It’s a tough world out there for nonprofit arts organizations, and only those with savvy business skills employed within a social value-maximizing framework survive. However, for some reason, arts organizations are not perceived as institutions with any inherent business capability. Below are 4 reasons why arts organizations actually embody many of the same business skills you would find in any corporate boardroom, given, they handle a similar set of issues. The arts, actually mean business.
Profit does matter
First, even though many arts organizations are nonprofit, that does not mean that ending the year in the black, or covering the operational budget, is not important. Nonprofit accounting financial statements are comprised of both contributed and earned income. Development and marketing teams work tirelessly to hit organizational revenue goals, alongside the board of directors and executive leadership. Just like a business, arts organizations have to find ways to minimize the costs of services offered, or the equivalent to cost of goods sold – in fact, sometimes even more creatively. By design, admissions ticket prices rarely offset the full cost of the service offered, given the nonprofit seeks to provide its benefits to the greatest number of people it can afford. While profit is definitely not the primary motivator for existence, healthy arts organizations find creative, resourceful ways to prevent continued deficits at the end of the year, like any business.
Stellar executive leadership
You can’t judge a book by its cover – arts leaders can make the best of organizational leaders. There is a misconception that nonprofit leaders do not possess solid business knowledge. Many arts organizations actually have presidents, general managers, COOs and CEOs with impressive business backgrounds, with previous careers working for top consulting firms, or leadership roles in local companies or Fortune 500 businesses. Furthermore, it must be noted that by design, some nonprofit roles themselves are heavily-finance and business oriented, such as the role of production directors, who not only manage budgets for labor costs but forecast the prices of resources used to source or design theatrical sets. At the end of the day, leaders must have an entrepreneurial mindset to thrive in an environment with especially scarce resources. This quality drives arts leaders to excellence in organizational leadership.
Fighting stiff competition
In following along with the understanding that nonprofits do value profit, understand that they face competition – they compete with themselves to offer a unique social value relative to similar institutions in their communities over time, to justify their existence. Rather than measuring success in terms of assets alone, nonprofits have a social output that must be tracked and accounted for in an often hyper-complex environment. Like any business, they have tremendous external threats to reckon with, such as legislative concerns, demographic trends, community net migration, and local economic forecasts. Answers to questions such as, “How many patrons did we serve?” and “How did we improve their lives?” relative to last period despite environmental changes are critical. Organizations rely on this information to secure and even grow funding from foundations, government sources and private donors in communities with scarce resources – thus demonstrating their significance to contributed income sources by offering a competitive social value proposition.
Efficient and responsible management
By design, arts organizations usually have a slimmer percentage of organizational budgets allocated to operational expenses than for-profit businesses, and as a result must be lean, mean, life-impacting machines. Arts organizations often utilize the same functional capabilities found in businesses, such as strategy, marketing, finance, operations, accounting, IT and human resources but with less staff and resources. Like businesses, nonprofits are held accountable to boards of directors, state, federal and local governments and private donors. Their taxes are audited and often shared with prospective funders. Like a business, there is little room for mismanagement if an organization is to survive over the long-run.
In summary, arts organizations contain a wide-variety of business skills, organizational management best practices and resource-efficiency hacks. When combined with their social value orientation, they become a force to reckon with in tackling community issues.