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Can Arts Orgs Play Moneyball With Their Staffs?

October 26, 2011

by:

Joe Patti

Ever since the movie Moneyball came out, I have been thinking about whether similar system can be applied to the arts. I mean a system by which baseball teams with small budgets were able to compete on par with the most well-funded teams by assembling a team of under utilized misfits? Heck, I am describing the place you work, right? It seems ready made for the arts!

I was happy to see a recent post by Shawn Harris on the TCG website raising the same general question. I agree with most of what Shawn suggests, including taking an objective look at different aspect of our operations and audiences to determine whether we are truly serving the interests of the community or just perpetuating assumptions.

One assumption I feel pretty safe in making is that what motivates people to attend a baseball game is different from what motivates people to attend an arts event. While celebrity is certainly a factor, people attend baseball games looking for an engaging contest. If they don’t know a lot about each of the players, that is okay if the game was well played. Can the same be said about an arts event? If someone is unfamiliar with a performance, will the fact that statistically speaking, the actors, while unknown, are the most effective performers in a period play?

Probably not. But then again, you shouldn’t be selling the show based on statistics anyway. Even though stats are a huge part of sports, that isn’t what primarily sells tickets. While a well-known artist would make it easier to sell a show, in the long run it is going to be better to take the “brains in the seats” view and work on engaging audiences in the organization, one aspect of which is going to be based on the quality of your personnel choices.

That is what I first started thinking about when I was considering whether Moneyball could be applied to the arts–are we hiring the best people? More over, are we actively seeking the best people or just casting a net and taking whatever swims our way?

I recall going to an Arts Presenters conference where Andrew Taylor talked about how a lot of arts organizations didn’t know how to effectively evaluate the skills of job candidates. He said there was a tendency to hire to the specifics of a job description rather than to the general needs of the position. Though he did mention an associate who hired a person who managed a Sears call center to run their ticket office after some unsatisfying interviews with people from the arts field, it seemed the exception rather than the rule. Taylor said he teaches his students to take control of the interview in order to illuminate their skills and illustrate how it applies to the criteria laid out in the job description.

While I am reluctant to put arts people out of work by suggesting that you look to hire those without any industry experience, I think it can help to always be mindful of the basic abilities you seek in employees. I once had lunch with some representatives from Enterprise Car Rentals and they were so impressed by the affability and service provided by one of the wait staff, they tried to recruit her at the end of our meal.

When was the last time you even thought about adding a person you met outside the context of the arts to your team? In fact, other than pursuing people who would increase the prestige of your company, when is the last time you tried to recruit someone way from another arts organization based on abilities and effectiveness alone?

When I think about the Moneyball model of finding success putting together a seemingly mismatched set of players few other teams desired, I wonder about our collective ability in the arts to effectively identify and cultivate the talent of people who aren’t necessarily shining in their current position. I know this can be tough in the arts where everyone wants to be the star actor/dancer/artist/director. Even if you are perceptive enough to see their talent lay elsewhere, people may be resistant to taking a different role.

The thing is, non profits should be pros at identifying and leveraging undiscovered skills. With all the volunteers we use to assist us with our programs and to serve on our boards, we should be championing seemingly unorthodox hiring decisions. But if Andrew Taylor is correct, the hiring practices in the arts are actually more orthodox than in the for profit sector.

If that is the case, perhaps we aren’t using our volunteers’ skills as effectively as we could, as well. That question starts to bring me back to my post last week featuring Aaron Hurst’s suggestion that certain volunteer programs may be a waste of time.

The research he cited found little difference in effectiveness between well- and poorly- managed programs involving less than 50 people. I wonder though if well managed programs might have beneficial side-effects for organizations in the form of improved hiring skills. In other words, the capacity to identify and employ highly capable people may be developed in the process of effectively doing the same thing with volunteers.

Leadership, Management Philosophy, Volunteers

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Crowdfunding Become Crowdinvesting?

October 25, 2011

by:

Joe Patti

In the “stuff you aren’t supposed to do” theme of yesterday’s post, is a piece from Slate about legal restrictions on crowd funding.

While thousands of people can donate to your cause via sites like Kickstarter, SEC rules prevent those same people from investing in your company. If you figure people will donate to people in return for tshirts or other small thank you gifts/services, there is probably a fair bit of potential in getting people to invest in the same project with the possibility of financial return. But the rules say no way.

“Under current law, that is often illegal. A longtime Securities and Exchange Commission rule, designed to protect unsophisticated investors, limits the number of stakeholders certain private companies can have. If you hit 500, you often have to go public. That means opening your books to additional scrutiny and your business to the whims of the market. And being public is just not a feasible option for a tiny business looking for start-up funding. Thus, an artist can receive thousands of $5 donations on a site like Kickstarter, but an incorporated farmer cannot accept investments from thousands of interested small-timers.”

These are some of the same rules that govern investing in Broadway shows and are meant to prevent people from losing large amounts of money because they were not entirely aware of the risks of investing. There is certainly some wisdom in having them.

There are some moves to change this situation. President Obama included such a revision in his American Jobs Act. Even though the act failed to pass, the basic idea has bi-partisan support and some law makers are asking the SEC to change the rules. One petition to the SEC asks for an exemption for investments made in $100 increments as a way to prevent people from losing their life savings. Given that the exemption would mean less oversight of the activities, there is good potential for unscrupulous operators to take the money and run.

Laura Horton at the Legality website has a post that discusses all the legal issues and the efforts to change the rules at length. She reports that the legislation being introduced in Congress, (as opposed to the petition for a rule change to the SEC), would allow a business to raise “$5 million in capital, with a limit on individual investments of the lesser of $10,000 or ten percent of an individual investor’s income.” Horton notes that these companies would be exempt from some of the usual reporting. Hopefully at $10,000 a person, they wouldn’t be exempt from as much as a company getting funded $100 at a time.

Crowd funding at these levels could open the doors for a lot of possibilities, including starting an arts related business. This model might provide a viable alternative to the non-profit structure. It could provide the tools to not only to get an organization started, but also to sustain it over time.

As for how fraud will be prevented, Horton says,

“those in favor of crowdfunding find that investor protection rests on a fundamental aspect of this financing, opening it to lots of people for investment. This “crowd” aspect creates transparency, which may temper the effects of deregulation. There is also a stronger sense of community support through this style of investing. Crowdfunding makes venture capital accessible to small-scale business owners.”

I have to confess some skepticism about this approach being viable in the long run. A crowd can provide good oversight in a small geographic community or when it is performed by investing clubs who meet to research and decide who to fund. My suspicion is that if this type of investment is going to reach any sort of scale, people are going to be doing it over the internet and will rely on Amazon.com type reviews to make their decisions. Presumably, the rating mechanism will be a little more rigorous and have better protections against those who might try to game the system than most online rating websites. It is still likely the system will still be vulnerable to some degree of subversion.

But who knows, it may create a burgeoning industry of companies who meet those soliciting funding and perform objective evaluations and audits. They could post all their findings online accompanied by video interviews, photos of operations, etc for investors to use in their deliberations.

Arts in an Age of Technology, Business Models, Fundraising, Info You Can Use, New Initiatives

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Info You Can Use: Commerciality Doctrine (What The Heck Is That?)

October 24, 2011

by:

Joe Patti

Hat tip to Non-Profit Law blog for providing the link to Charity Lawyer Ellis Carter’s 2009 post about the Commerciality Doctrine. As you can probably tell from the title of this entry, I wasn’t really aware of this doctrine at all, but it is actually very important in terms of an organization’s 501 (c) (3) status.

According to Ellis,

Commerciality Doctrine has evolved in the courts and is applied to determine whether an organization complies with Section 501(c)(3)’s requirement to operate exclusively for exempt purposes. A key factor indicating an organization is operating in an excessively commercial manner is that its activities are in competition with those of for-profit commercial entities.

Reading what criteria the courts use as a test for whether a non-profit organization is operating in an excessively commercial manner, I start to get a little nervous:

-pricing to maximize profits;

-generation and accumulation of unreasonable reserves;

-use of commercial promotional methods, such as advertising;

-sales and marketing to the general public;

-high volume of sales;

-the organization uses paid professional staff rather than volunteer labor;

-the organization discontinues money losing programs; and

-the organization does not receive significant charitable contributions.

Most organizations probably don’t have to worry about accumulation of unreasonable reserves and seating capacity may limit high volume of sales. If arts organizations start to adopt dynamic pricing for shows, they may have to watch how high they push prices. But a lot of non profit arts organizations have professional staffs who have replaced volunteers somewhere in their history. Even those without professional staffs use advertising, sales, marketing and discontinue money losing programs. How do you not flirt with violating your status under this criteria?

So is it actually good to keep those money losing programs around? Apparently so…

Factors evidencing the absence of a commercial purpose include the following:

-lack of competition with for-profit entities;

-below market rate pricing;

-relatively insubstantial reserves;

-lack of commercial advertising practices;

-the absence of sales to the general public;

-low volume of sales;

-use of volunteers and low-paid non-professional staff; and

-significant charitable contributions.

This list almost makes a virtue of incompetence and lack of ambition.

But the first thing I thought of after reading this list was, what about the Roundabout Theatre? How the heck have they avoided being shut down on this basis. Except for requiring as significant charitable contributions as anyone else, they are a non-profit that essentially fails on every one of these measures.

They actually may have run afoul these laws and I am just unaware of it. Plenty of commercial Broadway producers have expressed criticism about the way the Roundabout and other non-profits like Lincoln Center enjoy a competitive advantage over them. Back in 2000, long before he became chair of the NEA, Rocco Landesman wrote,

“increasingly the template of success comes from the commercial arena, which is, in the end, not dedicated to the art so much as to the audience. The uber-model for this trend is ”the American Airlines Roundabout Theater,” whose artistic director, Todd Haimes, saved a bankrupt institution by adapting contemporary, market-savvy, the-audience-is-king techniques of modern corporations. Pleasing the customers, giving them what they want in the form they expect, works for Coca-Cola –…It would, I suppose, be hyperbolic to say that Todd Haimes has had a more pernicious influence on English-speaking theater than anyone since Oliver Cromwell (and it wouldn’t be nice, either, since Mr. Haimes is a personable and honorable man)”

Now it should be noted that Landesman’s piece expressed regret that the non-profit theater movement toward a commercial orientation due to market forces has meant that little original work is created any more. Though he has “accused Haimes of running a wolfish commercial operation in the sheepskin of a publicly funded institution.”

The idea that decision making in non-profits shouldn’t be motivated by a need to compete with commercial entities is probably part of the basis for the criteria of the Commerciality doctrine. Although Carter provides an example of it, I wonder how often and strictly the Commerciality Doctrine is applied to non-profits. With cuts to arts funding at all levels and an oft repeated litany that performances should be self supporting or not occur at all, is it fair to require that non-profits ignore the pressure to support themselves with strategies that create more earned revenue?

Todd Haimes has said as much,

“I feel enormous pressure to generate income for our theater,’…`I’ll do anything within reason, as long as it goes back into the nonprofit purpose of the Roundabout,” Haimes said. “So I’m trying to be more creative.”

With a $40 million budget in 2008, $12 million in donated and needing $13 million in sales, most of us are not anywhere near Roundabout Theatre’s ability to raise scowls from commercial competitors. We do face similar pressure to perform well and might well find our ambitions causing problems for our tax status given that so many other aspects of non-profit operations are being examined.

Business Models, Info You Can Use

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Info You Can Use: Efforts You Can Skip…Maybe

October 19, 2011

by:

Joe Patti

From time to time I advocate for carefully evaluating the technology tools ones organization uses rather than jumping on what appears to be the hottest new thing everyone is apparently using. Not every tool is appropriate for every organization.

It was with great interest that I started to read Taproot Foundation president Aaron Hurst’s piece, Five Investments You Can Skip. In it, Hurst follows a similar theme in suggesting that non-profit organizations of a certain size and scope consider giving certain “must haves” a pass. Upon reading them, however, I was a little skeptical about some. The five he suggested were:

1) Volunteers. Recruiting and managing volunteers generally isn’t worthwhile unless you use at least 50 per year, they do at least 50 hours of service each (or fewer volunteers and more hours each), and you invest in volunteer management systems. Short of that, it’s almost certainly a waste of time.

2) Websites. Most nonprofits (the small neighborhood ones) would likely be fine with just a Facebook page. A template site would do the trick for slightly larger group. Only 25 percent of nonprofits need customized web design.

3) Board. There is a tremendously high fixed cost to training your board to facilitate donations (in kind or cash). If your board can’t generate a large part of your budget (say, 20 percent), you are likely to find them getting in the way of fundraising success and eating up senior staff time (and increasing burn out). If that’s the case, your organization would likely see more success with a smaller board focused solely on audits and the legal requirements of governance.

4) Social Media. Does it drive your advocacy, fundraising, or program success? It does for likely less than 2 percent of nonprofits. Everyone else is wasting a ton of time and energy on it. Much like my local car wash that urges me to “like” it on Facebook.

5) Strategic planning. You need a strategic plan, but for most organizations it can be a lot lighter than most MBAs want to admit. It doesn’t need to be perfect and frequently should be more of a living document.

Numbers 3 and 5 I can agree with pretty readily. The suggestion to eschew websites in favor of a Facebook page in number 2 seems to be contradicted by the implication in number 4 that social media, including Facebook may be a waste of time and energy.

I did consider that what he says might be true for non-profits in general. I don’t think it is applicable to arts organizations where providing up to date information about events and activities pretty much necessitate a web presence that is adaptable to your specific needs. I have a difficult time imagining that Facebook is a good option for most non-profits given that they need a site that distinguishes them and their mission from everything else one might come across on the web.

His suggestion that only about 2% of non profits are seeing any benefit from social media made me wonder 1) what he based that on and 2) if true, it may just as likely be due to lack of understanding about how to use social media effectively.

Number 1- Not investing in volunteers, held a number of reversals of opinion for me. At first I assumed he opposed investing in Volunteer management software, then I realized he meant not having volunteers at all. This seemed the most controversial of his points as reflected by the long and impassioned comments that followed. Hurst answered those objections with some research that supported his assertion that volunteer programs weren’t effective below about 50 people.

“When an organization reaches 50 volunteers AND achieves an effective volunteer management model, not only do they lead and manage their organizations better, but they are also significantly more adaptable (i.e., reflect the capacity to be a learning organization), sustainable and better resourced (i.e., have skills, knowledge, experience, tools, and other resources to do their work).”

On the other hand, the way I read it, a small number of volunteers, even poorly managed, help to leverage organizational effectiveness at lower budgets.

“Organizations with 10 to 50 volunteers, regardless of whether they are managed well, are statistically equally as “effective” as their counterparts without volunteers on all measures of organizational effectiveness (capacity), yet their average (median) annual budgets are almost half…This implies that organizations that break the barrier of 10 volunteers, regardless of whether they have figured out all of the best practices necessary to manage those volunteers, are equally as capacitated as their non-volunteer-based organizational peers, at perhaps just shy of half the cost…it is important to challenge the assumption that an organization cannot aspire to a more fully “volunteer-engaged” organizational model. Lastly, it is important to acknowledge the need to conduct further rigorous research to test the cause-and-effect assumption of this important finding.”

The other thing about the study Hurst cites is that it seems to be focused entirely on whether volunteers contribute to organizational effectiveness in executing their programs. It doesn’t seem to examine the role of volunteers in furthering organizational goals in terms of advocacy, awareness building and generally representing the organization to the community. If these factors are measured as part of some criteria, it is not clear.

Despite the doubts that one may harbor about whether all his points are well supported, there is some validity to Hurst’s essential idea that it may be worthwhile to assess whether the implementation of all those best practices everyone knows you need to be employing really provides the best return on investment. It is understandably difficult to be a confident skeptic in the face of widely recognized best practices, but these days it could contribute to long term survival.

Arts in an Age of Technology, Info You Can Use, Leadership

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