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Challenge 38 in the series 50 Reasons Why It Is Hard to Run a Nonprofit
A foundation program officer sits down to review 40 grant applications for youth development funding in a single metro area. Twelve of them read almost identically — same language about "empowering at-risk youth," same theory of change, same vague outcomes metrics. She funds three. The other nine never learn why.
This is the daily reality of nonprofit competition. And almost nobody in the sector wants to talk about it.
There are approximately 1.48 million registered 501(c)(3) organizations in the United States, according to IRS data. That number doesn't include organizations with less than $5,000 in annual revenue or religious congregations that aren't required to register.
That's a lot of organizations. And the donor pool they're drawing from is getting smaller.
Giving USA's 2025 report found that total charitable giving in the United States hit $592.5 billion in 2024 — a record. But that headline number hides a structural problem: donor participation dropped 4.5% in 2024. That's the fourth consecutive year of decline.
The dollars are going up. The number of people giving is going down.
Micro-donors — those giving between $1 and $100 — declined by nearly 9% last year, accounting for roughly 75% of the total donor loss. Individual giving as a share of total giving has fallen from over 80% in 1984 to 66% in 2024. The money is increasingly concentrated among fewer, wealthier donors.
What does that mean for you? More organizations chasing fewer donors, with the biggest gifts going to organizations that already have name recognition and established relationships.
Researchers Teresa Harrison and Jeremy Thornton studied this dynamic in a 2022 paper published in Nonprofit and Voluntary Sector Quarterly. They found that donor markets become competitive once just four organizations enter a subsector — and that threshold was consistent across every type of nonprofit they studied. If four organizations in your area serve a similar population, you're in a competitive market whether you acknowledge it or not.
The nonprofit sector runs on a "we're all in this together" ethos. Competition feels like a betrayal of the shared mission. If you're both trying to reduce homelessness, you should be collaborating, not competing. Right?
In theory, yes. In practice, you're applying for the same grants, soliciting the same donors, and recruiting from the same talent pool. The program officer reviewing your application is comparing you to the nonprofit down the street, even if neither of you would use the word "competitor."
Funders make this worse. They talk constantly about collaboration — and then fund competitively. They reward differentiation in applications but penalize nonprofits that name competition openly. The result is an entire sector that competes fiercely while pretending it doesn't.
I've watched this dynamic play out for years. In my book, I include competitive environment in the risks that belong in every nonprofit's risk inventory. Most organizations skip it. They'll assess financial risk, leadership risk, even reputational risk — but competitive risk feels uncomfortable. It shouldn't.
Here's the reframe: if a donor can't tell you apart from the nonprofit down the street, that's not humility. It's a failure of communication. And it's costing you money.
Differentiation in the nonprofit sector doesn't require being unique in mission. Plenty of organizations legitimately serve the same population in the same geography. What it requires is being specific about three things: how you do the work, who exactly you serve, and what you've learned that makes your approach effective.
The organizations that survive in competitive environments — and the ones that thrive in them — are the ones that can answer a single question in a single sentence: why us and not them? While a critic might call such an answer arrogance, it's actually strategic clarity. And funders, donors, and community partners are all looking for it, even when they don't say so explicitly.
If you're operating in a crowded field — and with 1.48 million 501(c)(3)s, most of you are — here's how to compete without compromising your values.
Map your competitive landscape honestly. List the five organizations most similar to yours in your service area. What do they do that you don't? What do you do that they don't? If you can't answer those questions, your donors can't either. This isn't about tearing down the competition. It's about understanding your own position.
Tell your outcomes story in specifics. Not "we serve at-risk youth." That describes half the organizations in your metro area. Try: "We served 340 young people last year, and 78% completed the program — up from 61% three years ago." Specificity is a competitive advantage, and it costs nothing.
Find your three-sentence answer. "We are the only organization in [geography] that uses [specific approach] for [specific population], and here's what it produces: [specific result]." If you can't fill in those blanks, that's a strategy problem.
Stop treating collaboration as the opposite of competition. Strategic collaboration works — shared back-office services, coordinated intake systems, joint advocacy campaigns. Those create real efficiency. What doesn't work is funder-imposed collaboration between organizations that are competing for the same dollars and serving overlapping populations. Know the difference.
If figuring out what makes your organization different — and communicating it to funders and donors — is on your to-do list, that's the kind of strategic work I dig into each week in Nonprofit Good News Premium.
Talk to your "competitors." The ED down the street is not your enemy. But if you've never had a direct conversation about where your programs overlap and where they don't, you're both losing donors to confusion. Sometimes the most competitive thing you can do is have the collaborative conversation — and sometimes that conversation reveals that one of you should be doing something different.
Pull up the websites of the three nonprofits most similar to yours. Read their "About" pages and their most recent annual report or impact summary. Even sharper, go on to your AI platform of choice, provide your URL and those of the three other nonprofits, and then ask the following prompt:
Act in the role of an expert on nonprofit operations and competition. In that role perform deep research relating to each of the four entities I have identified by URL: [list, including yours]. Make a reasoned determination of how much those organizations overlap in their beneficiary communities, their potential funders, and their operational offerings.
Then, based on your own analysis and the prompt response, ask yourself honestly: could a donor tell us apart? If the answer is no, that's your strategic project for the next quarter. Not a rebrand. Not a new logo. A clear, specific, one-sentence answer to the question every funder is already asking: why you?
Regardless of the result, have the bravery to share the AI and your personal analysis with your board of directors at your next director's meeting, so that you can have a constructive conversation about the landscape you face.
I'd be remiss if I didn't say one final thing in this post. Ultimately the nonprofit sector exists not for itself but for its beneficiaries. Each nonprofit board of directors owes a stewardship obligation to those beneficiaries to periodically consider whether the nonprofit should continue to exist on its own, should joint venture with some other organization or organizations, should merge, or should dissolve so that its resources may be put to better use.
We're not for us. We're ultimately for them, and we always have to act that way.
This is part of an ongoing series based on the 50 challenges outlined in Appendix 1 of Managing Your Nonprofit for Resilience (Wiley, 2023). Each post names one challenge clearly and offers a practical reframe with steps you can take this week. For deeper coverage of nonprofit strategy, risk, and resilience — including tools you can put to work immediately — check out Nonprofit Good News Premium.