This posting describes 2 organizational variants. The first occurs often, but nonetheless needs highlighting. I believe the second is rare and worth examining.
A number of standard NFP’s own, or partially own a commercial entity. These range from real estate and parking garages, to catering facilities, ticketing operations, and licensed software, e.g. Tessitura software is owned by the Metropolitan Opera. From what I can glean, the percentage of annual budget that these entities provide range from 5 to15%. Outside the immediate arts sector there are a number of social service NFP’s that sell indigenous merchandise to provide benefit. I believe the percentage of budget in these organizations is substantially higher.
The only potential downside of this “model” is the potential for the tail to wag the dog. On the anecdotal level I have heard of instances where the commercial entity has occasionally crowded out the mission-centered activities. The upside is obvious: provision of stable, even growing revenue over time. The challenge to arts leaders is to create and craft these commercial ventures so they relate appropriately to their organization’s mission. The former, perfect model comprised the many commercial recordings made by American orchestras, which at one time provided as much as 20% of annual revenue toward general operations.
The reverse of this first model is the arts commercial entity with embedded arts NFP’s. A prime example of this model is the World Cafe Live in Philadelphia. World Cafe Live is a multi-venue club that offers a variety of musical presentations, often simultaneously on different stages. The founder/owner of World Cafe Live saw an opportunity to offer educational and community engagement programs using many of the performing artists. He formed (www.liveconnections.org), an NFP devoted to educational activities. LiveConnections enhances the overall reach and impact of the World Cafe, and I would imagine its commercial bottom line. In addition WCL rents its space to other NFP’s, creating a quasi-dependent community, i.e. its in WCL’s best interests to insure that its lessors remain healthy, and that relationships are well-maintained, so its lessors can enhance the reputation of the site, but also can continue to pay rent.
I would be interested in learning about other “reverse models,” where NFP’s are embedded in commercial entities.
Next week: Internet-based models —
The mission creep you describe in the first/standard model is a real concern and is something organizations employing that model need to keep an eye on. But the same can be said with the 501c model – applying for any old grant just because it brings in money instead of selecting those that are a good fit for your mission – if we get awarded this one, we’ll have to start an education program. That’s okay, we can do it! It doesn’t matter that our staff is already spread thin and doing the jobs of 3 people…