The Art of Business
It is a issue that students in the fine arts and performing arts usually have no business coursework. This means they graduate with degrees in art conservation, theater, dance, or visual arts and then what? They could look for a low-paying internship or fellowship, but that is really a temporary fix, if they want to eventually retire they will need a pension plan or a 401K and those are not offered to those type of temporary employees. They are left with the option of going into business for themselves, and that is a complicated prospect. To learn how to be a successful entrepreneur is something business schools have been teaching for years, and current arts graduates must teach themselves this skill entirely on the job.
I attended a lecture at Arizona State University a few days ago, Reinventing the Business of Charity: emerging alternatives to traditional non-profit business models. The lecture was supported by p.a.v.e. - the performing arts venture experience, their mission and vision, taken from their website are:
Mission
The performing arts venture experience paves the way to the future of the arts by investing in student innovation and creativity, supporting arts entrepreneurship education and undertaking entrepreneurial activities.Vision
p.a.v.e. focuses on educating students, artists and educators about how the principles of entrepreneurship can support the development of creative opportunities for artists of all kinds.
The lecture I attended is part of a series supported by p.a.v.e. and the lecturer was Adam Huttler, founder of Fractured Atlas, a group that offers artists and arts organizations tools to help them function more efficiently. He began his lecture by saying that there are a lot of problems in the way the arts are funded in America, he doesn’t have the answers to how to fix these problems, but he does have a number of very interesting questions that would give more insight into these problems.
1. 501(c)(3) non-profit organizations are excessively complex which creates barriers for small entrepreneurs
2. These organizations have no stock, which is the capitalist mechanism by which employees and board member participate in financial success. They cannot profit, but employees and board members can still be fired if things go badly, this breeds extreme conservatism because there is no reward for taking risks.
3. Non-profit organizations are almost all undercapitalized, which means they rare accrue reserve funds or build flexible working capital. Surplus budgets are frowned upon, managers are unwilling to undertake new projects without 100% of the funding in place, and investment in long-term value is rare which means non-profits are not building infrastructure.
Currently, the solution to these three problems is to find funding from grants, which creates 2 problems
1. Who’s your customer? If it is your audience, the consumer of your art, teaching, etc. doesn’t give you the money to keep your doors open you are more likely to listen to your funders and meet their requests instead of your customer.
2. What is your relationship with your funder? Foundations know that your non-profit relies on their money to keep your doors open, not a very good relationship for either the non-profit or the foundation.
Maybe a tradition non-profit is not the correct model for what you want to do?
501(c) organization
- Intended to be a perpetual entity - outlive the founding members
- The corporation owns all intellectual property
- There cannot be any investors
- They have different and very complex reporting laws, especially about tax deductible donations, operating expenses, accounting rules, AND they are ineligible for any small business incentives.
However, even with these barriers, since 1998 the number of 501(c) organizations has doubled
- This is when a non-exempt entity is “sponsored” by an exempt organization
- Grants and contributions can be made to the sponsor on behalf of the sponsee
- A project can be temporary
- This may allow for donors or investors
- The ownerships of the work stays with the artist
This is the model that Fractured Atlas uses, and I believe they sponsor more projects than any other source in the USA. This model is appealing to me because of my interest in contemporary art and artists, this would provide artists a way to have financial support from a non-taxable entity for the creation of their work.
- Low-profit limited liability company
- Profit is secondary to charitable goals
- This is legally allowed in 8 states and amongst 2 tribal nations
- This is to attract program related investments, from foundations to further purposes, there can be a 5% disbursement on the investment to funders and it is possible to have loan
- This is a new business entity so there is no legal casework about how this will be enforced
- This gives more flexibility for the organization, but this does not have tax deductible status, and the organization cannot apply for grants or donations
The speaker closed with a few ideas about how arts organizations over the past few years have begun professionalizing, going from small staff and volunteers to larger staff and many departments dedicated to a variety of purposes (marketing, fundraising, donor relations, etc.). He generally questioned if these departments are all necessary, or if these large institutions have begun to shift in their mission from creating art to maintaining themselves.