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Still More On Crowdfunding Start Up Arts Orgs

May 23, 2012

by:

Joe Patti

If you have been reading my blog regularly over the last few months, you know I have been keeping an eye on the possibility of the crowd funding elements of the recently passed JOBS Act replacing non profit status as a viable method of creating and sustaining an arts organization.

If you haven’t been reading that long, well harken back to my original musings on the subject as well as some more recent musings with links to information on the implications of the law as passed.

Hat tip to Charity Lawyer Blog’s Ellis Carter (whom I have previously incorrectly identified as male. Sorry about that Ellis) for her link to a piece on Startup Company Law Blog about the problems with the law.

Author Joe Wallin confirms many of the general suspicions I had about the costs of compliance probably being overly burdensome given the $1 million limit.

One thing that surprised me was that the law actually prohibits start ups from the “do it yourself” approach which I have always assumed to be a hallmark of start ups.

3) The Law Forces Companies To Use Intermediaries

The law forces startups to use intermediaries to raise the funds. This is fundamentally different from what typically happens with startups. Most startups raise funds without the help of intermediaries. In fact, this is the prevailing norm for startup companies. The typical advice to a startup is–don’t use an intermediary! Founders, do it yourself!   But here the law forces companies into the arms of either registered broker-dealers or registered funding portals. These entities are subject to numerous requirements, and their compliance with those requirements will make the process much more difficult and costly for companies.

Maybe arts organizations with their bare bones mentality about providing a product might make it work within the restriction, but the whole point of pursuing an alternative to the non profit business model is to adopt an alternative approach and mindset about providing cultural experiences. (a.k.a. ramen isn’t a default food group for artists.) Though it will probably bring it own attendant problems, success might be measured by how diversely arts and cultural organizations manifest after phasing away from non-profit status.

At the end of his post, Wallin suggests Congress go back and make some changes to the law to allow start ups to proliferate more easily. I am sure there is still plenty of opportunity for successful crowd funded start ups within the law. If it isn’t changed before that, perhaps the successes will lend credence to the idea this can be a viable path for entrepreneurs, moreso with a few changes.

Business Models, Fundraising, Info You Can Use, Legal Topics, New Initiatives, State of the Arts

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What Signals Are You Reading?

May 22, 2012

by:

Joe Patti

There is an old rule of thumb about judging the cleanliness of a restaurant’s kitchen by the cleanliness of the restrooms. I actually used this example this past weekend when discussing an experience in what I took for a high end restaurant in another country…until I visited the restrooms.

Adam Davidson, heard often on NPR’s Planet Money had a piece in the NY Times on how people use “signaling” to make decisions.

He gives a couple examples of how people use signaling. He spends more money on a brand of baby formula even knowing there probably isn’t too much a difference between it and a cheaper competitor based on the labeling. A friend bought a more expensive chandelier from Amazon because he felt uneasily that the $100 difference in price meant the cheaper merchant cut corners.

He also cites Pepsi’s decision to pay Nicki Minaj to be a spokesperson:

“Even for consumers who don’t listen to her music or trust her expertise in the carbonated-beverage sector, the mere act of paying for a pop-star endorser sends a subconscious signal that their product is so successful that, well, they can afford Nicki Minaj. It also signals that the company is too heavily invested to turn out a shoddy product. For many, that’s a reason to choose the soda over the generic stuff.”

The example that really got me thinking was about bus owners in Haiti who paint their buses with all sorts of images at great expense.

“Yet bus owners feel the need to get a fresh paint job once or twice each year because few people will pay to ride an unpainted bus. The extravagant decorations suggest that an owner cares about his business — that he spends money maintaining his engines, tires and brakes (no small matter in a country with steep mountains and lousy roads). My hunch, however, is that many owners, short of cash, are likely to invest in a visible new paint job over invisible brake maintenance. With no external authority — government inspectors or consumer-watchdogs or online consumer forums — there’s no way to know if the signal is accurate.”

The reason this caught my eye is that, like the bus owners in Haiti, many arts organizations don’t have the money to fully maintain their buildings and have to make decisions about what to invest in to attract and retain audiences. I wondered if many arts organizations are fully cognizant of what cues audiences were deriving from their experience. Perhaps too much focus is being paid to the wrong things.

There are some aspects whose signals we can be fairly certain about. The surroundings and what others are wearing can often determine whether people feel intimidated or perfectly comfortable. We can draw some direct lines between the experience people have purchasing tickets, getting information, finding parking, being greeted by employees, etc., and what people’s perception of us might be.

But it is more difficult to know whether our ticket prices, quality and content of our brochures and websites are telling people our work is too high or low quality for their tastes. Do they think the performance will be incomprehensibly high culture or too amateurish for them?

Do we need to fix up the entryway because its condition signals that we don’t invest a lot of attention in the quality of our work? Or does it add to a funky-cool ambiance that we didn’t really knew appealed to our audiences and we should invest the renovation money in our work?

Did our sincere attempt at moving a water fountain to be more convenient to the restrooms get interpreted as a blatant ploy to increase traffic at the snack bar?

Many factors which contribute to signalling are unconsciously received so surveying people about all the elements contributing to their impression of you is a fruitless pursuit.

Not to mention, the same element can signal one person’s trash and another’s treasure. Pepsi may gain prestige by engaging Nicki Minaj, but her fans may see it as a harbinger of disappointment since she will have to modulate her behavior to remain a spokesperson.

Audience Relations, Marketing/PR

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What Would Happen To Wine If Everyone Wanted Free Grape Juice

May 21, 2012

by:

Joe Patti

Hat tip to Adam Thurman for distributing the link to an interesting piece about devaluing artistic content by Todd Henry. Henry wonders about the fate of artists when increasingly the view seems to be that content should be free.

“This means that artists have to shift their business models to give away (or make available for cheap) their main art, and instead focus on selling scarce peripherals. Authors sell lectures. No longer able to make a living from recording, bands sell tickets to concerts and survive off of merchandise sales. Content creators give away their content in order to gain eyeballs and ears,…

The problem is…some people are just great at being artists. They aren’t great at business models, distribution or line extensions. They just want to make great, valuable art and sell it at a fair price. What do these people do?
[…]

Would we have had The Beatles if they’d been told, “Never mind spending years in the studio crafting your records. Those things are just promotional fodder to sell these snazzy Sgt. Pepper t-shirts and posters. You should focus instead on how you’re going to monetize.”

I am currently exploring bringing a show, which heretofore has only existed on YouTube, to our stage. The creative team is actually excited that they might not have to cover most of their expenses out of pocket for once.

Until Todd Henry pointed out that increasingly it is ancillary products rather than the artistic product supporting the creation, it never occurred to me what a bizarre situation it is. These guys from the YouTube show I am talking to mentioned the same thing–T shirt sales helped defray some of their expenses.

But there are a million stories in the naked cit.. -erm, YouTube and not everyone is going to be paid for them. We already know that places like YouTube are eroding the concept that you should have to pay for content. People will clearly continue to create content and try to support it however they can. I don’t think an effort to inspire a shift in attitude is going to gain much traction.

Though who knows, I hear Comcast cable is trying to get people used to the idea of paying for bandwidth consumption. As much as I am resistant to the idea, it could change attitudes about paying for content as well.

To extend the question Todd asks about killing the golden goose, I wonder how many creatives will persist until their abilities mature if few are willing to pay for the content. That might be the real long term threat.

The guys I am trying to present are young and their show is fun. But what happens in a few years when they settle down and look to raise a family and they decide they don’t have time to create content alongside their regular job and family? The fact artists have never been paid well has always been a problem, but if even the possibility of a pittance wanes then unremunerated recognition becomes the only motivator to create.

Artists and other creative types need time to allow their skills to develop. Ira Glass said as much in the speech I linked to last week. As a country, we need creatives to mature into their abilities rather than quit early on.

Arts in an Age of Technology, Business Models, creativity

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Bringing Creative Balance To Business (And Vice Versa)

May 16, 2012

by:

Joe Patti

There was an interesting piece in Fast Company a couple weeks ago that seems to bolster the idea that creativity is an important component of business success. University of Toronto’s Rotman School of Management held a design challenge “To help TD Bank foster lifelong customer relationships with students and recent graduates while encouraging healthy financial behaviors.” They invited participants from other MBA and design programs from across North America.

According to the article’s author and competition judge Melissa Quinn,

Both this year and last–the two years that Rotman invited other schools to participate–business school students were slaughtered by the design school students. Of the 12 Rotman teams this year, not one of them made the final round. And while only seven of the 23 competing teams were from design schools (including California College of Arts, Ontario College of Art and Design, and the University of Cincinnati), design teams scooped the top three places in the competition, doing significantly better than their MBA counterparts. So what does this tell us?

It might tell us that MBAs significantly underestimate the skill and expertise a designer brings to the table.

Later in the article Quinn notes that where the design school teams fell short was in providing a sense of the economic value of their plans,

I should point out that only the winning team from the Institute of Design at IIT actually charged a fee for the service they developed (a fact that was not overlooked by my final-round co-judge Ray Chun, the senior vice president of retail banking at TD). Some competitors were able to offer a vague notion that their ideas would generally create economic value, but crisp articulations of a profit model and underlying assumptions were hard to come by.

In talking about how both MBA and MFA training programs need to change, Quinn expressed the idea we in the arts all love to hate: artists need to focus on being more business minded. But you know, when you are pitching an idea to a bank, highlighting economic benefits are pretty much de rigueur.

What really caught my eye in the article was Quinn’s mention that the design school teams’ approach was effective in convincing “a skeptical panel of experienced professionals about a new idea that doesn’t exist in the world today.” When I read that, I had the sudden realization that creative types aren’t going to necessarily do well in a business environment as part of the structure which keeps things running effectively. The value of the creatives would be in bringing those new ideas for products and services to the fore and getting people engaged.

As Quinn mentions, in order to effectively convince people of the value of these ideas, creative types are going to have to possess enough business knowledge to be able to explain how it might be monetized. When I have read about how important creatives will be to businesses in the future, I have mainly thought about how they might influence the culture to be more nimble and responsive, bolster team building and cultivate creative practices.

This is all true, of course. But even more the value will be in, as Steve Jobs has said, creating products and services for which consumers can’t necessarily express a desire.

The process Quinn says the design school teams used was:

“…they shared real user insights to engage us emotionally, used narrative and stories to compel us, drew sketches and visualizations to inspire us, and simplified the complex to focus us. It’s proof positive that numbers and bullet points, while important, aren’t necessarily what drive executive decision making. “

Some commenters to the article, which included members of the MBA school teams suggest that the differences in the presentations were not as clearcut as Quinn depicts them. I wanted to mention this because it appears from the article’s URL that it may have been retitled from “Need To Solve a Tough Business Problem Don’t Hire An MBA.” From the content of the piece, I don’t think that is anywhere near it’s message.

Regardless of who used the techniques, it appears the storytelling and visualizations approach was viewed as more effective at convincing the judges. I think this fact is generally recognized, but perhaps few think of employing it alongside bullet points and numbers. There definitely needs to be a balance between the two because storytelling can easily slip into attempting to use sentimentality to convince and you don’t want to base business decisions entirely on emotion.

Art(ist) Education, Business Models, creativity

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