The Overcrowded Nonprofit Market

Aug 23, 2023

Powered by mission-driven people who are passionate about making a difference in their communities, the nonprofit sector is robust and growing in the U.S. Nonprofits in this country contributed $1.5 trillion to the economy in the 4th quarter of 2022, employ 10% of the country’s workforce, and account for 5.7% of the U.S.’s total GDP. The sector is essential to civil society - many nonprofits are trusted by the public to provide critical services, shape policies, and help make our country a more just and equitable place to live. 

And while there are currently 1.8 million nonprofit organizations in the U.S., the field continues to grow. According to the IRS, the growth of nonprofits in the United States has been 5% net year-over-year for the last five years. This means an average of nearly 100,000 new nonprofits have been started every year since 2017. 

Graph via Independent Sector

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The Reality of the Nonprofit Landscape

This growth is fueled by passion and optimism, but the reality of the nonprofit sector is that financial constraints are a consistent issue. With so many organizations vying for resources, it can be especially challenging for new nonprofits to get established, stand out in a crowded field, and make the kind of meaningful impact that many founders imagine. 

When considering starting a nonprofit, a careful analysis of the level of impact you’re looking for is crucial. The nonprofit sector is dominated by smaller organizations with corresponding budgets: two-thirds of nonprofits, 66.6%, have an annual budget of less than $500,000, and nearly 30% have budgets of less than $100,000. 

Smaller organizations often struggle to diversify their funding streams, and can fall short of the resources needed to deeply invest in development. And once you’ve formalized your organization with 501(c)(3) status, which can take years and tens of thousands of dollars in legal fees, you also have to think about covering overhead, salaries, and legal/administrative costs in addition to delivering on your mission.  

According to our founder, Emily Rasmussen, there’s also a widely held belief in the philanthropic and nonprofit world that the sector doesn’t need more nonprofit organizations, it needs more collaboration and consolidation among existing organizations in order to accelerate our collective impact. 

If you’ve been thinking about starting a nonprofit to address a cause you’re passionate about, you may want to consider starting a Giving Circle instead. 

What is a Giving Circle?

Giving Circles are a form of collaborative charitable giving where a group of people align around a common cause, identity, or geography, come together, and pool their resources to donate to an issue or organization (or organizations) of their choice. It’s a social, democratic mode of philanthropy that has been around and growing in this country since the 1980’s.

The number of Giving Circles in the U.S. has tripled since 2007. As of five years ago, it was estimated nearly 2,500 giving circles had engaged 150,000 donors and given away nearly $1.3 billion to nonprofits across the country.

What Sets Giving Circles Apart from Nonprofits?

Giving Circles and nonprofits are both driven by people passionate about making a difference in their communities and beyond.

Unlike nonprofits, Giving Circles:

  • Don’t require you to set up a formal legal structure, and there’s minimal administrative overhead. While a nonprofit can take well over a year to get approved by the IRS, Giving Circles can get up and running in just a few minutes.
  • Have the potential to meet or even exceed the level of impact that a fledgling nonprofit might be able to deliver in the first few years of their existence, with far fewer hoops to jump through.
  • Can be much more flexible in how they operate. You still need to gather together a group of people to set a vision for your giving, as well as make a plan to expand your circle so that you can grow your impact.

Our growing movement is here to help: platforms like Grapevine and Philanthropy Together’s Launchpad leadership training program provide the tools to build a community and run a Giving Circle all in one place, while automating the administrative, legal, and accounting overhead.

Start a Giving Circle Instead of a Nonprofit

There are millions of nonprofits doing essential and inspiring work around important missions. Rather than start another new organization, with all of the competition for visibility and funding it demands (not to mention time and resources), you might consider finding one that aligns with your passions instead, and form a Giving Circle to support that organization among others.

You can start with a small handful of people, and grow it as you see fit. Because members work together democratically to decide where and how to direct their resources, the work can be social and non-hierarchical while leveraging the collective expertise, networks, and resources of the group.

So if you want to build community, grow your network, have fun, and scale your impact for good, starting a Giving Circle might be the fastest path to reaching those goals!