How did we get here?

It’s no surprise at the start of 2024 that survival is on the minds of nonprofit leaders. Economic pressure, uncertainty, burnout, and competition for scarce resources are all contributing factors. My fear? We’ll dissolve the nonprofits we need the most.

We have a lot of nonprofits. Many have already been casualties of the pandemic - and more dissolutions are coming. But, we need this third sector because we have persistent social crises that need a persistent and coordinated solution.

Is fewer nonprofits the answer?

We’ve been adding nonprofit organizations almost every year - lately, at a rate of about 50,000 each year (we added almost 65,000 in 2020!). We’re adding them at a faster rate than we’re consolidating and dissolving them.

At a time when our government is cracking down on corporate mergers, our nonprofit sector seems headed in the other direction. How many organizations - with their own boards, staffing, and infrastructure needs - can we sustainably support?

The not-for-profit, tax exempt model as we know it today is a century-old experiment. The idea of voluntary organizations that serve the public good through privately held assets was formalized at the end of the 19th century. The Tariff Act of 1894 is the earliest statutory reference to tax exemption for certain organizations.

There was fairly slow growth in the sector throughout the first half of the 20th century but the second half saw exponential growth - Nonprofit expenditures as a share of U.S. wages and salaries increased by 36% in the 1970’s and then double in each decade to follow.

Why it’s so hard for your nonprofit to be heard above the noise:

The growth of the sector, in terms of number of organizations, has outpaced the growth of everything else we need to sustain it - like capital and a skilled work force.

The only growth that has kept pace with our race to create more tax ID numbers is an increase in social crises - like mental health, homelessness, family policing, racism, and divisions that threaten the core of our democracy. We are adding more organizations without necessarily improving our impact. And the issues are as complex, unwieldy, and perplexing as ever. I hear complaints from clients of disengaged board members and the challenges of filling critical staff positions - this makes sense when you look at the math. To be in good standing, every nonprofit needs to fill three core board positions: a president, secretary, and treasurer. In 1940, each nonprofit had a pool of over 2,500 people to choose from to fill those three spots. Today, it’s closer to 400 people per nonprofit. From that smaller pool, your nonprofit now has to recruit qualified board members to govern your organization, who also have the passion, time and interest in volunteering in service of your mission - and that’s if you can even find them in the first place.

What about the money?

Charitable giving has been stuck at around 2% of GDP since the 1960’s - meaning the resources available to the sector have not kept pace with its growth for decades. Of course many charities rely on government grants and some other sources but I don’t think our nonprofit organizations are expecting a windfall from the U.S. government any time soon.

The bottom line?

We’ve build something I’m not sure we can sustain. In this big shake up, some organizations will dissolve. And that’s okay. When the time comes to ask “Should we still exist?” or “Are we still relevant?” - don’t brush the question aside. Study it! Ask the people you serve first and foremost. Engage your board. Be brutally honest with yourself. It’s okay to dissolve and make space for something new to emerge.

This whole thing is bigger than you and me. It’s bigger than your nonprofit. It’s bigger than your mission. So if you’re one of the thousands of nonprofits facing the pressure of these larger trends, you’re not alone. And dissolution is a natural part of the nonprofit lifecycle. We can stand to operate fewer organizations and still survive as a sector - in fact, it might be what helps us survive. More organizations doesn’t necessarily equate to more impact and more influence. We can have fewer entities and still grow as a sector. It’s part of the case for collaboration. I love working on dissolutions - and it’s not because I’m an evangelist for nonprofit monopolies. It’s because I believe in the power of collaboration. When clients ask me about exploring dissolution, the first thing I do is congratulate them! It means they are ready to ask the hard question:

IF we had to close tomorrow - for whatever reason - what would be loss? Who would it hurt? If we could save one thing from our organization, what would it be?

When you trim the fat and cut to the core of your nonprofits purpose, you’d be amazed what innovations and partnerships can emerge. We may come out of this a decade from now with fewer organizations but we might still be a sector that our world needs. We can still have an impact. We can still help people. We can still get stuff done. But as we sift through which organizations will make it and which one’s won’t - Let’s just make sure we’re not dissolving the wrong ones.