America, We Have A Problem.
Nonprofits face a crisis not seen since Reconstruction. While outsiders routinely critique nonprofits for being ineffective, America is poised to learn what our society looks like without them. Executive Directors, Boards, staff and the mix of foundations, individuals, and corporate philanthropists must act swiftly. This is not just about organizational survival – though that is part - it is about the very soul of America, the social contract to affirm a civil society, one which Alexis de Tocqueville highlighted nearly 200 years ago.
The Sector's Social and Economic Impact
The nonprofit sector in the United States presents itself as a significant pillar of society, fulfilling a dual role of addressing critical social needs and contributing substantially to the national economy. Comprising well over a million organizations, the sector postures as a powerful catalyst for transforming shared beliefs and hopes into tangible actions, embodying core American values and contributing to the creation of more equitable and thriving communities. Furthermore, by actively promoting civic engagement and cultivating leadership, nonprofits empower individuals to participate in addressing societal challenges and shaping the future of their communities.
Beyond these social contributions, the nonprofit sector also asserts considerable influence on the United States economy. As a major employer, these organizations account for a substantial portion of the nation's workforce. And the economic impact of the nonprofit sector extends beyond what most realize - through the engagement of a vast network of volunteers. Millions of individuals dedicate their time and skills to support nonprofit missions, with estimates suggesting tens of millions of volunteers contribute annually. The sheer scale of this volunteer engagement highlights the strong social capital and community involvement that underpin the sector. The estimated economic value of these volunteer hours is substantial, reaching into the hundreds of billions of dollars, representing a significant contribution that often goes unquantified in traditional economic measures. This volunteer force amplifies the reach and impact of nonprofit organizations, allowing them to achieve more with constrained resources.
As Americans, the question we should posit is what happens without this investment?
Collapse: A Crisis of Our Own Making
Cuts to nonprofit organizations will severely diminish their capacity to address escalating social needs within communities. Many nonprofits, particularly smaller, community-based organizations that constitute 92% of the sector, already operate with limited annual budgets, often under $1 million. These organizations provide essential services such as food, shelter, healthcare, and education to vulnerable populations. Reduced funding will force them to scale back or eliminate programs, leaving individuals and families without crucial support and widening existing social disparities.
The economic impact of cuts to nonprofits will not only increase unemployment but also decrease the sector's overall contribution to the nation's economy, which currently stands at 5.2% of the GDP, representing $1.4 trillion in 2023.
Volunteer engagement, a cornerstone of the nonprofit sector, will also suffer due to funding cuts. In 2021, 60.7 million people volunteered 4.1 billion hours for various causes, contributing an estimated economic value of $122.9 billion. Nonprofits rely heavily on volunteers to extend their reach and impact. Reduced funding will limit their ability to effectively recruit, train, and support volunteers, leading to a further decrease in the vital services they provide and a loss of this significant economic contribution. And beyond dollars, the loss of awareness and education these volunteers gain by serving will undermine a more civil society.
Cuts to nonprofit funding will also place a greater burden on government agencies and may lead to social instability. Nonprofits often fill gaps in public services and advocate for underserved groups, addressing critical societal needs that government and businesses may not be able or willing to handle. If these organizations are forced to reduce their services, the responsibility for meeting these needs could shift to already strained public resources. This could result in inadequate support for vulnerable populations and will likely lead to deeper social problems within communities.
In hard numbers, it could be this bad:
Financial Risk: 60-80% of nonprofits may fail to cover expenses without government investment.
Program Reductions: 42.5% of nonprofits will reduce capacity, and 27.5% will close programs.
Increased Demand, Less Support: Food banks, shelters, and mental health services struggle with reduced funding.
Layoffs and Hiring Freezes: Nonprofits are cutting staff due to financial constraints forcing greater stress on those who remain.
Federal Funding Freeze Threat: Over $3 trillion in assistance at risk, affecting many nonprofit programs and more importantly, those that they serve.
Our Pathetic Response: Tinkering While Rome Burns
So what can we do about it? My decision to start Nonprophet Advisors is my own effort to help. It entails three concrete steps:
AI for Good: Nonprofits are not using AI. A nonprofit executive recently referenced AI as akin to another fad that will come and go. This misses the reality that orienting staff to understand things like prompt engineering will have profound impacts on productivity, problem-solving, and staff morale. AI can and should augment talent, not replace it. And it can be embraced intentionally.
Flex Teams: On identifying challenges and opportunities, staff with freed-up time can themselves, alongside external subject matter experts, forcefully address these, giving them a clear competitive advantage over other nonprofits and more deeply impacting their mission.
SWAP: I’ve long been frustrated by nonprofit leaders professing before donors about how much they “collaborate” when in truth they compete like hell. Not their fault because they occupy a system which predisposes leaders to compete for meager resources to properly meet their mission. SWAP is a technology I’ve had the honor of working on for several years with an incredible team of industrial engineers and scientists that incentivizes collaboration. No BS. It works.
Conclusion: The Abyss Beckons
More on these solutions later. For now, it should be clear that today’s nonprofit environment is not simply a concern for those in the nonprofit industry. Any substantive breakdown in their capacity threatens those outside it, including those across the middle and upper strata of society, who will face the consequences of what America looks like with a weak, diminished nonprofit sector.
On returning to earth, astronauts will often share how fragile and alone Earth looks from space. American society is likely to see what that means without a rocket taking them there. America, we have a problem.
