What Philanthropy does to the Arts Business Model

You would be rightly outraged if you discovered that Focus Ireland charged a homeless person for their services; and you’d probably take to the streets with pitchforks and torches if Concern Worldwide started charging famine victims for food support services.  Such behavior is completely contrary to the principles of charity and works against the very heart of what we understand as philanthropy.

And yet this is precisely what arts organisations are asked to do: charge our end users for our services, and then ask them for charitable donations. This is like Focus charging a homeless person for their services and then asking them for a contribution!

Every arts organisation has experienced this absurdity. As a potential donor once said to me “My partner and I spend a €1000 each a year on tickets, our tax contributes to your grant, and you want me to give you more money?” Its a good question: either charge the necessary price at the point of consumption or make everything free at the point of use because its a public good. But there’s a sleight of hand about arts being both free and commercial, both public good and wealthy private interest that – interestingly – goes to the heart of questions on value and inequality. 

This conceptual sleight of hand means that securing philanthropic support for the arts is different – very, very different – from securing it for “real” charitable causes. This difference means that if your organisation commits to securing philanthropic investment then your Business Model will need to make some very, very fundamental changes.

I find it really useful, when designing strategies for clients, to spend some time teasing out the difference between end users and customers.  A customer directly pays you money for your goods and/or services; an end user consumes your good and/or service.  So, for example, when  a gallery or museum is free to the general public, then the public are end users and we have to identify who the customers are? To whom are we selling and what are we selling to them? When we run a children’s theatre company, for example, we need to remember that the children are the end users and the customers are Teachers, Parents, and – if we’re lucky – some funding body.

If 50% or more of your annual income is composed of a national funder and/or a significant sponsor or a small number of significant donors then the power of the funder, sponsor, donor is significantly greater than the end users who collectively contribute the balance of your revenue. 

A rule of thumb is to ask yourself, what single person or organisation can shut you down by withdrawing their business? The answer to that question will tell you – in business terms – who your principal customer is, who you have to keep happy, and the depth of your dependency.

In terms of your business model it means that you understand and accept that your customers are the funder, the donor and the sponsor.  Finding these customers, identifying their problems and needs, and developing products and services that solve their problems and meet their needs is what you do: this becomes your business model. Your audience of end users become a resource, a part of the product that you sell to your customers. What is being sold to these customers is your audience and your impact on that audience. Give me  x amount of money and every child gets to play an instrument, would you like to see that?; Sponsor our gallery and you and your clients get to party with our all our grateful artists and audience, would that be of value to you, etc. etc. Give me that grant and we’ll reach a previously excluded audience, does that meet your strategic goal?

So long as your values are the same as your principal customer (funder, donor or sponsor), so long as you continue to create products and services that they want and are valuable to them, then your business will thrive. However, you remain vulnerable to their shifting priorities, needs and objectives.  So long as we’re all on the same page we’re fine. But don’t expect Denis O’Brien to sponsor a participatory event on the life of James Connolly.

Raising Philanthropic money for the arts gets even more complex when we realise that – in many cases – we are asking people who already pay for our services (either through tax or ticket purchases) to give us additional money.  Makers of policy and advisers on fundraising would have us believe that we are in the same market as international relief charities, medical charities, homeless charities etc. And we’re not. The majority of our end users are already economically privileged and it can be effectively argued that those who not engaging are doing so by choice. And these  are real challenges arts fundraisers have to overcome. 

Developing a philanthropic programme for an arts organisation requires a fundamental shift in the business model in terms of who you identify as customers and what it is you’re selling to them. It requires that you instrumentalise both your art and your audience. It means that you need to be able to justify your work in terms of the aims, objectives and values of the donor, sponsor or funder.

The only point I am making here is that its important to be clear about the nature of the transaction. Know who you’re selling to and what it is you are selling to them. The same principles apply to state funding under current thinking. Departments and agencies have strategies and the client organisation is funded to realise elements of those strategies. As one wit recently put it, the creativity will continue until morale improves.

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One thought on “What Philanthropy does to the Arts Business Model

  1. Thanks for this John. It’s depressing but true. For me the Arts Business model is pretty anti creative because it runs In the other direction to creativity. I remember well in the 90s having an irate call with a rich philanthropist who had not read the play I sent him, did not want to help financially, but DID want us to do a play the subject matter of which I found extremely questionable. I always remember him saying rather waspishly, ” you see you have a problem. You want some money from me to do a play, but I don’t want to do that play, I want to do something else and I will give you money for that.” I remember telling him that I thought this was outrageous and not philanthropic at all, and he was only fooling himself that he was a philanthropist. Needless to say, the call ended badly. But I did get the money from somewhere else. But it is an ugly thing to have to do this kind of haggling.

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