For those of us who invest deeply in our communities—whether as donors, board members, or philanthropic leaders—we are at a pivotal moment. The decisions we make now will shape the strength of our social infrastructure for decades to come.
I’ve worked in the social sector for many years, in nonprofits, philanthropy, and as the founder of a social enterprise focused on strategy and data to help nonprofits amplify their mission impact. Over that time, I’ve witnessed many cycles of change, shifts in trust, funding, voice, evidence, and empathy.
During the pandemic, we saw the nonprofit sector pushed to its limits as organizations stretched to support more individuals and families than ever before. Federal and philanthropic dollars surged in response, allowing many organizations to meet those unprecedented needs. It was a moment of both strain and collective commitment.
Today, however, we’re facing a new transformation, one that is far more consequential but significantly less resourced. Federal funding has dropped sharply. Philanthropic giving has not increased to fill the gap. And while economic instability challenges families with fewer means, demand for nonprofit services continues to rise.
These forces are reshaping the sector. About 30 percent of nonprofits have lost direct funding, and a higher percentage are indirectly affected as the competition for limited dollars intensifies. In my 30-plus years working in this space, I have not seen a shift of this magnitude.
A sector under pressure
Every industry evolves and those that fail to adapt lose ground. Change, contraction, and disruption can spur innovation, but for nonprofits, the stakes are far higher. These organizations provide the essential scaffolding that holds communities together. When they falter, the consequences ripple through families, neighborhoods, and local economies.
Two forces, in particular, are accelerating this disruption.
1. The dual customer problem
Nonprofits, like for-profit companies, create products and services. But unlike businesses, their customers are the people they serve but are not the people who pay them. Instead, nonprofits are funded by philanthropic donors, government grants, and foundations.
This creates a “dual customer” dynamic: Nonprofits must serve both their program participants and their funders. These two groups have vastly different needs and expectations. Managing both well requires more resources, not fewer.
It’s a nuance many outside the sector overlook. In my own company, when we drift from our ideal client, our focus fragments, quality declines, and efficiency suffers. Nonprofits live this challenge daily, and it is multiplied by the fact that they are accountable to two audiences whose interests are not always aligned.
2. The myth of low overhead
For decades, donors judged nonprofit worthiness by how “efficiently” they operated—specifically, how little they spent on overhead. The ideal became a 10 percent cap on administrative costs.
This cap is unsustainable. No business could deliver quality products, attract strong leadership, and grow customer trust with only 10 percent of its budget covering essential operations. Layer in the dual-customer challenge, and it’s a recipe for burnout and underperformance.
Although attention to this issue has increased, the damage lingers. Funding structures, grant requirements, and even leaders’ own mindsets have baked in the assumption that operating costs should be minimal.
The result?Systems for tracking data and measuring impact are considered as too much overhead, investments in fundraising capacity are capped, and leadership salaries are scrutinized. With this, organizations are left to do more with less—often at the expense of quality and long-term sustainability.
Changing this requires not just new funding. It requires a mindset shift.
A call for change
These constraints keep many nonprofits small, fragile, and reactive at a time when communities need them to be strong, strategic, and resilient. As public dollars recede, philanthropic leaders—particularly high-capacity individual donors—have a pivotal role to play. We are reaching a critical inflection point.
If we want thriving communities and a resilient economy, we must stop treating the nonprofit sector as charity and start recognizing it as infrastructure.
Independent Sector reports that nonprofits represent 5 percent of GDP, contribute more than $1.5 trillion to the economy, and employ nine percent of the workforce. This is infrastructure—human, social, economic. And infrastructure must be intentionally built, invested in, and strengthened.
As business leaders, we understand that strategy, data, and talent fuel performance. Bringing rigor and an investment mindset to philanthropy strengthens this infrastructure.Let’s fund in a way that truly drives results—not just what feels good in the moment. And when we fund for success, we should expect clear demonstration of results.
A vision for what comes next
Imagine a sector where nonprofits have the strategic capacity, data systems, leadership pipelines, and financial flexibility that any high-performing business requires. Imagine funders investing in long-term outcomes rather than short-term activity. Imagine communities benefiting from organizations that are not merely surviving but proactively shaping solutions.
Funding nonprofits as infrastructure means:
- Investing in strong leaders, not scrutinizing their salaries.
- Funding data and evaluation, not labeling them unnecessary overhead.
- Supporting multi-year, unrestricted capital, not short-term, narrow grants.
- Partnering as thought partners, not just check writers.
- Expecting results, and resourcing organizations to achieve them.
This is the reset the sector needs—and the reset we have the opportunity to create.The health of the nonprofit sector is the health of our communities. And our economy, our cities, and our future depend on both thriving together.
Let’s lead the next era of social impact by funding nonprofits like the essential infrastructure they are. Our communities cannot afford anything less.
The final deadline for the 2026 Inc. Regionals Awards is Friday, December 12, at 11:59 p.m. PT. Apply now.
Cindy Eby
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