One of the best ways to redirect a wandering conversation about ‘new business models’ in the arts is to ask the basic question: What is your current business model, and how does it work? It’s surprising how even really smart cultural managers can’t answer the question. Admittedly, we don’t talk much as a field about the architecture of our businesses, so we lack the specific and nuanced language to sketch out the blueprint. But without such knowledge of our current business model, it’s hard to imagine that we’ll stumble into a better one.
Seth Godin takes a shot at simplifying the elements of a business model, suggesting four key questions that any business model will answer:
- What compelling reason exists for people to give you money? (or votes or donations)
- How do you acquire what you’re selling for less than it costs to sell it?
- What structural insulation do you have from relentless commoditization and a price war?
- How will strangers find out about the business and decide to become customers?
The answers to the first two questions are pretty obvious for the traditional nonprofit professional cultural business model:
- We create work that people are passionate about, and want to experience — or want their friends, neighbors, children, or great-grandchildren to experience.
- We don’t and we can’t (nonprofits are designed, after all, to deliver goods and services at below their total cost). So we access revenue beyond the traditional market in the form of gifts, grants, and subsidies (while we also reduce our costs through volunteers, low wages, deferred maintenance, and number shuffling).
The answers to the third and fourth questions are a bit more problematic. For number 3, most arts organization don’t have a specific and ongoing strategy to create barriers to competitive market entry (new theater groups, other entertainment options, or the like). The smart ones build a tight network of supporters and advocates, as Godin suggests, which buffers the tidal forces of the marketplace just a bit.
For number 4, we’ve tended to retrofit marketing after the fact — after our seasons or exhibit schedules or cultural calendars are set — here’s the season guys, now go sell it.
And while Godin’s four questions are dramatically oversimplistic (buried within question two are all sorts of complex strategies around capitalization, asset management, scope/scale of production, supply chain management, and on and on), the exercise of answering the questions for your own organization is a productive one.
How would your organization answer those questions? And what specific element of your current business model isn’t working anymore and demands innovation? Once you have a specific problem, your odds of evolving a productive solution rise dramatically.
I don’t know if this fits into the Godin framework, but the thing about #3, from an arts organization standpoint, thinking about it with a different wrinkle (and this then is the crux of the problem), is that rather than think of only other arts organizations as “competition” but all other entertainment options as competition.
So competition ranges from other forms of the art to movies to television to videogames to watching sports events, live music etc.
I’m neither an economist nor a scholar, but I would suggest that #2 deserves a closer look. Who says we have to continue the nonprofit model of dependency?
http://www.nationalcne.org/index.cfm?fuseaction=feature.display&feature_id=27&CFID=737&CFTOKEN=90849585
“For number 4, we’ve tended to retrofit marketing after the fact — after our seasons or exhibit schedules or cultural calendars are set — here’s the season guys, now go sell it.”
This particular response to the current environment bothers me the most these days…and I’m a development director rather than a marketer, per se. In what other industry does the producer (or in this case, the artistic director), get to step away from responsibility about how a project is marketed and what the results are? It is always someone else’s job to sell the ticket — and the blame goes to those people when a project doesn’t sell. But artistic directors get to take the credit for making wise choices when a project does sell.
If artistic directors were treated more like product managers in a commercial environment and bore some responsibility for the way their products are received in the marketplace, we might have different and more engaging work to offer our audiences.
Aprapos of Richard Layman’s comment:
I’ve long believed that the greatest competition for the performing arts is nothing at all; that is, staying home (or stuck in habitual haunts and patterns). We can’t compete on a price level with those things, so the approach to Mr. Godin’s question #3 is two-fold:
a. skip to #4; that is, find compelling ways to engage potential customers.
b. work with ostensible competitors to build an emerge-from-the-chrysalis-and-become habit among new customers.
The thing about adopting business models and techniques wholesale to the arts (both for- and not-for-profit) is that they often lead us to turn potential allies into enemies. We need one another (and ski areas and restaurants and…) more than ever.
Great post, Andrew. Thanks.
Enjoyed the comments. I would suggest, however, that we do still, even as nonprofits, we do, or should still respond affirmatively to the questions ”How do you acquire what you’re selling for less than it costs to sell it?”
When we are fundraising we are still selling something. We are selling results to the community. In the case of the Broward Center one of the things that we were selling was the vision of community diversity, access to the arts by all segments of the community, exciting arts from all over the world, etc. We could have gone out and bought shows and did the usual ”outreach” or ”world music” program and gotten killed at the box office and gotten killed on the cost side by paying too much for the shows relative to what we could get at the box office. Instead we did the strategy of engaging the arts community, not simply as organizations to whom we rented our space, but as allies and as suppliers for our virtual corporation. By co promoting these shows and co branding these shows we acquired what we were selling, a performing arts center that is actively engaged in and supportive of diverse programming, at a cost below which we sold it.
The simple act of seeing renters of the facility, not as renters but as suppliers of content to the virtual corporation changes the relationship of the center to the arts organizations in the community and changes the business plan of the center.
RE: #3. Comments about the “at home” entertainment are right on. I suppose there are some good things about television but I’ve often viewed it as the enemy, not just competition. “Kill Your Television” is a sticker I could have easily put on my car. But I view other “out-of-home” entertainment venues/organizations as allies in the war against the numbing of America. The more variety of reasons we give people to get off the couch and visit our downtowns for a little culture the better. I also look at arts organizations as community builders, and educational institutions. We need to get away from the competitive mindset that surrounds us and try a lot more collaboration.
Apt discussion. The competition of TV, as I try to decide in my own home between the 150 channel package and the 200 channel package when we really only watch 4. And that’s to tie us into a more cost effective way of getting our phone calls and our internet service where we spend more and more time communicating less and less. And as an Artistic Director I personally want to push “Cymbeline” but the board is skittish, even though we chose “Midsummer” because it would sell and instead found everyone was sick of it. I’m sure we’ll look back on these days in the future and say, “Why the hell didn’t we see it? Artists, management, product, technology. It was all just sitting there waiting to be put together!” I see there’s an article this morning on blogging not yet being completely passe.
These are great questions for any organization to tackle, but I’d suggest that even a non-profit look at number 2 and take it very seriously.
There is no obligation on the part of a non-profit to “lose” money. It’s simply restricted from distributing money the way that a for-profit company would.
What it can do with a surplus, however, is to create an endowment of funds or immediately use it to fund new projects. In fact, this would seem to me to be a highly desirable state of affairs.
Also, if my Godinese is as good as I think it is, number 3 doesn’t relate so much to preventing competitive entrants as it does to create differentiation. These are not the same.
For example, it’s relatively easy to go into business as an online shoe store. Zappos will not do anything to prevent you from doing that, but it has made itself special in the eyes of consumers such that they want to buy from Zappos, not you. Until of course you create a distinct kind of differentiation yourself.
This applies in a one to one fashion to arts organizations. If you are an undifferentiated “Performing Arts Center,” doing roughly the same program in roughly the same way as hundreds of other places around the country, you can expect commoditization.
But that has far less to do with preventing competition from EXISTING than it does with preventing competition from MATTERING.