Commentary: Is the business model for non-profit arts broken?

Linda Essig, director of Arizona State University's arts entrepreneurship program, 1/9/11

The direct answer is that it is a model that is evolving. To be financially viable today, arts organizations need to diversify their revenue models. It would be a mistake to allow its mission to drift on the tides of revenue (the "follow the money" syndrome), but arts organizations can be more creative and entrepreneurial about the way they generate revenue from a diversity of sources. A funding portfolio that is diversified will likely be more stable, more able to withstand the vicissitudes of the economy. For some companies, this could mean developing a "with profit" model where there is a for-profit enterprise designed to fund or supplement the nonprofit one. It also could mean program expansion to generate revenue from new sources. When times are tough, the initial reaction is often to cut back, but there are examples both small and large of companies expanding in tough times in order to stabilize their revenue streams. Further, by engaging communities through participation rather than just passive viewing, the community will be more likely to support the ongoing existence of an arts organization, because the community will have "skin in the game." Personally, I think the concentration of both financial and cultural capital in a few large arts organizations doesn't necessarily trickle down to artists who are actually making work -- especially locally. I would love to see an ecosystem in which artists are funded directly and innovative arts organizations designed to get their work to new audiences are nurtured and incubated.

Commentary: How healthy is your nonprofit business model?

Thomas A. McLaughlin, The Nonprofit Times, 12/19/11

The ability to put on a well-regarded play night after night is at the heart of an organization's value. The degree to which a program and its desired effect can be replicated is an integral part of the business model. This can be a tricky area for many nonprofits' business models because if true replicability of results isn't possible it undercuts the model's value. Impact is what donors and funders are paying for the nonprofit to provide. The inability to prove impact is often where nonprofits' business models are the weakest. When this condition is true, the business model is always susceptible. There are many indicators of a broken business model: chronic deficits, declining cash balances, too many unrelated programs and services (better known as mission drift). Flavor-of-the-month strategies can be a sign that management is indecisive, but they can also be caused by poorly designed business models. Expanding a performing arts organization's audience by reaching a new demographic can be a legitimate strategy, but a poorly conceived business model for doing so could doom the effort from the start.

Commentary: Resisting a traditional business model

from "The Business of Dance" by Farooq Chaudhry, producer of Akram Khan Company, 12/15/11

It was important to us that our artistic growth was underpinned by a robust and clear sense of business discipline. We were not seeking only to protect, conserve and consolidate value. We wanted to grow, and develop as well as respond to change and keep challenging ourselves. We resisted the urge to follow the traditional business model and become a company with dancers employed full time. We felt this limited our artistic options because artistic ideas would be determined by the size of the company instead of an idea free of obligation to use all its resources. I would be lying if I said we had a strategy. Often we were making it up as we went along. Strategy is an odd word for me. Often it is applied retrospectively to make it look like you were a lot cleverer than you were, and that you knew what you were doing every step of the way. It conveniently forgets mistakes, luck, poor judgment, bad decisions that went well and good decisions that went bad. Recognising mistakes and failure is critical to any development and managing them well can be a very highly motivating force. In the beginning we had simple objectives and plans and followed these with passion and an almost naive blind faith. Now we are more grown up, we do think a bit more strategically. I would say we are now an equal mix of plans and strategy. The difference being is that a plan is just simply something you want to do. A strategy is something you want to do plus some kind of predicted measurement of its impact to yourself and the outside world. Ideas only become opportunities when you act on them.

Commentary: Taking half-steps toward a 21st Century business model

Peter Linett, Asking Audiences blog, 1/6/12

The Colorado Symphony's new business plan, "Creating a 21st Century Orchestra," is being positioned as a radical step toward relevance and away from the pieties of the past. But compared to some of what's going on in the arts these days, it doesn't push very far. In the document, there's much talk of new realities and the need for "redirection." But that big diagnosis is followed by a small, familiar prescription: the orchestra will "expand its performances...to venues around the entire area." The logic, presumably, is that what's no longer relevant in Boettcher Hall will be relevant in venues in their own communities. That makes a little sense, but only a little. Venues make a difference when they create alternative frames for the arts experience: new conventions, behaviors, participation, interaction, vibe. There's no mention of any of that in the Colorado plan. Instead, it reaffirms the traditional, presentational model of classical music as well as a taste-making function that sounds painfully self-justifying. Nobody seems to have noticed that values like those are what led orchestras to the relevance and support challenges they currently face, and which the new plan is supposed to address. In other words, everything's being questioned except the underlying assumptions. I guess that's a formula for incremental change, at least, and for the institutional stability that makes change possible. But it may also make institutions themselves -- established, sizable, and reasonably well-funded arts organizations like the Colorado Symphony -- vulnerable to competition from upstarts offering consumers more dramatic departures from tradition and more involving forms of relevance.

Commentary: Why most discussions about new business models are dead ends

Drew McManus, Adaptistration blog, 1/11/12

It's time to own up to the reality surrounding the sea of "new model" discussions in this business and why they're futile unless they examine and propose adequate solutions to the genuine issues that drive professional performing arts evolution. Most new model discussions boil down to removing the bulk of contractually obligated expenses. Within all of this are a myriad of issues that touch on everything from wages, work rules, benefits, pensions, and more; each of which drill down into increasingly detailed discussion points that characterize modern stakeholder relationships. Unfortunately, even though the vast majority of these issues are worthwhile topics for stakeholders to address, they completely miss the bigger picture as it applies to revenue performance, which is the grease that not only keeps the artistic machine moving but evolving. In short, we're talking about motivation and accountability. For all of its faults during periods of economic depression, the current model does a bang-up job of motivating. It pushes board members to go above and beyond in order to maximize contributed revenue, it demands top notch marketing performance in order to get the most out of earned income, and it inspires executive leadership to leverage remaining revenue and rally all institutional stakeholders behind a clear and universally accepted strategic vision. If you completely remove the legally enforceable motivation of revenue generation by way of a collective bargaining agreement, what fills the void to ensure that an organization is truly reaching its revenue potential? Ultimately, the trouble with new model discussions is they don't address what can perhaps be defined as a fundamental "inspiration void." You're better off putting your nose to the grindstone and avoiding new model discussions that ignore this critical reckoning.