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?

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