{"id":1064,"date":"2016-12-15T13:38:47","date_gmt":"2016-12-15T18:38:47","guid":{"rendered":"http:\/\/www.icsom.org\/senzasordino\/?p=1064"},"modified":"2018-02-28T16:53:38","modified_gmt":"2018-02-28T21:53:38","slug":"whack-a-mole-with-the-new-business-model","status":"publish","type":"post","link":"https:\/\/www.icsom.org\/senzasordino\/2016\/12\/whack-a-mole-with-the-new-business-model\/","title":{"rendered":"Whack-a-Mole with the New Business Model"},"content":{"rendered":"
\"Photo

Photo credit: Myra Klarman<\/span><\/p><\/div>\n

\u201c<\/span>The business model is broken.\u201d
\n\u201cWe need a new business model.\u201d
\n\u201cWe must totally rethink our business model.\u201d<\/p>\n

Those words should strike terror in the hearts of symphony orchestra musicians. When managers or board members start using that terminology on a regular basis, musicians should know their next CBA negotiation will be difficult. Cuts will almost certainly be on the table.<\/p>\n

But what do these buzzwords actually mean? After all, as ICSOM delegate Greg Mulligan (Baltimore Symphony) put it succinctly in an Orchestra-L post years ago, paying musicians less and cutting their benefits is not a \u201cnew\u201d model\u2014it\u2019s actually a very old model. So is there something more to it? Something we\u2019re missing?<\/p>\n

Not really. The \u201cbusiness model\u201d of a symphony orchestra, like any non-profit, relies on three revenue sources: earned income (mostly from ticket sales, but sometimes with additional income like hall rental revenue if the organization owns its hall and has figured out how to monetize it); contributed income (i.e., fundraising); and endowment income (the \u201cdraw\u201d). Some orchestras are still fortunate enough to receive some government funding, but that is increasingly rare.
\nOn the expense side of the ledger, the biggest category usually is orchestra salaries and benefits. (Which is as it should be, given that the purpose of the organization is to present .\u00a0. . an orchestra. Yet in some organizations this expense is a surprisingly lower percentage than one would think.) At the end of the year, expenses must match revenues; if there is a deficit, it must be made up.<\/p>\n

It is how that deficit is made up that informs the \u201cbusiness model\u201d discussion, and it is all about the second category of revenue: contributed income. In a typical orchestra, the bulk of contributed income is labeled the \u201cannual fund\u201d, which consists of what management deems to be repeatable gifts that the orchestra can expect to receive with reasonable certainty (if it has a healthy-functioning development department, which isn\u2019t always the case).<\/p>\n

But just about every orchestra engages in additional fundraising beyond the annual fund. This is usually labelled something like \u201cspecial funding\u201d, \u201cextraordinary gifts\u201d, \u201cgap funding\u201d, or \u201cbridge funding\u201d. It represents gifts or pledges that are often large, sometimes one-time-only (but not always), and are separated out from the annual fund on the financial statements. Essentially, \u201cspecial funding\u201d can encompass any kind of fundraising activity that isn\u2019t part of the annual fund.<\/p>\n

In many orchestras\u2019 budget plans, special funding is baked in. That is particularly the case where an orchestra has adopted a long-term plan to eliminate persistent operating deficits. (I will not use the term \u201cstructural deficit\u201d, because there is, in fact, no such thing in a non-profit; but that is the term managers like to use.) A typical plan in this vein has three main components: (1) long-term, healthy annual growth in earned income and the annual fund; (2) expenses that grow at a rate less than the growth rate of revenue; and (3) increases to the endowment draw by increasing endowment assets (often through a capital campaign). Over a long-enough time frame, deficits gradually shrink and are then eliminated.<\/p>\n

But the key to the plan is what happens in the meantime: special funding must be secured. This is where special funding is usually labeled \u201cgap funding\u201d or \u201cbridge funding\u201d, because the idea is that these gifts \u201cbridge\u201d the \u201cgap\u201d to the promised land of a deficit-free future. That future is the selling point to donors when management seeks the gap funding: \u201cHere is our plan. It eliminates deficits five years from now, and puts us on a sound financial footing\u2014all without having to take cuts that diminish the excellence of our product. Can you help us get there?\u201d It\u2019s a good pitch. It usually works much better than complaining that \u201cthe musicians\u2019 pension is driving us into bankruptcy and we have a mountain of debt and we are facing total calamity . . . but please give us money.\u201d<\/p>\n

Orchestras have had success with the long-term growth plan. It works. Donors buy in. Musicians don\u2019t get big raises, but they aren\u2019t forced to take big cuts and salaries generally keep up with the cost of living. Quality is preserved.
\nThat is not the \u201cnew business model\u201d.<\/p>\n

The \u201cnew business model\u201d takes a different approach to eliminating persistent deficits: slash expenses, period. It rejects the concept of special funding altogether. It assumes that the only fundraising that can be assumed in the operating budget is the annual fund. Extraordinary gifts? Those don\u2019t count anymore. Large gifts that may or may not be repeatable? Those don\u2019t count either. Items like those are excluded from anticipated revenue altogether.<\/p>\n

The result? Anticipated revenues are suddenly significantly lower than anticipated expenses. So expenses must be cut. And the biggest category of expenses, ripe and juicy and ready for the ax, is musician salaries and benefits. Sure, often administrative salaries are proposed to be cut as well; but those cuts are far smaller.<\/p>\n

The \u201cnew business model\u201d is not a plan for growth. It is a rip-off-the-Band-Aid approach that essentially seeks to radically restructure the expenses of the organization in one fell swoop. It is an admission of failure. It says to the community, \u201cyou know that orchestra you\u2019ve come to love? We can\u2019t have it here anymore.\u201d<\/p>\n

But despite all that, does it work? On paper, yes. Deficits are reduced substantially, at least in the short term. But there are two main problems with the model: first, it virtually guarantees a work stoppage. It is no coincidence that the two orchestras currently on strike, the Fort Worth Symphony and the Pittsburgh Symphony (whose musicians I represent), face concessionary demands from managements seeking to implement some form of the \u201cnew business model\u201d. (The fact that both organizations operate in thriving cities and have demonstrated recent successes in ticket sales and fundraising only serves to underscore the ideological nature of those efforts.) The Minnesota Orchestra\u2019s attempt to impose the model led to a 16-month lockout, and we\u2019ve seen it cause work stoppages in Atlanta, Detroit, Indianapolis, and Louisville (among others).<\/p>\n

Also, there is a great risk that the \u201cnew business model\u201d is the proverbial successful operation that kills the patient. Consider that the mission of a symphony orchestra is not to balance its budget, or to achieve \u201cfinancial sustainability\u201d; it does not exist to earn profits or create value for shareholders. Its purpose is wholly non-financial: to provide a particular service to the community, one that its founders believed in and that the community has deemed valuable. Its mission is to perpetuate that service. If that service consists of providing performances of the greatest possible quality\u2014which is what most orchestras were formed to do\u2014then its success is measured by how well it does that.<\/p>\n

So, slashing musician salaries and other expenses that are vital to the artistic product will put that mission in jeopardy. Sacrificing quality for the sake of making it easier to balance the budget by requiring less fundraising is not reflective of success, but rather demonstrates an utter failure to fulfill the orchestra\u2019s mission. And it doesn\u2019t matter if, as we sometimes hear, \u201chardly anyone can hear the difference.\u201d Personally, I can\u2019t tell the difference between a Van Gogh and a very good copy; but if I were sitting on the board of directors of a museum I wouldn\u2019t use that as a reason to advocate hanging forgeries on the walls.<\/p>\n

But the \u201cnew business model\u201d persists. One would think that a debacle like the Minnesota Orchestra lockout would have educated our boards and managements of the dangers of that approach; but now we have Pittsburgh and Fort Worth.
\nThe pattern is familiar: some manager new to the field, or some board member looking for efficiencies, decides that they have found \u201cthe solution\u201d that, somehow, everyone else missed. They declare that their \u201cnew business model\u201d will serve as a shining beacon of hope to all other orchestras. It will show them all how things should be done. Then they are shocked\u2014shocked!\u2014when the musicians won\u2019t meekly go along with it.<\/p>\n

For musicians and their advocates, it feels like a game of whack-a-mole. We beat back one, often having to endure a destructive work stoppage in the process; but then another pops up. And it isn\u2019t going away. A recent article in the\u00a0New York Times<\/em>, \u201cIt\u2019s Official: Many Orchestras Are Now Charities,\u201d<\/a>\u00a0has already been seized on by some managers as evidence of a \u201csea change\u201d in orchestra funding that necessitates a radical restructuring of the expense structure.<\/p>\n

It falls to us to educate our managers and boards, and to ensure that they act as responsible stewards of their orchestras\u2019 true mission. And, as we\u2019re seeing in Pittsburgh and Fort Worth and across the ICSOM family, we will stand together when there is no other option but to fight for what we believe in.<\/p>\n

Note: Fort Worth and Pittsburgh are no longer on strike; see here<\/a> and here<\/a>.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

\u201cThe business model is broken.\u201d \u201cWe need a new business model.\u201d \u201cWe must totally rethink our business model.\u201d Those words should strike terror in the hearts of symphony orchestra musicians. When managers or board members start using that terminology on a regular basis, musicians should know their next CBA negotiation will be difficult. Cuts will… [Read more]<\/a><\/p>\n","protected":false},"author":2,"featured_media":512,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[105,92],"tags":[],"class_list":{"0":"post-1064","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-counsels-columns","8":"category-december-2016","9":"entry"},"acf":[],"yoast_head":"\nWhack-a-Mole with the New Business Model | Senza Sordino<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.icsom.org\/senzasordino\/2016\/12\/whack-a-mole-with-the-new-business-model\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Whack-a-Mole with the New Business Model | Senza Sordino\" \/>\n<meta property=\"og:description\" content=\"\u201cThe business model is broken.\u201d \u201cWe need a new business model.\u201d \u201cWe must totally rethink our business model.\u201d Those words should strike terror in the hearts of symphony orchestra musicians. 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