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Rethinking The Term Business Model

December 19, 2016

by:

Joe Patti

In Arts Professional (UK), José Rodríguez recently wrote about how non-profit arts organizations frequently misunderstand what a business model is.

The first misconception he lists is that only businesses need business models and since non-profit arts organizations aren’t businesses, ergo, they don’t need a business model. I don’t think I have ever heard a non-profit in the US suggest they weren’t a business, but he talks about a perception of “business” as a dirty word which is definitely something I have heard in the arts community.

The misconception he addresses that is worth attention is that business models are not necessarily related to moneymaking. My emphasis.

2. Business models are only about money

There are many definitions of business models, which sometimes makes it difficult to understand what we are actually talking about, but what most of these definitions have in common is the central role of value creation. And here lies the main difference with what people usually think about business models. It is not only about how your organisation makes money, but about how it creates value and organises itself around its value propositions.

Value is defined as ‘the regard that something is held to deserve; the importance, worth or usefulness of something’. Value can be money, but it can also be many other things. Value is what is important for you and your stakeholders. And for being able to create value, we need to understand the desires, needs, challenges and problems of those that we are trying to serve: audiences, community, employees, volunteers, customers, funders, sponsors, etc. Keep it in mind: Business models are not (only) about money, but about value.

[…]

So what is a business model?

A business model is a vital concept determining the success of any organisation and not a complex formula relating to its profit-making mechanisms. A business model is just a story explaining who your audiences and customers are, what they value, and how you will be able to sustain the organisation in providing that value.

At its most basic, every business model has three components, which respond to a few simple questions:

Which stakeholders do we serve? Which of their needs do we seek to address?

What do our stakeholder groups value? How do we create that value for each one of them?

How do we generate income, and attract other necessary resources, to be able to create value for our stakeholders in a sustained way?

Since it is in the last paragraph of the article, it can be easy to miss but an important feature of business plans is that they are temporary. Since the stakeholders you serve may change, the things your stakeholders value may change or the way you are able to create value for your stakeholders may change, then of necessity your business model must change.

By his definition, making changes to your business model doesn’t necessarily mean a change to your tax status unless you significantly change the way you generate income. Conceiving of business models in this context may help you operate in a more flexible, nimble manner since it moves you away from thinking you need to act in a set way to stay within certain strictures.

Audience Relations, Business Models, State of the Arts, Working In The Arts

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Giving Without Getting In Return

December 14, 2016

by:

Joe Patti

No, this isn’t a moral posting about how it is better to give than get during Christmas.

I have been writing a lot recently about the transactional view of arts and culture, namely value is based in economic exchange either directly or in terms of the economic activity it may generate.

Given that context, I was interested to read Joan Garry’s video/blog post expressing a similar view about fund raising and the belief people won’t give unless they get something in return. She uses the example of two hypothetical pitches to a friend. In the first, she asks someone to attend a $500/plate fund raising event, extolling the virtues of the organization it it will support. In the second, she simply asks for a $500 donation, again citing the value of the organization it will support.

Okay. There they are, both of them. One of them is going to cost… If he buys a ticket $500. It’s going to cost the organization at least thirty cents on every dollar. On the other hand, maybe I bought him a cup of coffee, maybe he even paid. One of those gifts will stick and one of them will not. If Joe’s not available next year he won’t go to that gala, right? If he gives the gift of $500, what happens? Then about six or nine months from now I have a touch point with him where I tell him something remarkable, a great story about something that happened at the Ronald McDonald House and at the end of that email I will say, “Your fingerprints are all over that work.”

Hear the difference? Feel it? See it? For some reason it’s so much harder for board members. They think selling a ticket to an event that it’s a I can’t ask somebody to spend $500 unless I’m giving them something in return. What they’re missing is that by making that $500 gift out right Joe is getting something in return. Right? The donors get as much as they give. Maybe more, because they get an opportunity to be invited into a community of people who care about an issue that is meaningful in Joe’s community. That should be easier than selling them a ticket to an event, where there might be a b-list celebrity.

I am sure she is not unaware that some times people attend big gala fundraiser in order to leverage being seen there by others into some sort of advantage. A large number of non-profit organizations would probably be happier to remain focused on their central goals and employ a direct ask with a higher ROI rather than diverting staffing time, energy and money toward executing an event.

If we want to argue about cost effectiveness and overhead ratio as a basis of giving, this might be one area in which these conversations have some validity. But it is probably also the area in which that economics based argument would fail in the face of a board or staff’s emotion based conviction that people won’t give otherwise.

Despite it being widely known that one person will give without expecting anything in return…

Fundraising

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What Am I Going To Do With All These Skills?

December 13, 2016

by:

Joe Patti

I was recently talking to a conservatory trained pianist who has taken a position teaching at a liberal arts college this last semester. He was complaining about the politics and bureaucracy involved with working in a university system. At one point the conversation turned to him complaining that he didn’t understand why his students had to study math, history, foreign language, etc, asking what use was that to musician.

Someone else at the table turned the topic in another direction before I had the opportunity to point out that he was a pretty clear illustration that even conservatory trained musicians probably need to acquire diverse skillsets in order to advance or supplement their careers.

There was recently a piece in Elle Magazine about Alexandra Ansanelli who was a principal dancer with the NYC Ballet and Royal Ballet, but decided to retire at age 28. Now she works as the director of operations and communications for her father’s medical practice.

In the course of the article there were the usual anecdotes about the pressure of being a dancer and issues with body image that dancers experience.

The article mentioned how poorly prepared for retirement many dancers are both mentally and economically.

Dancers are notoriously bad at planning for their second acts. They underestimate the age at which they’ll retire (the average age of retirement is 34), overestimate the amount of money they’ll earn, and misjudge the forces that will end their careers. More than one-third of the dancers in a 2004 survey were driven to retirement by an injury; only 5 percent left because they actually wanted a new career. When dancers enter the workforce in their thirties, many are woefully unprepared. Only 3 percent of current dancers say that teaching dance is their preferred post-retirement line of work, but it’s the most common fate: 53 percent end up teaching dance in some capacity.

“We know of no other occupation that requires such extensive training, that is held in such esteem as a contribution to culture, and that pays so little,” the authors of the 2004 survey write. Even during peak earning years: in the U.S., an average dancer’s annual total income is just $35,000—about half of which comes from non-dance activities. Even stars might not earn much more, or find themselves better equipped for life on the outside.

What I had never really considered was that the cloistered conservatory type environment which continued into the years of her professional practice delayed her social development as well. (my emphasis)

Though she spends many of her days in an office, she says she’s not an office person. Learning to communicate verbally has been a challenge. “I didn’t realize how introverted I was. I had been so used to emoting silently and physically.” Nonetheless, she is seemingly ahead of many of her peers. She is aware of the limitations that her career imposed, and actively working to overcome them.

When I ask her how her personal life has changed, she answers, “It exists now.” But it’s hard to catch up on everything her peers went through as teenagers and young adults. “I feel I’m learning all the time, what to do, what not to do.” She worries about what new acquaintances will think of her past. “It’s freaky to a lot of people,” the way she left her career. “Did she have some kind of mental breakdown?” she imagines they wonder.

Obviously, her experience and personality is not indicative of everyone’s. It is just that the longer I continue my career in the arts and the more I think and learn about the training process, the more I wonder if long term well-being is being sacrificed for short term definitions of achievement and excellence.

There are many factors that feed into this situation. Training programs are responding to external demands for quality. However, we also know that supply exceeds demand in terms of quantity.

There is already a lot of conversation about low pay and graduating more people than can find jobs, but a lot of those issues are related to the fact that students are being prepared for traditional jobs rather than provided with the capacity to re-cast their skills as appropriate for emerging jobs.

Yes, I know I am flirting very near the argument that an artist’s value is only worth what they are paid for their product, but positioning your skillset for wide applications is different than doing a better job marketing your product to a narrow set of applications.

Art(ist) Education, State of the Arts, Working In The Arts

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Be True To Your Audience Just Like You Would Your Girl Or Guy

December 12, 2016

by:

Joe Patti

Last week I was initially dismayed to read 85% of audiences in Washington D.C. patronized one theater. I try to promote the concept that all arts organizations in a community need to work together to illuminate all the opportunities for cultural participation, but news like that can cause people to scramble and jealously cling to whatever audiences they can get.

The people quoted in the article admit as much:

That means encouraging audiences to go to any theater, following the “rising tide lifts all boats” philosophy. It can be a bit counterintuitive for chronically embattled nonprofit arts organizations long in the habit of primarily looking out for themselves.

“It’s the fear that if I introduce you to my friends, you’ll like them better than you like me,” Woolly Mammoth managing director Meghan Pressman says.

However, there are a number of people quoted in the piece that feel the study underestimates how broadly people already attend other organizations, in part because the study that was conducted only included seven of the many theater groups in the Washington D.C. area. Some of the groups in the survey do have 20%-30% overlaps between their audiences. In surveys others have conducted for Signature Theatre and Round House Theatre, found even greater overlap:

In the two-year Round House survey, 43 percent of single-ticket buyers had been to four or more theaters within a year, 59 percent went to three or more, 76 percent to two or more, and 91 percent went to at least one theater other than Round House. That does not include attending the big touring houses (the Kennedy Center, the National Theatre, the Warner Theatre), which further raises the figures.

Perhaps more encouraging is that the theaters are already collaborating on projects and not defensively guarding their audiences.

Examples seem to be growing. Signature and Round House cross-promoted the musicals “Jelly’s Last Jam” (recently at Signature) and “Caroline, or Change” (with Signature talent working at the Bethesda stage). Round House just partnered with Olney Theatre Center on a co-production of the two-part, seven-hour “Angels in America,” presented at Round House and geared to moving patrons between the two troupes. Next year, the organizations will team up again — sharing infrastructure, artists and audiences — for a show at Olney.

So obviously by the end of the article I was breathing a little easier and had a more optimistic view of things. Though admittedly the idea that there were audiences that felt such a high degree of loyalty to a single theater was encouraging. (Assuming it was loyalty and not lack of awareness or other barriers that kept them from attending other places.)

Something from the middle of the article worth of note was an observation made about how theaters cultivate audiences:

For Robinson, the issue is keeping audiences the first time they visit. She describes a “magic math” that happens when patrons can be lured to more than one performance, and to more than one theater, per year. Repeat attendance jumps and attrition dives, yet the art of keeping audiences is often lost, as organizations fret about attracting fresh faces.

“It’s a gong that we clang,” Robinson says, warning against too much “prospecting” for brand-new clientele. “If we date, and you don’t ask me out again in a few weeks, I’ll forget how cute you are.”

Even if your stance is to glare at others and try to retain what audiences you have, you do well to remember not to take those audiences for granted. To extend the dating example, good communication and attentiveness are a necessary part of retaining audiences.