An exceptionally interesting case study of Steppenwolf’s past 25 years (available for download in pdf format from the Nonprofit Finance Fund) paints a complex picture of how the organization moved in and out of balance as it grew from tiny to iconic.
Like other analyses from the NFF, this story explores the dynamic balance in arts organizations among three sides of a pyramid: ”the artistic mission; the organizational capacity in the form of
staff, skills, and investment in business operations; and the capital base, principally
real estate, cash, investments, and equipment.” The authors argue, quite convincingly, that changes to any one side will necessarily bring changes and stresses to the other sides. If you expand your artistic mission, for example, either capacity or capital will need to adjust, as well. If you buy or build a building and dramatically expand your capital base, artistic and capacity issues will eventually smack you in the face.
The issues of edifice are particularly vexing to creative organizations, since building ownership seems like a great way to control your creative destiny — all the time and space you’ve been dreaming of but could never attain. But buildings inevitably turn arts organizations into landlords, with a weight and responsibility that can crush the creative soul. Says the study:
Real estate and its operation are, above all else, a mass of fixed costs. Moreover, the production expenses required for mounting a show and filling the house in a bigger venue are fixed as well. But the unpredictability of ticket revenue — and to a lesser but still important extent, the variability of production expenses — makes high fixed costs dangerous and confining. That’s especially true for a company like Steppenwolf, whose reputation is based on the presentation of challenging work that will sometimes flop.
It’s great to read a ‘happy’ case study, not driven by disaster or collapse, but by decisions that actually turned out well in the end. It’s even better to read a nonprofit business story with depth and dynamics worthy of the theater world.
Thanks for pointing this study out. Looks like good reading.
Space is like a drug for us theater types — we want it, and we can’t get enough of it. But it also comes with lots of nasty side-effects, like those high fixed costs.
The amount of time and energy an ED at a large regional cultural institution spends on janitorial and physical plant decisions is staggering.
A friend’s dad buys doctors’ offices from them and then leases them back. This way the Doctor is freed from the debt, overhead, and maintenance of owning a building, which is not their forte (nor should it be).
My friend has suggested to me that a similar nonprofit developer could be created to consolidate those physical plant operations, buying up giant arts spaces and leasing them back to their tenants. Such a developer would have to be community- and not profit-oriented, of course. There would have to be something to prevent them from turning it into condos. Maybe a 99-year lease or something.
This would have two main advantages:
1. It would free up the organization from the non-mission-related tasks of building administration (plumbing, electrical, etc.)
2. Capital money is very hard to come by. Funders increasingly want to to fund projects, not infrastructure. EDs moan about this all the time. So why not sell back the building, and then roll your lease payments into your (highly fundable) programming costs?
Worth considering… seems like it might bear upon the earlier discussion on the Overture Center.