Maud Lyon
Business structures are one thing; business models are another. For all nonprofit arts and culture organizations, there are six sources of revenue: Gifts from individuals; gifts from corporations; foundation grants; government support; earned revenue (tickets or sales, fees for service, rentals, etc.) and investments (including endowments).
Your business structure establishes a foundation and sets the stage. (For all the charitable support, being a 5o1(c)3 is essential. An LC3 would focus more on earned revenue.) However, your business model is the mix of those six sources. Cultural organizations are not all the same – they have a number of different business models, all within the 501(c)3 structure. Each drives different behavior and requires a different attitude. As a thought-starter, here are five ways to think about it. In our experience, most organizations have a mixed model and are not purely one or another.
1. ENTREPRENEURIAL
More than half of your revenues come from your customers – through admissions, gift shops, rentals, catering, or other services you provide. These organizations are customer-driven, market-sensitive, and constantly track revenues to see what is working and make mid-course adjustments to follow trends. These organizations have a high proportion of earned revenue.
2. GATE-DRIVEN, DONOR-ENHANCED (TICKET SALES AND PHILANTHROPY)
Your organization has two primary sources of revenue: ticket sales and contributions. Donations are made to help you maintain high artistic standards. Most performing arts organizations are this model. These organizations rely the most on earned revenue and charitable revenue.
3. COMMUNITY SERVICE FUNCTION OF A PARENT ORGANIZATION
Your organization is a subsidiary of a parent organization, which supports you as a community service or outreach function. The parent organization may fund staff, own and/or maintain buildings, provide HR, legal, accounting services, or other organizational support. This includes organizations that are part of government and those run by private organizations, such as universities. In this model, the role of the arts organization is to be a bridge between the community and the parent organization, providing exhibitions, programming, or arts education as a public service. Many of these organizations have artificially low operating costs, because the parent provides that support; and often applying for grants is more complicated because it has to be mediated through the parent.
4. MISSION-BASED PHILANTHROPY
The constituency that you serve cannot pay you (or can only pay a token amount), but philanthropic donors who want to help those constituents fund you to as a way to deliver the service to them. This is especially true of arts organization focused on youth development or at-risk populations, or one which uses the arts to draw attention to social justice issues. Your case is not just the arts, it is about the effect of the arts on the beneficiaries.
5. COMMUNITY ENGAGEMENT AND VOLUNTEER DRIVEN
The work of your organization is largely done by board members, members, and/or volunteers who believe in your mission. They do this because their own lives are enriched in the process, and/or it is a way of contributing to their community. This is the model of most grassroots organizations, where there are few staff and the board members take very active roles in program planning and delivery, like a community theater or a local historical society.
Are there other models I’m missing? Share them in the comments section below.