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America’s nonprofit sector has steadily grown over the past century, which has left a lot of people hesitant to start new nonprofit organizations and uncertain about the future of their already-existing ones.
In a new study titled “A Field Too Crowded? How Measures of Market Structure Shape Nonprofit Fiscal Health,” a group of scholars set out to answer the question of whether or not there are too many nonprofits in the U.S.—or, more specifically, whether having more nonprofits competing for funds in the same place affects their financial health.
The authors of the study examined 291,320 nonprofits across 3,141 counties throughout the United States and then “assessed the relationship between the aggregated financial health of all of the groups and county-specific characteristics, such as nonprofit density, the size of the local population and poverty rates.” Previous studies were mostly based on quantitative research rather than financial health, which sets this one apart.
Their answer to whether or not the sector is overpopulated, in short, depends on where you live, market competition and the field of activity your nonprofit is in.
1. Where you live matters
The study concluded that nonprofit health starts to worsen when a county with three nonprofits per 1,000 residents acquires another one. “Creating yet another nonprofit in places with the greatest number of nonprofits per thousand residents made all of its peers financially weaker,” it said—which, well, duh. But the good news is that most counties did not meet the qualification of having three or more nonprofits per 1,000 people in their county. In fact, the average number was only one. So, according to the study, there’s room for at least one more nonprofit in most counties before the overall market starts to decline.
2. Nonprofit competition is a real thing
It’s a little more complex than how many nonprofits merely exist, however—the size of competing organizations in an area affects the market, too. If the area is dominated by either all-small organizations or all-large ones, lower fiscal health due to higher expenses and administrative costs is likely. However, uneven nonprofit markets tend to thrive. That is, if there’s some large, already-established nonprofits in your area and you create a small, niche organization, you probably won’t be affected by the big nonprofit and they won’t be affected by you. The study even suggests it may be possible that “dominant actors play important roles in facilitating the interactions among smaller organizations or have the resources to support ‘field-building’ activities that benefit the entire market.” In this case, small and large organizations actually have a symbiotic relationship.
3. Fields are affected differently
Finally, it really depends on your nonprofit’s area of specialty. In most fields measured in the study (education, environment and human services), fiscal health improved until it exceeded three nonprofits per 1,000 people, and declined steadily thereafter. In contrast, arts-related organizations were less-affected by high density and even performed better with 10-12 nonprofits in the area. The study attributes this to differences in resource structures across nonprofit fields. In general, we can conclude that organizations react to density changes in very different ways.
Although the study acknowledges that more research on the topic is needed to answer some of these questions concretely, this certainly makes it easier to research your county’s nonprofit climate and determine whether or not yours is in an environment to thrive.