Thursday, June 19, 2008


Like many people I know, I do my most productive thinking while attending to menial tasks like driving, walking the dogs, or mowing the lawn. The tenor of my thoughts tends to reflect the type of disengaged activity I am doing at the time. My most ambitious thoughts occur when I am mowing the lawn and, with each pass of the mower, my mind expands in orderly progressions until I have cleaned up and straightened out all the problems of the world.

I tend to think about how to improve community life in Vermont when I walk the dogs. Hubbard Park is a beautiful setting, my dogs bound freely through the woods and greet each newcomer as old friends, and without any effort, my mind starts to ponder how the arts might continue to build that intangible thing called “social capital.”

It should come as no surprise then, that as I attacked my moldy basement with rubber gloves, plastic bags, a respirator, and some bleach, my thoughts turned to an increasingly dark and depressing place: the state of the arts in Vermont. Or more accurately, the state of the arts sector.

The arts themselves, if you ask the average guy in the street, appear to be flourishing. A lot is happening all over the state, from world-class music festivals to folk-based arts, crafts and food fairs, to exhibitions and local farmers markets, and history expos and historical reenactments, all of which feature some aspect of Vermont's prodigious creative output. We're ranked 4th in the nation in per capita amount of artists living in the state, and 1st in the nation for writers living here.

But the sector itself, particularly the organizations that are responsible for curating, presenting, preserving, and sustaining Vermont's artistic and cultural legacy are more fragile than ever.

This is a subject that many people, including me, have written about in the past. Baumol and Bowen in the mid 1960s were among the first economists to articulate the theory behind the inevitable decline in arts organizations due to their overwhelming reliance on human labor, the cost of which, over time, would geometrically out-pace an organization's arithmetic income-producing capacity. They forecast an inevitable "Malthus/Keynes v. Arts Organization Tag-Team Smackdown on Pay-Per-Vue" only we didn't really want to believe it. Well, start believing.

In case I haven't been this clear before: the sector is due for a shake-up—which may not be a bad thing. Ours is a mature field with many mature organizations (generally considered to be organizations that are at least 25 years old ). In the for-profit sector, where maximizing corporate profits rules decision-making, industry shake-ups occur regularly, if not frequently. Whole industries have been established to support this relentless drive towards economic efficiency and profitability. “Mergers and Acquisitions” are a subset of the banking and legal sectors. Bankruptcy is a great tool for capitalists, ensuring that the weak are culled from the herd as painlessly and efficiently as possible.

But in the not-for-profit sector, where virtually all organizations are mission-driven, and the profit motive is secondary (or in some unbelievable cases, nonexistent!), M&A and bankruptcy are incomprehensible alternatives. Why? If you peel away all the motivating factors it comes down to two things. First, boards and executives of not-for-profits (the former of which are almost always volunteers) don't want to be part of what many of their peers will consider a “failure”--the dismantling or reorganization of a charitable organization. Second, there are almost always a few very vocal community-members that, when their favorite charitable organization is threatened, reach into the deepest part of their hearts and rally just enough support to avert an immediate melt-down. Organizations who have, perhaps, outlived their original mission purpose, or that are so inefficiently managed that they are unsustainable, are thus allowed to survive for yet another year, operating at reduced capacity, with an ever-increasing bank of “ill-will” from suppliers, vendors, creditors and, yes, upstart competitors with newer, more efficient ideas.

If I'm right (and remember, I'm cleaning my basement here), how do we deal with this?

First and foremost, we have to change our mindset: We have to be PROFITABLE!!!

We have to re-examine our business model. We have to do a SWOT analysis to determine who the competition is and who our potential collaborators are. We have to get comfortable with adopting many of the practices of the for-profit sector in terms of devoting a significant percentage of our operating budgets to marketing and promoting our products and services. A quick scan a few years ago revealed that only a few organizations spend more than 15% on this expense, and most spend 5% or less. Why? Because "every extra dollar must go to program" --a phrase which has to be excised from our policy mind-sets.

Boards have to think of the resignation of an executive as an opportunity not just to stop and do a massive, national search for his or her replacement, but to consider—CONSIDER—reaching out to the arts organization up the road to see if it might be a good time to think about merging your two operations together.

We have to stop letting our administrators excuse or explain away a bad year by saying “but that's how we've always operated. This year it just didn't work!” We have to insist on professional development for managers so that at the very least, they can understand what their own financial statements are telling them about the health of their operations.

A colleague of mine in another part of the country had to tell a constituent why his operating grant had been severely reduced. In his first year as the director, the constituent had racked up a $500,000 deficit. To his credit, he had changed his management plan and for the subsequent four years, he had run a small, but positive annual fund balance (profit). To his own thinking, the director had a 4-1 record, four profitable years, and one (VERY) unprofitable year, and he couldn't understand why the grant review panel had cut his grant so much.

My colleague had to explain to him that his metaphor was wrong. His record wasn't 4-1. He was still in the same ballgame in which he had gotten behind by 500,000 runs in the first inning. At the top of the sixth inning the score was still 500,000 to 12,000. No for-profit would have carried that kind of deficit for that amount of time, and it was clear to the review panel, that this condition was severely cramping the organization's ability to fulfill its mission.

That's the mindset we need to be adopting.

And speaking of mindsets, I can't wait to be done with my basement and get back to walking my dogs and mowing the lawn.

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