Are There Too Many Nonprofits?

Are There Too Many Nonprofits?

Dr. Alvarado’s editorial (April 2004) regarding the number of nonprofits was thoughtful, well written and provocative. I so appreciate her sharing John Gardner’s recognition/definition of the nonprofit sector as a “significant source of renewal…(that) comfortably harbors innovators, maverick movements…. and critics and dissenters of both liberal and conservative persuasion.” This is brilliant and speaks to the original intent of non-profit organizations; particularly when we realize that many (if not most) nonprofit organizations are born out of controversial ideas that are, in Gardner’s words, “unpopular or strange (with) little chance in either the commercial or the political marketplace.”

When I think about organizations like Planned Parenthood, the Pediatric AIDS Foundation, the National Organization of Women, the March of Dimes, UNICEF, the Peace Corps, the NAACP, SNCC, Head Start, National Coalition for the Homeless, and others, it remains clear to me that these organizations (and hundreds of others like them) have changed lives by restoring hope and instilling fairness and equity. It is also very clear to me that all of these organizations were considered highly controversial, unpopular and strange at their inception.

As I have indicated in previous blogs, I strongly believe that all of our lives have been made better by the good works of the third sector.

But the question here is not about the good works of nonprofits. The question is whether there are too many non-profits. And while my gut sense is that there probably are, I will temper my response by suggesting that before we can really answer this question, more file-cleaning, record updating and data gathering must be done in the nonprofit sector.

According to Alvarado, there were 909,574 public charities registered with the IRS in 2002. Stats in another reading assignment (a blog from the Stanford Social Innovation Review) reveal that there were 964,000 public charities registered with the IRS in 2003. Quite frankly, I don’t trust either of these numbers. There are, admittedly, an unknown number of 501 (c)(3) organizations that remain on the books with the IRS even though they have shut down. Until the IRS can successfully weed out the ones that aren’t functioning anymore, we don’t really know the real number of nonprofs in this country.

In Stephen McNeil’s blog, he states, “dissolution/revocation of public charities is more difficult than a divorce in Nevada.” If this is true, then this could be one critical factor as to why there are a lot of dead 501(c)(3)’s still on the IRS books.

While I wholeheartedly agree with Alvarado that nonprofits are “laboratories for creativity and new leadership,” I regret that what we are finding in the nonprofit sector is often a far cry from this noble calling. Some of my concerns are as follows:

- Service duplication and overlap

- Lack of accountability

- Lack of credible market research and analysis to justify the ongoing creation and development of new nonprofit entities in certain geographic areas and in certain areas of need

- Non-profits that are not able to meet the call to be of service; they are poorly organized, poorly run and poorly funded

- An overwhelming majority of small nonprofits operating on shoestring budgets that are less than $25,000 annually


Alvarado could not be more correct when she states that bigger is not necessarily better. However, the question here is not about size. This is a very practical, basic business question of efficiency. For example, economies of scale show us that an organization with an operating budget of only $25,000 lacks the capital and resources to provide maximum service levels in a way that is economically feasible. We also know that there is no value-added when duplicate services are provided to the same community.

Finally, Alvarado states, “For the most part, public charities are efficiently run entities.” I’m not sure how she knows this. She provides nothing in her article to support this statement. And I’m not sure whether we should believe her or not.