a government/non-profit job after college largely because it was the only way I knew to make a positive impact on the cause(s) I hold dear. This belief is pretty pervasive on college campuses. I wish that the concept of working in the private sector, creating jobs for others that don’t rely on taxes or donations, and donating money or time was given more respect and credibility at my university and in our society and media today; if it had been, I might have chosen a different path. At my college, one was either going into I-Banking/Consulting or Non-profit/Government. Each group thought the other was evil (a bit of an exaggeration but not by much). I think that led a lot of people on the fence to pursue government or non-profit work.
Now that I’ve seen a lot of the waste and lack of accountability that takes place in government and a lot of non-profits (even in those that are well-respected) and am worrying about how my generation will pay for an ever-growing federal budget, if I were able to do it over again, I might rethink my career path and instead take that private sector job to avoid being a drain on our economy, donate my money and time to worthy non-profits, rather than contributing to part of the problem which you’ve touched on–too many people with a lot of self-interest in the success or failure of a given non-profit or government entity. This self-interest, over time, can cause people to advocate for and make less than efficient or fiscally responsible decisions which only harms the cause for which they exist. As you so astutely point out, that money could be spent better elsewhere!
Tuesday, January 19, 2010 at 9:18 pm
My colleague, David Borinsky, makes some excellent points. New organizations that attract a non-traditional volunteer and garner a different kind of funding could actually increase the resources available to the sector.
Perhaps I should have said that there should be far fewer new nonprofits in 2010 than no nonprofits at all. I will admit that from time to time I am blown away by a truly original, extraordinary effective brand-new organization. As I look through the list of 1,200 new groups, I see too many vanity plate nonprofits started to reflect one person’s narrow interests. There will be a couple of winners on the 2009 list but there will be a lot of losers. I just hate seeing resources going to waste on organizations that have a slim chance of success. I don’t think investments should be made in nonprofits that return little in the way of program.
Not every group needs to be a nonprofit. If people want to get together and sing, that’s terrific – you don’t need to be a formal 501(c)(3) to make beautiful music. Programs don’t need to be stand alone in the beginning – they can find a incubator in a group like Fusion Partnerships or in a larger established nonprofit. We need to re-direct the efforts going to create new nonprofits to creating new systems to make existing nonprofits and a very few new groups more effective.
Friday, January 22, 2010 at 1:13 am
Also, any person who starts a nonprofit with their own name in the title appears to have self-interest at heart more than the interests of others. Do you want to serve homeless women? There are lots of opportunities in existing nonprofits! Care to help children from difficult backgrounds or with special needs? The opportunities abound! Small, special-interest nonprofits do have a place where there is a true void, and umbrellas/partnerships that offer them a way to exist are a great solution.
Friday, January 22, 2010 at 12:45 pm
its not that its too many nonprffits but the ones that are not standding up to thier obligation and responsilities should have to pay fund back to funder.Also sum of those ” well astablished organisations are not doing what they suppose to do and putting limmitations on what they and can help people with and who they help, not to mention those same organisation dont have enough resorse to spread around so when they run low or reach thier limit who help those not getting served that needs help
Monday, January 25, 2010 at 10:19 am
As someone who has worked to bring innovative, social media solutions to social problems, I would celebrate fewer, better non-profits if that were possible. Unfortunately, in my experience, large non-profits cannot afford the expertise they need to understand innovation, and they aren’t hungry enough to make it happen otherwise. Most are too conservative and not nearly accountable enough to be forward thinking. This is one reason why, despite the enormous weight of non-profits in our state, there has been little progress on social issues. Most expect different results by doing the same kind of things. No, I think the more competition the better. Messy? Inefficient, absolutely. But it takes primordial ooze to generate the spark of life.
Saturday, January 30, 2010 at 8:20 pm
How will ACORN continue to thrive if they cannot keep splintering into thousands of suborganizations under the guise of non-profits? So many of these so called non-profits are really political and social lobby organizations that exist under false pretenses to get governmental grant money at taxpayer expense.
It comes as no surprise to me at all that non-profits are skyrocketing now at a time when taxpayer money is being doled out hand over fist and we have a political party in power that relies on community organization that pretends to be non-partisan.
Sunday, January 31, 2010 at 1:05 am
Non-profits take the place of government-run welfare-esqe programs.
It is an absolute fact the non-profits are run much better than government entities. The people in non-profits are passionate, informed, and run their organizations within budgets; something gov’t programs don’t
This writer’s argument is flawed. So in tough times, the government should be able to levy taxes on churches?
Monday, February 1, 2010 at 10:52 am
I like Lee’s response about the primordial ooze being the spark of life.
As someone who worked for an arts non-profit I felt the competition of other arts non-profits when yet another one came into being; We were competing for the same limited dollars. As someone whose organization provided services to other orgs. I had the opportunity to see both effective and ineffective programming all over the Baltimore area. I mostly observed effective programming.
As for established non-profits that provided child care, I noticed that, as Lee points out, they tended to be less innovative and risk taking. The other small non-profits were a welcome complement.
The validity and viability of new non-profits is a reasonable question when there have been 1200 NEW non -profits established in one year. I often felt that there were too many of us competing for the same dollars. It was also very difficult to not be able to use any of these funds for administrative costs.
Monday, February 1, 2010 at 4:38 pm
Non-profits can be extraordinarily effective and useful. Too often, they are not.
I am constantly struck by what can be done utilizing online organizing, leveraging other for-profit and non-profit organizations’ back-ends, and without forming a new entity of any kind.
For too long people have assumed that non-profits are the best and only way to create change in the private sector. I agree with the author. More consolidation and efficiency in the non-profit space would be beneficial.
There are many other ways to get things done these days, and “another non-profit” is not necessarily the best competition to an existing one.
If you’ve ever sat on the board of a non-profit and watched people jockeying for power or position, you know first hand how much time that can waste.
We should be on the lookout for new imaginative, and nimble ways to get things done at the grassroots.
Tuesday, February 2, 2010 at 7:03 pm
“It costs almost a $1,000 in filing fees to start a single nonprofit entity. Those 1,200 new organizations spent over $1 million just to incorporate and to have the IRS review their applications. Not a dime of this $1 million went toward programs. Was this $1 million well spent or should it have been given to an established nonprofit with a proven track record?”
presumably, these revenues go towards federal (or state) programs like AFDC, Medicaid, and MEdicare, which are far more efficient and effective at keeping people alive and healthy than 99.999% of nonprofits will ever be.
so it seems like you’re basically advocating a teabagger mentality for nonprofits. this is, frankly, crap. maybe that’s all you can see as the Harvard-educated Prime Mover in a 501(c)3 Financing Operation, i dont know. perhaps you need to spend more time on the ground.