The ingredients of successful business models: Part 1

How can arts and cultural organisations develop business models that provide new revenue streams and enable them to achieve their missions more effectively? It’s the 64 million dollar question many of us are asking at the moment and earlier this summer I was fortunate to be commissioned by MMM to interview a range of people leading successful arts and cultural organisations around the UK to find out how they were transforming their models – as part of the wider Capital Matters project.

Working closely with fellow independent consultant Holly Tebbutt and Rohan Gunatillake from MMM, we talked to senior managers in 27 arts and cultural organisations with annual turnovers between £500K and £5 million, in the museums sector, visual arts and performing arts about how their model had evolved and how they’d achieved change in their organisation.

Over the next couple of weeks I’ll be sharing some of the findings and key issues arising from the research through this blog.

Our headline findings are summarised below:

How are business models changing?

Business models are changing in many ways, and often several aspects of the organisation (its programme, how it reaches it audiences, its financial strategy) are changing simultaneously.

The main ways in which business models are developing to become more resilient include:

• Increasing levels of partnership and collaboration
• Increasing mission-related income
• New models for, and increased levels of, user-engagement
• Efficiencies and reduced fixed-costs (buildings and staff).

In terms of increased income generation, the main developments are:

• Property-based development – either income streams from property (e.g. hiring out spaces) or contract income for managing property for other organisations
• Delivering public services under contract with the public sector
• Consultancy and exploitation of intellectual property (IP)
• Mission-related trading (e.g. charging of fees for services, introducing ‘social enterprise’ activities).

There is a strong bias towards approaching all trading as mission-related and interest in ‘social enterprise’ models. This is very significant for some organisations, while for others the emphasis is more on being ‘enterprising’ in a broader sense.

What’s driving change?

Key drivers of change to ACO business models are responses to artists’ and audience needs. Financial imperative (including in several cases financial crisis) is the other main driver behind why organisations are developing more resilient business models.

Technology is enabling development of new models, and its impact can be felt both behind the scenes and in the public presentation and distribution of work. Its impact around understanding audiences and offering new ways to engage with them is particularly strong.

Developing more resilient business models is having  a significant  and positive impact on many of these organisations. Benefits are often multiple and are being felt particularly in terms of:

• Increases in  profile, which in turn enables greater income from trading and fundraising.
• Increase in audience reach – in terms of numbers, demographic diversity and quality of experience.
• Increases in quality, flexibility and level of programming.
• Increases in earned income.
• Improved stakeholder relationships.

A number of features were repeatedly cited as being critical to the success of the business models of this group of organisations. These include:

• A strong customer/audience focus
• Effective leadership and governance
• Distributed artistic leadership
• A strong brand or organisational culture
• Strong commitment to measurement of impact or outcome of activity and development of effective methods for doing this
• Flexibility in staffing structures
• An entrepreneurial culture.

Volunteer involvement is a significant aspect for many organisations: particularly in the museums sector where it is both a strategy for delivering the learning objectives of the institution, and a valuable way to increase staff resources. In this sense volunteers can be said to represent a key ‘intangible asset’.

Barriers to development of resilient models include funding practices, skills shortages and occasionally staff attitudes.

The potential to monetise IP is yet to materialise in any significant way, and the culture of open and user innovation – which many organisations are embracing – presents particular challenges in relation to this.

Following consultation on our draft report during September and early October, the Capital Matters report and recommendations about how we want to see the funding and finance policy framework change will be published later next month.