Reports of the nonprofit sector’s death have been greatly exaggerated. So, too, have assumptions about for-profits’ intrinsic efficiency (and amorality). Along with these has come a flurry of activity designed to make for-profits look more like nonprofits and vice versa.

The drumbeat of self-flagellation about the nonprofit world’s frailty, and the misconception that nonprofits are unable to grow and generally ineffective began to gather momentum back in 2003, when Bill Bradley, Paul Jansen, and Les Silverman —who all worked at McKinsey & Company—noted in the Harvard Business Review that if nonprofit groups just got rid of silly stuff like administrative expenses and fund-raising costs, they’d save gobs of money—$100-billion to be exact.

And that's just the start. They argued that by following an approved to-do list of “promising best practices,” we’d become more...

From time to time I see progress in the fight to fix the way we fund social programs. Real progress that leads to lower costs and expanded services.  And to less burnout and better results.

Too often, however, I see people falling for financial myths. Among them: the idea that every nonprofit group needs to diversify its revenue sources, and the more diversified they are, the better.

But diversification is subject to the laws of diminishing returns. When I talk to nonprofit leaders, I sometimes tell a story that encapsulates the many stories I have heard from social-service leaders.  These voices rarely get the hearing they deserve, so I like to represent them through a character I call Sister Rose. Countless times, people have come up to me, grabbed my arm, looked me in the eye, and said, “I am Sister Rose."

Here's her story:

A young program officer welcomed Sister Rose to her...

Much to my delight and amazement, "capitalization" has been coming up more and more frequently in philanthropy conversations. Grant makers’ interest in learning more about capital and capital access seems to be at a high point, probably spurred by the fragile state of the economy, and the implications the slow pace of recovery has for grantees.

Yet given this progress, it’s rare to hear anyone in our sector make the important and fundamental distinction between "capital" and "money." And to get to the heart of the matter, the real distinction is between "capital" and "income." Understanding the difference between these terms and using them correctly would, in and of itself, be a giant step toward better capitalization practices and outcomes for the sector.

The distinction is fundamentally functional. It’s not about what the funds are used for (from an accounting point of view) but about ...

Who doesn't love innovation?

On July 22, Patrick Corvington, chief executive of the federal government's Corporation for National and Community Service, announced the 11 first-round recipients of money from the Social Innovation Fund, an experiment in "funding what works," directed by Paul Carttar.

The ambition of the inaugural group of winners—including foundations, nonprofits, and government—is explicitly innovation. To the Social Innovation Fund, that means building the reach of promising social programs nationally and, more fundamentally, changing the process by which innovation is funded, especially in the context of government-philanthropy partnerships.

I've heard both cheers and harrumphs from all sides. And that's truly healthy, as long as we take the long view. If we are to honor true innovation, as opposed to novelty or faddishness, the enthusiasts must expect and honor failures a...

A few years ago, at a Council on Foundations conference, I was reviewing the program with Lew Feldstein, the longtime New Hampshire Charitable Foundation leader, and I said, "Do you realize that the word ‘money’ is completely absent from the program?"

We scanned the text. It was chockablock with words like leadership, innovation, passion, justice, transformation, impact, scale, and strategy. But there was no mention of money. No finance. And certainly no accounting.

I asked Lew, "Why don’t we ever talk about money? However painful it is to admit, at the end of the day, the main reason nonprofits come to foundations is, well, for money."

He said simply, "It’s not what we care about."

This new blog—Money and Mission—is, in a real sense, about why and how we should care about how money works (or doesn’t). It will be led by several of us who work with nonprofit organizations at the Nonprofit...