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"Not-for-profit" does not equal badly run

I was going to write about some of the new ideas on ticket pricing and financial models in the orchestra industry right now, but as I sit down to it I find myself wanting to begin with a few words about what “not-for-profit” means and why American orchestras are “not-for-profit” organizations. 

Why is this important?  The readers of  “Backstage Pass” come at it from different places; some are subscribers, some are volunteers, some are musicians.  What we have in common is our passion for the shared experience of live orchestral music. Think of how the Orchestra sounded last month playing Beethoven’s Symphony No. 7, or October’s concert with Copland’s Billy the Kid.  I want to make sure people in Tacoma are always able to experience this, and I bet you do too! 

If you pay attention to orchestra news regionally or nationally, you know that many orchestras are struggling in this economy.  To date, the TSO has remained relatively stable, a testament both to the hard work of our Board and the support of our donors.  It is important that everyone who cares about the orchestra understands that constant, unremitting vigilance is the price of continued stability. 

The new visioning taking place at the St. Paul Chamber Orchestra and elsewhere is of interest because there are elements relevant to Tacoma that might affect our future planning.  But in order to appreciate why these new ideas are important, we need to first understand the existing model.

Many people misunderstand the nature of not-for-profits and the reason why they are always asking for donations.  There is a misperception that we are all rather badly run, that we’re always out “begging” for dollars, and that if we would just operate “more like a business” we wouldn’t need outside support. 

This is why our sector stopped calling itself “nonprofit” and adopted the phrase “not-for-profit.”  These organizations exist not to make a profit but to provide a needed community service – one that is not provided by either the government or for-profit sectors.  Most aren't sustainable by “earned revenue” alone (for the TSO read “ticket sales”) but cover a portion of their operating expenses through “contributed revenue” (donations).

In our society, economic progression is a constant factor, and to remain competitive for-profit businesses continually evolve ways to increase their productivity and efficiency – to produce more for less.  Those that do this well succeed; the rest fail.  In the ‘50s and ‘60s, for example, the jet airliner made possible cheap, fast air travel and the interstate highway system made possible cheap, fast auto travel.  Passenger rail service, by comparison both labor- and time-intensive, had no hope of competing with this new transportation economy and rapidly disappeared. 

My purpose is neither to denigrate nor defend this system, but to point out that even the best-run symphony orchestra has zero prospect of keeping up with the economy in the way of a well-run for-profit organization.  It takes as many musicians to perform Beethoven’s Symphony No. 7 today as it did in 1812.   The result?  Over time, expenses rise more quickly than revenue.   200 years ago concerts were largely sustained by ticket sales; today it covers only a fraction of the cost (in the TSO’s case, about 30%).

The model is different at other not-for-profits, but the basic premise is the same.  Well-run not-for-profits keep their mission front and center, budget realistically, and plan far in advance for where their revenue is coming from – how much is likely to come from “earned” sources and how much will have to be raised philanthropically.  In order to be successful you have to raise enough to break even annually on a regular basis, as well as put some by for the future in the form of reserve funds and an endowment. 

In upcoming posts, I’ll talk about the “best practice” financial model that has evolved in the American orchestra industry and how organizations like St. Paul have decided that it no longer works for them and are pioneering a new one.   We’ll look at how the TSO is doing relative to the old “best practice” model and explore how the new model might or might not translate to us here.  I look forward to your responses and ideas. 

Why is this important?  Because in this rapidly changing economy, our shared passion for the Tacoma Symphony Orchestra’s mission requires not only constant vigilance, but smart, innovative thinking. 

Only this will ensure that people continue to have the opportunity to gather together in downtown Tacoma – for the shared live experience of great works like Beethoven’s Symphony No. 7.

Posted on: Dec 03 2010 11:16 AM by Andy Buelow