Has anyone done a business model exercise for a small not for profit community theatre and arts centre? The organisation is funded 50% by grants but this is now under threat.

The organisation is governed by a voluntary board of directors who are keen to consider ways of commercialising the organisation.

Currently the grant providers determine most of the activities provided. This leads to a triple bottom line of people, planet and profit. I say profit on the basis of having to try and match costs with revenue. Most activities are not commercially viable.Without grant aid the current operation would be unsustainable. Obviously such an organisation does not have a profit driven culture and this will have to change.

If anyone has experience of such a venture and has used a business model exercise to consider alternative strategies/models, I would be grateful for you sharing any insights which deem relevant.

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 Philip, the closest thing I know is http://www.instituteforartsentrepreneurship.com/. This is a business school for artists rather than a theater/arts center, but it may give you some hints.

Thank you Tim. This looks like a very good starting point. Education is a major aspect of what this arts centre provides.

I appreciate the feedback.

Is there a specific value proposition that the organization would like to find a way to monetize or support through alternative profit centres rather than rely on grant funding? I suspect the organization wants to remain in the business of being a community theatre and arts centre - what does this mean to the group? I believe this starting point will reveal both opportunities and constraints in your search for a solution to the loss of funding. 

I am currently working on a project to create a music education business that will cover its direct costs and then generate enough surplus revenue to pay for the utilities and upkeep that would need to be paid regardless of whether or not the space was used. The organization purchased a building and their own needs do not require the basement level. I am currently at the point of starting to test the various hypotheses that underpin our business concept and model. 

Hey Steve, been a while.

Would really love to see your thinking on this, if you are willing to share. It would be interesting to look at a canvas with BM, or the key hypotheses identified, and how you would go about testing some of the ideas.

 

Hi Mike. 

I guess unlike most businesses we didn't have an idea for a value proposition or a specific customer segment in mind. We had an element of infrastructure - a building with about 5300 sq ft of space. and a design constraint of community access as demanded by the zoning. 

The new owner of the building is an arts type organization that runs a significant performing arts event in the city. They have significant brand recognition in music. 

The first concept was a music performance venue. But the space was felt to be too small to generate enough revenues to cover the costs of production and promotion for each event and contribute to the ongoing utilities and upkeep of the facility. Our financial goal is to at least make enough profits to cover the utility and maintenance costs. 

We became intrigued with the idea of music education. That the space could be re-worked into small studios for private, semi-private, and small group lessons. That we could leverage off of the brand recognition of the owners. 

We found a not for profit that uses a similar model and we have looked at creating a model that would provide 70% of the revenue from private and semi-private lessons - which is the dominant form of lessons in this industry. And 30% of the revenue from group and special activities and events. We believe the facility should become a hub for students, teachers and musicians and form its own community. 

We have a good idea of current fees for music lessons and we were able to determine the break-even point and that we could create enough inventory of lesson times to meet that point and more. What we do not know is the customer segment sizes. Are they substantial enough to meet these break-even points and beyond? We believe we need a few different segments including - new students such as children, youth and adults in the "learn to play" category as well as more intermediate and advanced musicians. We are also looking to keep the facility operating in the day time, evening and weekend hours by looking for segments that would match to those service delivery times. 

The model also relies on independent music instructors as staff. The question is - will the revenue sharing model of 60% of the lesson fee be attractive to these instructors? And, will the current students of these instructors book their lessons through the new venture?

To manage the bookings - how can we make this accessible to students without having to incur significant staffing costs for coordinators or customer service staff. How much can we automate the relationship and what technology exists to do this?

@Steve thanks for sharing.

@others reading this post. I love the prototyping Steve's group has done to experiment with different approaches to the core vision of the business.

Core vision: music education enabled through a physical space

Viability: analysed similar business model for other organization, looked at basic cost and revenue relationships

Potential segments: in new, intermediate and advanced music learners

BM1: shared revenue model with instructors

BM2: standard teaching model relying on multiple revenue streams

BM3: multi-sided platform, providing infrastructure for teachers and students 

It would be great if there were canvases for each of these business models to highlight how these approaches would differ.

The analysis of each segment could be done using the Customer Value Canvas (CVC) Alex has recently released (see blog and post in forum).

My question has created an interesting discussion and thank you all for your responses.

I conducted a workshop yesterday with the organisation and what struck me was the complexity of such an organisation. The challenge is balancing social obilgations with revenue generating events. I also found a wide array of customer segments and value propositions. My personal view is of an organisation trying to heed too many demands and not having the resources to excel in any one activity.

The grant aid(50%) influences the decision making and does not lead to commercial outputs. The day certainly brought this reality to the fore.The afternoon session generated many innovative ideas and these were funneled into action plans. One of the guiding criteria set was that any innovation pursued had to have a compelling commercial justification and be self funding. I was pleased to see this message being promoted.

Also of interest was the lack of commitment to reducing any current activities to create space for the new actions, With limited resource it is difficult to see progress on the action plans without some dilution of current offerings.

A pleasing outcome was the great engagement that the BM canvas created and all who were involved were fulsome in their praise for the BM as tool to generate thought, debate, and decisions. We also used the Four actions framework to give some structure and guidance in the afternoon session which focussed on innovation.

Of note Stephen was that many innovations proposed revolved around education and using the box office as a shared facility for local events. The other point of focus was connecting with local tourism agencies to generate additional footfall.

Hopefully this feedback leads to some further discussion.

You are not alone in this conundrum of the organization trying to have its cake and eat it too. In my opinion the pain is not deep enough yet to open everyone to the degree of change that may be necessary. At the cerebral level they recognize it but in their hearts they are not ready to accept it. 

I have seen and worked with organizations that seek to change their funding model because they have actually lost the ability to find new sponsors - if they ever had it in the first place. It is like an organization that has so much recurring revenue that they no longer have the capability to sell and acquire new customers.

I also believe that many organizations see their funding as annualized and not fiscal despite the fact that the grant has to be approved year after year. I don't necessarily agree that switching to for-profit programming is the solution to a sudden change in the funding stream. I don't believe the business model is broken but rather that the business and revenue model has not been understood for some time and as a result the organization has not built or maintained the resources that underpin the model.

To make matters worse, boards seek out professionals in accounting, law, HR, or contacts in the not for profits industry to provide support to the organization. But rarely do you see a not for profit board seeking sales professionals, entrepreneurs or even senior managers with profit and loss responsibility to fill its ranks. Nor do many boards seek out fund raising professionals until they are needed and then the organization lacks the internal capability or capacity to fund raise or support that individual.

But I do agree and advocate that these organizations need to diversify their funding streams much like a for profit business does. But they need to do this long before there is a funding crisis.

Great points Stephen.

I have worked with n-f-p organizations for more than 25 years (15 as staff at a national organization), and I concur with your identification of a major issue.

One of the failings of these organizations is the realization that sponsors, and funding bodies, are client segments same as the ones to whom you deliver products and services. One has to understand the value proposition for each of these organizations getting involved with you. For the most part, companies do not sponsor you simply because they like your organization (recognizing there are some situations where this happens). There has to be a captured value they get in return, perhaps access to your members or subscribers, perhaps public profile they can leverage with their customers, an so on.

I have worked with a number of community organizations where the biggest challenge was to get them to identify what they do that is of interest to advertisers, funders and sponsors. Then making them focus on that as a separate concern from what they deliver to the users of their products and services.

One of the organizations I worked with, by understanding that dynamic, were eventually able to ween themselves away from dependency on government funding. By creating programs funded by users and advertisers, they were able to lessen the grant dependency to where the government was no longer dictating how the organization had to run its operations.

Philip;

You have hit on a number of issues that are particular to the not-for-profit (n-f-p) space. These organizations exist in a third party pay structure, wherein party A pays the organization to deliver services (or products) to party B. So often the revenues don't come from party B. The captured value from B is data confirming the impact the organization has had, and justifying the funding from party A.

A n-f-p organization has to recognize the funding body is a client segment unto itself and understand the value proposition (vp) that is the basis of the funding. Then, the organization has to look at each of its potential customer segments to understand the vp for that group.

The tough part of this equation is when the clients to whom services are delivered want things in a way that is different from the way the funding body wants it delivered, as you mentioned in your post.  I experienced this with the Federal Governments Grants programs where the government creates program demands that are counter-intuitive to what the clients of the organization want to see. The organization is challenged to balance the two perspectives, and design a vp that can meet both sets of requirements. One approach is to develop self funded programs that avoid the issue.

You have also hit on one of the great challenges of innovation, creating momentum around change, and the reluctance of people delivering existing programs to accept change. This is why the first phase of innovation, mobilization, is so important. In particular creating support and understanding in the senior decision makers.

Thank you for sharing this very interesting topic.

One idea I had was to take the new plug in Alex created for value proposition/customer segment and use it just the same but between key partner (funders) and the value proposition. I was thinking that this might keep the "customer segment" cleaner and then clearly show the complexity it adds to the value proposition. 

When I draw my models of n-f-p's I tend to separate the funding from the revenue streams and put it in as a key resource and then make mention of it either as a revenue stream (if unrestricted) from key partners or as a "positive" entry on costs if the funding is specific to covering all or a partial amount of a specific cost.

Interestingly while picking up a book at Chapters last night for my son and I to read together I had a book in my hand "Uncharitable". I ummed and ahhed a few times and put it back as I really did not have time last night or today to read it (and I can't seem to put stuff aside to read later...) It seems to look at some of the issues mentioned above along with others that frustrate me in non-profit charities.  I think I will stop and get it. 

Some great insight to the thoughts you guys have given this, thanks. 

I sit on the board of a n-f-p organisation (just started last year) and am recognising some of the issues that are being mentioned in this thread. So I can now take these forward and discuss them with the other board members.

In addition I have also been looking at a community programme, to save an old cinema building and turn it back into the Hub of the local community. However, it is going to take a large amount of initial funding followed by a steady income and no doubt part of the funding would need to be grants etc. But what we have looked at for the model is making the space as flexible as possible so that it appeals to the widest possible audience. We also want to target a very varied audience, so that it really does meet the needs of a community and have a chance at seasonal income throughout the year. So my point is, I think you can try and be all things to all men if you are creative in the use of the space and in the way that you market and sell that space. 

Fascinating discussion and I wish you well.

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