Business Models

Not A Good Sign When People Are Googling How to Shutdown A Non-Profit

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In a sign of an alarming possible trend, the For Purpose Law Group blog cites an observation by the CEO of the National Council of Nonprofits that (my emphasis):

….an “ominous sign” is that “… the most popular page on NCN’s website for the last few months has been an article on how to shut down a nonprofit.” It’s a “kind of burnout at the highest level …. Leaders are beyond fried,” explains the head of the nation’s largest group of nonprofits. “They’ve been trying to hold things together with baling wire and chewing gum.”

The full piece goes into depth about the factors at play, prime among them are decreases in philanthropy in the face of increasing inflation and compensation expectations.

On the arts side, we are already seeing this manifest with the closures and layoffs by major arts entities. This week the Brooklyn Academy of Music announced layoffs and shortening of their season of programming. A couple weeks ago, the Center Theater Group announced layoffs and the closure of the Mark Taper Forum. Earlier this month, the Public Theater announced the end of the Under The Radar Festival.

There are grumblings on social media about unsustainable business models, but the fact is everyone is pretty much using the same general business model as these places are. Last week I wrote about how Oregon Shakespeare Festival is experiencing a similar crisis, partially due to a heavily restricted endowment.

People who know theater history know these shifts in business models have occurred before. But we have the comfort of hindsight to know how the transition transpired so that theatrical practice continued. But when you are experiencing the transition, you don’t know if things are evolving toward a format more suitable to the times or heading to extinction.

Water, Water Everywhere, But Not A Drop To Drink

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A public radio station’s report on the Oregon Shakespeare Festival’s (OSF) finances is a good illustration of how restricted endowments can imperil the health of a non-profit organization. OSF recently had to make an appeal for $2.5 million in order to keep their doors open. This despite the fact the organization has $96 million in assets.  About $32 million of that is in property and equipment which are generally illiquid assets. Of course it would be difficult to mount of festival if they sold off all the property and equipment.

The crux of the problem for OSF is that only 15% of the approximately $39 million endowment fund is unrestricted which is roughly $5.8 million.   The remainder of the assets totaled around $25 million in cash and equivalents, but their annual expenses are around $18 million. Their business model has been to make about 70-80% of revenue from ticket sales according to the article. That worked well enough until Covid hit and audiences were subsequently became less willing to attend as restrictions eased.

While being able to access more of their endowment wouldn’t completely eliminate their woes,  the combination of lower ticket revenue and an inability to access more than $5.8 million from their endowment for unrestricted use have been contributing factors

 

Does Your Real Estate Serve Your Current Strategy?

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Bloomberg recently had a piece about how the Girls Scouts of Colorado recently opened a space in Denver known as DreamLab, envisioned to be a third space for girls.

As spaces for young people to hang out grow scarcer, and the mental health of young women, especially, reaches unprecedented lows, the Girl Scouts is investing in properties girls can make their own.

“We really want the Girl Scout DreamLab to be their third place,” after home and school, said Anne Smith, senior vice president of property strategy for Girl Scouts of the USA

Two other DreamLab spaces are under construction in NJ and LA and more may be on the way based on how Covid has apparently impacted Girl Scout operations and use of physical spaces.

“Troops found that the traditional public spaces they’d relied on to host meetings, like church basements and libraries, were getting harder to access. Girl Scout staff were embracing remote work like the rest of the workforce, leaving offices empty. Some Girl Scout councils started selling properties, as membership dues dropped.

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Data showed that the best-utilized spaces were those within a 20 to 30 minute drive from the majority of their membership, for example. “There were a lot of different data points that show that our current model wasn’t meeting the needs of our girls,” said Smith.

The Denver DreamLab occupies about 4,000 square feet of leased space in a new property chosen for its prime location: It’s within 15 miles of nearly 30% of Girl Scouts of Colorado members as of 2020, and by 2026 it’s projected to be within 15 miles of more than 150,000 girls between the ages of 5 and 17.

I wondered if this might serve as an example or inspiration for arts organizations in some way. I don’t know exactly how at this point.  Back in January 2022, the Long Wharf Theater announced that after nearly 60 years operating in permanent spaces around New Haven, CT they were going to pursue being an itinerant company so that they could provide services closer to the communities they hoped to serve.  So there is something of a precedent for arts organizations disinvesting themselves of their spaces.

While there are performance, rehearsal and offices spaces that have been offered to arts organizations similar to how it seems DreamLab is being offered to Girl Scout groups, I don’t know that many arts organizations who have utilized these resources have done so with the intentional goal of being itinerant so much as adapting to the opportunities being made available.

It may not seem like a big distinction on paper, but you could say the same about Vine, Instagram, and Tiktok. While Vine seemed to be everywhere for awhile, it fell out of favor relatively quickly while other similar apps thrived.

 

Taking A Look At A Good Old Fashion Case Study

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The blog for Master of Management in International Arts Management had a case study post by Donna S. Finley and Vijay Sathe examining how the Calgary Philharmonic Orchestra (CPO) and Alberta Ballet (AB) had revamped their business model in an attempt to stabilize their finances.

Feels like it has been awhile since I covered a good old fashioned case study.

One of the first things that Finley and Sathe discuss is that both organizations recognized they were already essentially serving the bulk of their core markets and that growth would only come from identifying new market segments:

At CPO, audience research led to the identification of two new audience segments: those attracted by the flexibility of single-ticket sales, and those seeking to enjoy classical music in non-traditional environments in a variety of venues within and outside of the city.

At AB, research revealed numerous new audience segments that all indicated a strong desire for before- and after-performance receptions, dining opportunities, special events for youth to meet dancers and purchase products and memorabilia, and alternative, more personal and customized venue experiences.

While these are programming and ticketing choices that have been identified as areas of opportunity for a large number of arts and cultural organizations, there was an additional area of growth Finley and Sathe mentioned that left me wanting to know more:

At CPO, new and unusual settings were found and facilitated both the renewal of traditional repertoire and the introduction of new works. New business focused on joint community programming initiatives, whereby revenues and expenses could be split between CPO and a community group such as the Rotary Club or the South Asian Association. The Orchestra found an immediate new revenue opportunity within services it had historically undervalued.

I was curious to know how this manifested. It sounds like Rotary or South Asian Association were co-sponsoring or partnering with CPO on producing new and traditional works in novel locations, but I wanted to know more about how the programming was executed, what attendance was like, if there was revenue sharing between CPO and the community organizations. Basically, all the stuff an arts administration and policy nerd gets excited by.

Another major point touched upon in the case study was both organization’s attempts to stabilize the cycle of engaging in capitalization campaigns, spending the money, then engaging in another campaign, all in the face of decreasing donations and funding. Especially while faced with the impacts of Covid. One of the things they did was outsource administrative functions to third party services providers with far more expertise which apparently saw a great deal of cost savings. When I first read the post, I thought perhaps both organizations had consolidated their back office functions in partnership with each other, but that doesn’t seem to be the case.

Unfortunately, they also realized savings by cutting artists contract weeks:

“…reducing musician weeks from 46 to 40 per year and dancer weeks from 42 to 36 per year; and, at CPO, reducing staff salaries by 20% while simultaneously introducing an incentive pay component with upside potential based on the entrepreneurial success in tapping new markets.”

The description of the entrepreneurial programs of both organizations were pretty general. (Granted, the title of the article does include “abridged.”) Apparently, for CPO the success of those efforts “more than made up for the 20% decrease in their base salary as part of the cost-cutting measures.”

What caught my eye was an apparent admission that for both organizations:

“… The artistic side, comprising the Artistic Director and their respective teams of artists, made its plans and decisions in isolation – disconnected from all or most aspects of the business operations.”

As a solution, both organizations are working toward streamlining their planning and reporting structures