Are there too many nonprofit organizations in Greater New Orleans?
The short answer is, “By what measure?” The longer answer requires some careful unpacking of assumptions.
This question is often asked by a donor concerned about the proliferation of nonprofit organizations in a given geographic region or field of interest (e.g., youth development). She raises the question because she worries that there are too few charitable dollars to support an ever-increasing number of organizations. Isn’t there too much overlap in their missions? she wonders. Shouldn’t more of them consolidate their operations and merge?
Here are a few things for donors (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 has not yet extended 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.
3. Hooking up with an established charity is easier to say than to do. A donor 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 many years back, when I was just entering the field. The conversation with the established nonprofit went something like this:
NEWCOMER: I’d like to do X, Y, and Z under your aegis.
ESTABLISHED CHARITY: 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 CHARITY: OK, then, take a hike.
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 below. We’d love to hear from you.)
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Ultimately, whether or not it’s the best solution for society, the market will decide. It’s individual donors, and 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?
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Image courtesy of Knowledge Shark
I want to echo the comment made by the social service organization. I previously worked at a very large nonprofit. We went through a lengthy process to decide which program would apply to which foundation.
The size of our organization created some wonderful efficiencies - something foundations should encourage. Yet most foundations would only accept one proposal from the organization. This cost us revenue and favored smaller organizations that may not have been as efficient.
I think the question of “too many” or “not enough” could be answered better if a community were to map areas of need, and overlay on those maps organizations serving those needs. I’ve had people say there are “too many tutor/mentor programs” in Chicago. However, at http://www.tutormentorprogramlocator.net I host maps of Chicago which show locations of more than 165 organizations, and break that down by age group served, and type of program. In looking at this information you can quickly see that most areas don’t have enough programs, especially for older kids.
If donors and leaders were using maps for this type of analysis their might be a more consistent distribution of resources into all poverty neighborhoods, supporting constantly improving non profits in areas where they are most needed. There certainly would be a better understanding of what areas might have “too many” and what areas “too few”.
You are raising great questions - questions that surface quite often in the work of Grassroots Grantmakers. I want to toss in two other thoughts. One is the possibility that more informal groups of citizens, taking responsibility for quality of life issues on their own blocks and in their own neighborhoods, are important contributors to community vitality and resilience - but that many funders overlook possibilities for using relatively small grants to encourage, support and endorse the important role that these groups play - all because they do not have nonprofit status. The second is that we may need more options for groups that need more structure and permanence and access to foundation funding from time to time; right now we have form a nonprofit, merge with a nonprofit or establish a fiscal sponsorship relationship with a nonprofit. I’ve written about this issue quite a bit on my blog, Big Thinking on Small Grants (http://janisfoster.blogspot.com). Most relevant posts are “To 501(c)(3) or Not to 501(c)(3): Who’s Asking the Question?” (September 2008), “Let’s Be Clear - It’s a Choice” (May 2009), and “Possibilities & Assumptions: What’s Next After a Small Grant?” (May 2009). Would love your comments. Thanks for raising this important discussion.
It’s a complicated issue. Sometimes foundations are squeamish about making large grants to smaller organizations. Some even have a 10% rule, limiting grant size to no more than 10% of a nonprofit’s operating budget. Merging and thereby becoming bigger might help in this case. There are the supposed savings for the nonprofits from achieving certain economies of scale — rarely realized in my experience.
Then there are the occasional mergers on the supply side of the equation. It’s not unusual for nonprofits to lose out when funders merge. It’s often been the case that after one bank merges with another, for example, the combined corporate giving program is smaller than the two separate programs added together.
Foundations rarely realize that their own policies often encourage the birth of new organizations instead of running the new program through an established organization. For example: ABC Foundation gives grants to Established Organization as well as to Startup Organization in 2009. Their policies allow only one grant application per organization per year, which is common to many funders. If in 2010 Startup Organization merges with Established Organization, between them they can only make one request to ABC Foundation, which means that one program or another cannot be funded. If Startup Organization continues to struggle along on its own, both Established and Startup can request funding from ABC Foundation.
In my community, there are a very limited number of grant sources. There are also a number of small organizations that survive on grants that would be better off if they merged with larger, more stable organizations. However, neither side can afford to pursue mergers because they will lose grant opportunities as a result.
We are a 501(c)(3) nonprofit with passion and great ideas. Since March 2007 we’ve been working out of our home - we manage back to school outreach efforts and a clothing closet, 24/7 - all from charitable donations.