Go Big or Go Home? Fixing a Broken Business Model
When people inside an organization either can’t or won’t confront the reality of their business model, bad things tend to happen.
Symphonies and orchestras are having an increasingly hard time balancing their P&Ls. Here are two unfortunate but typical recent stories detailing these challengs, about the Green Bay Symphony Orchestra and the Delaware Symphony Orchestra.
It’s because people don’t care about those genres anymore, while costs just keep going up, right? And with little to no government involvement and a donor base that’s either shrinking or no longer interested in the arts, it leaves little margin for error.
I’m not saying that’s NOT true. I’m saying that it doesn’t have to be the determining factor. The great thing about a P&L is that it has both the “P” (profits) side and the “L” (losses) side. Put another way, it has both the revenue side and the cost side, and someone responsible for results has the power to manipulate both sides. To avoid bankruptcy, collapse, disappearance, whatever, all you have to do is keep working on both sides until the number at the bottom of the page is no less than zero.
In the long term, breaking even isn’t good enough, but once you’re at that point, you’ve got time to figure out what comes next.
What I observe from many arts organizations when they’re under stress is one of two approaches to the P&L:
• Keep the fundamental cost structure essentially the same, with some relatively symbolic cost cuts. This approach does nothing to change the fundamental brokenness of the business model and is almost always followed by another round of equally ineffective cost cuts. Eventually, you hit an artery and bleed out.
• Cut everything and beg like crazy for someone to “save” you. The problem with this approach is that just at the moment you’re reducing your actual capabilities, you’re also asking people to dig deeper in support of your reduced state. It might work once or twice, usually with a wealthy person who’s nostalgic about past glories, but there’s no future in this strategy. This doesn’t fix your problem either, though it’s better than going out of business.
The term “business model” is thrown around a lot, and it can mean just about anything you want, but here’s a way of thinking about it that might help. A business model is an organization’s system for spending money that breaks even or comes out ahead almost all the time. If your business model is unprofitable by default, it’s a broken business model. If your business model makes money eight out of 10 years and those two years’ losses are relatively minor, the business model may still be sound.
It’s possible for a symphony or an opera to have a sound business model, but approaching a broken one either of the two ways above will not fix it.
There was a business model in the arts that lasted for most of the second half of the 20 century that involved season subscribers, local talent, big money donors (including major corporations) and print and outdoor advertisement, but that business model, even after being tweaked and tweaked and tweaked to try to keep it alive, is now broken. It doesn’t need tweaking; it must be replaced.
It’s not a choice between “go[ing] big or go[ing] home” as one musician in one of the recent disputes said or reducing the organization to a shadow of itself and somehow soldiering on in desperation. If “going big” means spending as much on the same things, then the organization will, probably sooner rather than later, “go home.” Nike T-shirt slogans don’t usually make good management strategy, and this is no exception.
Then again, cutting the things that make you succeed, the things that actually produce value is akin to partial suicide. You could save a lot of trouble for everyone and just finish the job in one cut.
So what do you do?
You start from a baseline of zero. Zero activities. Zero dollars. Assume nothing. What produces value and what costs money? If a business model is broken, something real is going to have to change, but it might not be what you think. It could be on the income side or the cost side, and it will probably be on both. It’s easier to meet in the middle that way, anyway.
The P&L isn’t a topic for times of desperation. It’s an everyday topic. It’s reality and something that grown-ups with a stake in the future of any organization should be able to discuss.
Especially, but not only, when times are tough.