Wednesday, July 17, 2013

Turning Assets into Butts

Typically, when deciding whether or not to invest in a company, idea, or project, a key metric is ROI - return on investment. Essentially, how much the investor will get back if he/she supports the idea. We almost always think of ROI in terms of dollars, which doesn't make a lot of sense for the arts community, because we are largely not for profit and donors don't expect to get dollars back. I am of the belief that those who "invest" in the arts (donors) SHOULD expect a return. We simply need to redefine what we think of as "return."

ABC shoe company makes stylish-yet-comfortable heels for pregnant women (my sister is pregnant, so babies are on my mind lately). I have seen the prototype and I think women like my sister would love it, so I consider investing in the company to help them get off their feet. Before handing over the cash, I ask to look at their projected income statement. Since I will get a percentage of the profits, I want to know how profitable ABC plans to be.

I also ask to look at ABC's balance sheet to see what assets and obligations they have. Assets could be cash, machinery, staff expertise, patents, and anything else with a positive economic value. Obligations (liabilities) would be debts, unpaid rent, employment contracts (salaries) and anything that would deplete the assets.

This all helps me ask the big question - how will ABC best utilize its assets (my investment money, machinery, office space, etc) to achieve its mission (sell great shoes) at a profit (my return). If I am convinced that ABC will optimally use its assets, then I'll invest.

Investing in the arts should be no different. Let's say I am approached to fund a new musical project. I will go through the same process, and define my "return" as butts in seats. If I am going to be a part of something, I want people to see it, and I want the presenting organization to get more exposure as a result.

So, what does ABC Arts Company's income statement look like? Are they relying solely on me for revenue, or will ticket sales and merchandise help fund their work as well? Where will they spend their (my) money? Will enough be spent on marketing? Will too much be spent on parties? Will they price tickets well enough to cover the remaining expenses after my donation (without pricing out their target audience)?

Again, I also want to see the balance sheet to determine where ABC Arts Company is right now. What assets do they have in place to make this musical amazing. What obligations might they still be paying off? What assets are missing, or are not funded well enough to make the most impact?

We come again to my big question. How will ABC Arts Company best utilize its assets (my money, its artistic designers, cast, board of directors, etc.) to achieve its mission (present a stellar new musical) with a healthy return (butts in seats).

Just as a shoe company for expecting moms can never know exactly how many shoes they will sell (pregnancy rates have dropped over the past 20 years), an arts company can never be sure exactly how many tickets they will sell (though attempts are being made). If I am comfortable with the general health of the organization, and I believe ABC Arts Company will turn assets into butts in seats, then I will support.

One question might remain: why butts? Besides lending itself to a catchy blog title, maximizing butts in seats is the optimal metric for defining and projecting success in an arts org. The more butts you have, the more eyes will see your product and mouths will talk about it with their friends. More butts also means more potential donors if you have the right messaging and a good show to put on. More butts means that current donors will see you have been successful and are therefore likely to donate again. More butts almost always means a better experience for the artists on stage, and increased ticket revenue for your organization. That increased revenue leads to your ability to create more shows, increase staff capacity, market more, etc.

If butts aren't your thing, that's cool. Just be sure to define your own "return," project and measure that return, and think of your org more like a business and less like a not for profit. Would you invest in you?

Monday, July 1, 2013

The Flip Phone Factor

When I was young, my first cell phone was a clunky box of a thing. Its screen was probably 1/8 its total surface area, and text messaging didn’t exist. A year later, with a couple months of allowance savings, I strutted into the Motorola store and purchased a shiny silver flip phone with a color screen. As I left the store, angels descended from heaven to bless me with instant coolness, and trumpets rang out across the mall. I belonged, and it was all thanks to Motorola.

Fast-forward 15 years. The Motorola website proudly displays an array of mobile phone options: the Photon, the Razr, the Razr HD, the Razr Maxx…but no flip phone, and nothing even close to the shiny silver patina of my youth. As I imagine myself purchasing one of these new devices, I actually scoff a little. Nothing could be as satisfying as the angels and the trumpets and the coolness I found 15 years ago.  In fact, if Motorola had asked me back then what to do to improve their products, I would have said, unequivocally, “nothing.”

It’s a good thing they never asked, or listened to me.  Motorola, and most other device manufacturers, saw that tastes were changing. Technology was, and still is, evolving to allow for bigger screens, more integration, increased access to media, etc. As a customer, my tastes would eventually change, or I would eventually die. When this happens, who will be left to buy the silver beacon of hope?

Arts organizations need to think more like Motorola (well…okay maybe Apple). If we want to increase our reach, we need to make an effort to increase our offering. This offering could (should) be in the form or programming. It could also be in the form of ticket prices, member benefits, and venue options.

Let’s make a really dumb assumption for the moment: artistic preferences won’t change from generation to generation. Were this the case, an organization, which attracts 15% of the available audience in a city, will attract 15% of the available audience when the next generation of arts lovers and patrons come about. Since the population is growing, the audience would grow with it, but probably not enough to account for the financial burdens of inflation and increased competition. Still, this isn’t a horrible scenario. The arts org keeps making a flip phone, and its audience keeps buying it – decade after decade.

Okay, back to reality. Tastes change. And even if they only change slightly, mediums change, and the amount of arts players change, and venues have moved from the concert hall to the backyard or computer screen. It is technology, especially, that has changed the form and mediums of art. We, as arts orgs, have to change with it. If you’ve ever met me, you won’t be surprised to hear that programming is the first thing that must adjust to ever-changing culture.

Lets get out of the hypothetical and start talking about you and your org. Now if you don't want to augment your programming because of a particular mission, or your obstinance, or that of your donors, all is not lost.You can still innovate by changing your fundraising strategy. Add an employee, or a part time role, to reach young donors. Change your member perks to better speak to the next generation of arts patrons (at my age I care less about having my name in a program than I do about meeting influencers from around the city at special events). Even try new mediums of fundraising like Kickstarter. Or simply, try asking newer and younger donors to join your family. Literally, pick up the phone and have a conversation with a young ticket buyer about their connection to the arts. Let them know how they can get more involved, and follow up next time they come to a concert.

Let’s not limit ourselves to fundraising and programming. Ticket prices often create empty seats in concert halls, so figure out a way to offer pricing to the next generation of arts enthusiasts (more on this in another post). If you can’t change your ticket prices just yet, change your marketing strategy. Try online advertisements, test a guerrilla plan on a local campus, or simply change the colors in your logo.

The point here is: change is necessary. It doesn’t mean that you abandon what works, however. Motorola didn’t stop using the numbers 1-10 on the keypad, and they didn’t suddenly start making mobiles phones larger than your pocket. They innovated and tested and innovated and tested – keeping what works and augmenting what could be better based on customer feedback and the changing environment.

Us arts folks need to do this too. If you have a concert that sells out out every year, don’t scrap it! Add to it. Introduce a unique opening act, or cross-promote your other presentations at the sold out shows. If your major donor base loves folk music, keep it! And then add in some folk/rock crossover concerts to expand your audience without alienating your base. Your org doesn’t have to be on the cutting edge all the time. But if you still look like a flip phone, then it may be time to try something new.