Let’s Think About Funding Models

Joe Patti published an intriguing article at ArtsHacker.com yesterday that examines a 2009 Stanford Social Innovation Review about ten different nonprofit funding models. It’s a fascinating read, especially in light of the time period it was written, just after the economic downturn when many nonprofits were scrambling to reassure their funding identity. The orchestra field was no different at that time and internal discussions surrounding revenue models juxtaposed with the information in the Stanford paper make for some interesting considerations.

The section titled Beneficiaries Are Not Customers (p.34) is particularly interesting.

One reason why the nonprofit sector has not developed its own lexicon of funding models is that running a nonprofit is generally more complicated than running a comparable size for-profit business. When a for-profit business finds a way to create value for a customer, it has generally found its source of revenue; the customer pays for the value. With rare exceptions, that is not true in the nonprofit sector. When a nonprofit finds a way to create value for a beneficiary (for example, integrating a prisoner back into society or saving an endangered species), it has not identified its economic engine. That is a separate step.

If there is a better way to introduce your next board retreat, I’ll be interested to hear it.

Adaptistration People 039Nonetheless, it isn’t uncommon to encounter strong segments within the professional orchestra board culture that espouse pushing administrators for sharp increases in earned income (i.e. ticket sales), even if that means increasing prices to such a degree that higher revenue comes by way of sacrificing short term average attendance.

Unfortunately, what may have started as a post-downturn emergency strategy slowly evolved into standard operating procedure at some groups. It’s been happening long enough that it becomes all too easy to forget that today’s average attendance is better defined as your long term relevancy indicator.

The more I read the review, the more these sorts of observations come to mind and it’s been awhile since I’ve read a paper that inspired this much cognitive activity. As such, do yourself a favor and download the report and move it to the top of your reading list.

I’m curious to know if you found any section(s) particularly interesting. If so, which ones and why?

About Drew McManus

"I hear that every time you show up to work with an orchestra, people get fired." Those were the first words out of an executive's mouth after her board chair introduced us. That executive is now a dear colleague and friend but the day that consulting contract began with her orchestra, she was convinced I was a hatchet-man brought in by the board to clean house.

I understand where the trepidation comes from as a great deal of my consulting and technology provider work for arts organizations involves due diligence, separating fact from fiction, interpreting spin, as well as performance review and oversight. So yes, sometimes that work results in one or two individuals "aggressively embracing career change" but far more often than not, it reinforces and clarifies exactly what works and why.

In short, it doesn't matter if you know where all the bodies are buried if you can't keep your own clients out of the ground, and I'm fortunate enough to say that for more than 15 years, I've done exactly that for groups of all budget size from Qatar to Kathmandu.

For fun, I write a daily blog about the orchestra business, provide a platform for arts insiders to speak their mind, keep track of what people in this business get paid, help write a satirical cartoon about orchestra life, hack the arts, and love a good coffee drink.

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