Fire Your Inner Artist: A Case Against Perfection in a Creative Company

“You don’t have a quality problem. You have an output problem. Get it done.”

I’ve said this to many creative companies in different ways. Specifically, it’s something I’ve said at a particular time in a company’s lifetime - late adolescence going into early adulthood - when companies need to grow the most and the fastest. This is the time to set aside perfection and concentrate on gaining speed. That first big growth in sales, clients, audience or growing into new regions means the scale of production must grow very quickly. If a company doesn’t ride this wave correctly, they will stunt themselves. If a company relies on its first big moment in the sun to gain an accompanying big following, failing to ride that wave will stunt growth permanently.

This growth period is almost always an existential struggle for creative companies. The talented folks who design products don’t always have the acumen for scaling a company. Sometimes designers and artists assume that any increase in quantity must somehow come with decrease in quality or a decrease in customer satisfaction. This an understandable perspective for creative people; they struggle to see that their product can be mass-produced without some kind of quality loss. As a result, the growth can be choked so they can comb over the product relentlessly. 

Many artists and designers are so closely attached to their concepts that mass production and distribution feel like a troll under the bridge, threatening to end the creative process before they can reach the goal of a sustainable business. But production and distribution are the bridge toward a sustainable business - the real troll is the relentless pursuit of perfection. The creative process doesn’t end at mass production and many beautiful artisan made products may actually improve with scale. Here’s the case against perfection.

Quality Gets Better with Scale

In his book Outliers, psychologist Malcolm Gladwell said that a skill takes 10,000 hours to perfect. Quality control is one of those skills. By scaling production, the quality control process logs more hours. As logged quality control hours lifts towards 10,000 there will be minor improvements made all over the place. Think about it: if you could have a team look at your product or service 10,000 times, wouldn’t they begin to notice things to be upgraded? Most importantly, any true quality control system loops quality issues back to design so the changes are made before the next production run.

Quality control is not perfectionism. Quality control is a concept used for production that involves many hands, it requires the designer to relinquish control but the result can be improved quality.

Blankets awaiting inspection at the Pendleton Woolen Mill.

Blankets awaiting inspection at the Pendleton Woolen Mill.

Feedback Always Comes Before the Final Form

Another tool is the “beta strategy”, where companies open up their beta to a test group before their official launch. When you think about it, how is it even possible to design a great product without getting feedback from the user? An honest review always comes before the final form. Recall when Steve Jobs sent back the iPhone because keys could scratch the screen? Putting a beta version into the hands of the customer is akin to the refiner’s fire. After all, it’s not going to be the designer’s product, it’s going to be the customer’s product. So if your designer is resisting customer feedback, your product is resisting quality.

Somebody is Going to Buy Something

If you never put your product on the shelf, you’ll never know how successful it is. If your company is using disruptive technology, new processes or platforms, your entire business can be beaten out by a faster competitor. 

When you go into the grocery store and don’t find the brand you want, do you leave or make a compromise? The customer will likely compromise because they have an approximate need and most brands will do. Pre-sales, betas and test groups are helpful in determining how ready your company’s product is. But until it’s on the shelf, you’re just a laboratory and not yet a company. So when the customer walks into the store and doesn’t see your product - they won’t walk out empty handed - they’ll make a compromise and buy the next best thing. So now your competitor’s ugly, inferior, overpriced yet highly available product is rung up by the clerk and you’re still in the lab.

Silkscreened wallpaper from the Timorous Beasties

Silkscreened wallpaper from the Timorous Beasties

Production Needs Creative Problem Solving Too

Labs and studios are a place for considering lofty problems and translating them into real solutions. It can be helpful to bring that attitude to the production floor too. Scaling your production is not as simple as turning up a dial or throwing another switch, especially if you’re working with high design products. Consider scalability as another design challenge. Sit your creative team down to consider how a product be made at large scale with limited scrap, less variance, less electricity, less labor, et al. 


There is a Morality to Mass Production

Making one beautiful product will consume more resources per product than making two. There is a morality here, not just a matter of cost savings. Some design principles - like elegance and rhythm - transcend aesthetics and should be applied to the production phase of your product. 

And if it consumes more time to do custom work or new products, how much of your time do you want to dedicate to the oversight? Although some custom work can be inspiring, finding creative ways to speed up the process can be inspiring too. In a world where time is becoming the scarcest resource, there is a certain morality to time-savings.

Now You (and the Customer) Can Afford Quality

Bigger production numbers mean bigger budgets. Bigger budgets mean better equipment, finer materials and more talented staff. The quest for quality requires some things that only economies of scale can justify. The transition from a small studio that produces small orders in-house to a medium sized studio that contracts out its orders in bulk is one of the hardest transitions. It requires a great deal of investment and faith. Knowing that greater scale can help achieve superior quality is a good motivator to overcome this test of faith.

How the Good Guy Discount Can be Applied to Negotiations

 
Image by UFCW International Union via Creative Commons

Image by UFCW International Union via Creative Commons

 

On a recent road trip. Lucas and I listened to an episode of This American Life called “Good Guys.” In it, producer Ben Calhoun recalls a story of how his friend Sanari saved a lot of money by asking stores for a good guy discount, that is to say, a discount for just being a “good guy.” Sanari found a pair of shoes that he really liked, but that were too expensive. He agonized over the decision, but after hours he decided to buy them. When he went up to the counter, Sanari remembered a negotiation technique that a Columbia professor had told him called the “good guy discount.” The basic principle was to say “I’m a good guy, and you’re a good guy... is there some kind of a good guy discount?” Sanari used it, and ended up get 25% off. With such good results, Sanari tried the good guy discount for nearly every large purchase.

Ben pitched a story to This American Life based around this principle. As part of it, he was forced to go out and try the technique. This caused a lot of anxiety in Ben. He felt that the concept was cheesy. In Ben’s mind, he was saying “Hey, did you know I’m a good guy? And as a good guy, I’m going to do a crappy thing by asking you for a discount.” Ben’s issues with the technique were very evident when he actually tried it in stores. Not only was he not very successful, but he appeared to be pushed into using it (which he was). 
    

Ben’s experience made me think back to my own experience as a retail clerk. I had the power to give someone 10% their purchase easily. It would not have put my job on the line and was as simple as the push of a button on the computer screen. Despite the ease, I very rarely gave anyone a deal. It is only now that I realized why: the other party was a poor negotiator. For me to give someone a discount, I have to get something out of the deal, too. A lot of people forget that. A common technique was to say “Can I get a discount?” while being rung out. I found these people to be very rude for several reasons. First, I had never talked to them before and often there was a long line of people behind them who were listening to the conversation. If I gave them a discount, the 5 people behind them would want one, too. Second, I was put on the spot, and I would not get any personal satisfaction for helping them. It actually would have made me feel like a pushover if I gave someone a discount when asked in that manner. Finally, I knew that even if I didn’t give them the discount, they were probably still going to purchase the item in question. They were already at the register with a credit card in hand. Saying no did not carry any risk losing a sale. 

The only discounts I ever gave were decided on before the register. Most of them went like this: A customer was looking at a high priced item for a very long time. They’d been in the store for over an hour, staring at the same thing. I went over and chatted with them. We shared a bit about our lives or how our days were going. Finally they’d say something like “I really want this but my husband will kill me if I spend this much. Is there anything you can do?” That’s usually when I’d say “I’ll tell you what. I can see how much you want this. How about 10% off.” That was enough to make the sale. They got a discount and I got the satisfaction of helping out a nice person. This interaction was very different from the customer who asked for a discount at the register. There was a genuine risk of not making the sale without the discount and most importantly, the other party treated me like a person. A lot of people treat retail workers very badly, forgetting that they’re people. Having a customer take an interest in who I was as a person made me far more likely to help.

I think these experiences illuminate more about the “Good Guy Discount” than Ben’s efforts to receive one. The “good guy” discount is not about someone saying “Hey I’m so great. You know what would also be great? Paying less for these jeans.” It’s more about making a connection and then saying “Look, I’m not trying to take advantage of you, but this discount would really help me out.” If a person makes a genuine effort to converse with the retail worker and makes it easy to say yes, there’s a much better chance of a positive outcome. That was Ben’s mistake. He focused too much on what was wrong the pitch, and not why the pitch might actually work. He entered into each negotiation with dread, assuming defeat before he even walked into the store. This, paired with a lackluster recital of a forced line, gave him very bad results. As Ira Glass told him, he was uncommitted and uncomfortable. 

So what secrets does the Good Guy Discount hold for business to business negotiations? This phenomenon illustrates that negotiations are not simply about getting what one wants. Negotiations are about human connections. A person is more likely to give something if they feel respected and understood. However, if a person feel used or unappreciated, a negotiation can derail quickly. Always remember that the person sitting across the table is a person first and a negotiator second. 

Alternative Dispute Resolution: What is it and why it matters

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Why Choose Alternative Dispute Resolution?

Lawsuits can be incredibly expensive for all involved, not just for those on the losing side. Even a win can mean thousands in legal fees and months or years of litigation that disrupt daily business. In large companies, that lost time can actually be far more expensive than any direct monetary loss. A lawsuit means that managers and executives could be pulled away as witnesses, forced to spend countless hours preparing to take the stand (Pierce, 2015). Additionally, a lawsuit is inherently risky. A favorable outcome is never assured when one goes before a jury. A 2008 study by Randall L. Kiser, Martin A. Asher, and Blakeley B. McShane investigated over 2,000 cases where a settlement was rejected and the case proceeded to trial. They found that when the trial resulted in huge costs for the losing party, on average $43,000 for plaintiffs and $1.1 million for defendants (Glater, 2008). With so much on the line, alternative dispute resolution is a popular alternative to a trial. Alternative dispute resolution is a pre-litigation way of facilitating a compromise between two parties, most commonly taking two forms: mediation and arbitration. 

Arbitration


Arbitrations are like an informal trial (Pierce, 2015). While there is a non-binding variety (similar to a mediation) most arbitrations are legally binding and cannot be contested. Each side has an arbitrator and argues before a tribunal consisting of either an individual or a group. The arbitration is not open to the public, can be made confidential and the decision is final (Resnik, 2015). This creates a similar outcome to a trial but is generally faster, cheaper and more private. 


Because of these benefits, many companies include a provision in contracts that force disputes into arbitration rather than litigation (Arbitration, 2015), but these clauses are controversial. A former broker at Morgan Stanley is suing the brokerage firm for forcing civil rights lawsuits into arbitration and forbids employees from participating in class action lawsuits, claiming that it violates her rights and hides racial issues within the company from the public (Antilla, 2015). Ridesharing company Uber has such a clause with their driver contract, but it is currently being contested in California courts (Rosenblatt, 2015). Two drivers have filed class action lawsuits alleging that they should be treated as employees instead of contractors. The contractor model is integral to the success of Uber, so naturally they tried to settle the case in arbitration by arguing that the lawsuit fell within the arbitration clause in their contractor contracts (Weber, 2015). Ultimately a California judge ruled that this clause was unenforceable due to inconsistencies and contradictions. 


In cases like these where a lot is on the line for powerful companies, there may first be a court decision as to whether or not an arbitration clause can be enforced at all. Many employees who file a class action lawsuit against a large corporation may see themselves as a whistleblower. Financially, they may be better off using an alternative dispute resolution, however they do not just want money. They want to bring to show the public some injustice within their companies. That is why the terms of these arbitration clauses are so important. Usually lawsuits carry more than just financial risks, and if one party can force the other into arbitration it can significantly reduce both the costs and the potential for abuse.


These issues were recently brought to light in the second season of the HBO television show Silicon Valley, which centered around a pending lawsuit between tech giant Hooli and Pied Piper over intellectual property. The lawsuit was crushing Pied Piper under millions in legal fees, a company devaluation, and making it impossible for them to grow. Hooli was banking on this. They did not possess the intellectual property in question (in this case, a file compression algorithm), but had already told the public they had something better. They desperately needed Pied Piper’s algorithm to advance their technology. The lawsuit not only gave them a shot at gaining the intellectual property, but it scared away any potential Pied Piper investors. This suppressed their growth enough for Hooli to either begin creating an algorithm of their own or offer Pied Piper a buyout for a fraction of their value. Normally a case like this would not end up in arbitration because of the disparity in resources and motivations of the two companies, but through blackmail, Pied Piper was able to force the case into arbitration (Graff, 2015). Both sides argued their case in front of the tribunal, who eventually ruled in Pied Piper’s favor, saving them millions and allowing them to get their company back on track. While the arbitration process was clearly simplified and heightened for comedic effect, it did illustrate how powerful and useful an alternative dispute resolution can be (Banks, 2015).

Mediation

Unlike arbitrations, mediations are not legally binding. Both parties agree to the outcome and the mediator has no decision making authority (Awada, 2014). Since a mediation is more informal than an arbitration, they can take many forms. A lawsuit could enter a mediation to find an agreeable settlement, disputes between friends or neighbors could use a mediator to find a resolution, or high school students can mediate arguments between fellow students, typically called peer to peer mediation (Cook et al, 2013). The mediation is completely private and confidential. Both parties must enter into a mediation voluntarily and agree on a mediator. Neither side has to abide by the mediator’s decision and can stop negotiations at any time for any reason (Elkind, 2015). Because the dispute is settled entirely out of course, the outcome can be much more favorable and customized. In litigation or arbitration, there is typically a winner/loser decision. Mediations provide an opportunity for a true negotiation between both sides, with each offering compromises (Holtzman, 2015).


Mediations are also a good option if both parties are hesitant to enter into litigation or arbitration. Since they are private and and non-binding, it is a relatively low risk way to potentially resolve a conflict. It is advisable to enter into a mediation as early as possible, before emotions begin to run even higher in the wake of the dispute. Many court systems actually require mediation sessions before lawsuits can proceed (Pierce, 2015). This saves the government money and frees up the courtroom for truly difficult cases. Despite these benefits, mediations are not always successful. When a mediation fails, it is often because one party feels they have invested too much to settle (Elkind, 2015).


Whatever the situation, it is the mediator’s job to facilitate a settlement or compromise. In order to do this, he or she must be completely impartial and aware of the many different facets of the issues at hand. The process is similar to untying a knot made of several different threads. If the mediator tried to free only one string, the knot may get worse. It is only after the entire knot is understood and analyzed that it can be undone, and all strings must be freed in the process (Caspersen, 2015). The mediator must understand what motivates each side, what issues are the most important, and what areas result in emotional pitfalls. This is done by watching, listening, processing, and responding (Zarankin et al, 2014). The mediator can accomplish this in many ways, both by meeting with both sides at once, individually, or in all likelihood a combination of both (Awada, 2014). Eventually, the source of the conflict becomes clear and the mediator can propose effective solutions.

Conclusion

Arbitrations and mediations provide powerful alternatives to litigation. They save time, money and aggravation. While not appropriate for every case and are not always successful, arbitrations and mediations allow both sides the opportunity to come to a peaceful and private resolution. With such obvious benefits, it is no wonder why they have become a popular method of settling disputes. 

Citations: 

Arbitration. (2015). Business Torts Reporter, 27(11), 274-275.
Arbitration, international. (2015). Columbia Electronic Encyclopedia, 6th Edition, 1.
Antilla, S. (2015, October 1). Former Morgan Stanley Broker Sues Over Arbitration
Policy. New York Times. Retrieved from http://www.nytimes.com/2015/10/02/business/dealbook/former-morgan-stanley-broker-sues-over-arbitration-policy.html?_r=0
Awada, M. (2013). THE POWER OF AN IMPARTIAL MEDIATOR. Dispute Resolution
Journal, 68(4), 41-48.
Banks, C. (2015, June 18). Could that really happen to us? HBO’s 'Silicon Valley' as
parable. Upstart Business Journal. Retrieved from http://upstart.bizjournals.com/resources/executive-forum/2015/06/18/could-that-really-happen-to-us-hbo-s-silicon.html?page=all
Cook, J. Y., & Boes, S. R. (2013). Mediation Works: An Action Research Study
Evaluating the Peer Mediation Program from the Eyes of Mediators and Faculty. Online Submission
ELKIND, T. I. (2015). Pre-Litigation Mediation Saves Time, Money. Professional
Contractor, 6-7.
Glater, J. (2008, August 7). Study Finds Settling Is Better Than Going to Trial. New York
Times. Retrieved from http://www.nytimes.com/2008/08/08/business/08law.html
Graff, H. (2015, June 18). Standard Of Review: Despite Being Created By A Judge, 
‘Silicon Valley’ Tackles Arbitration. Above the Law. Retrieved from http://abovethelaw.com/2015/06/standard-of-review-despite-being-created-by-a-judge-silicon-valley-tackles-arbitration/
Holtzman, P. (2015). Why Litigate When You Can Mediate?. HR Magazine, 60(7), 
86-87.
Illes, R., Ellemers, N., & Harinck, F. (2014). Mediating Value Conflicts. Conflict
Resolution Quarterly, 31(3), 331-354. doi:10.1002/crq.21089
PIERCE, E. (2015). Mediation Lets Parties Avoid Uncertain Trials of Going to Court. 
San Diego Business Journal, 36(30), 34.
Rosenblatt, J. (2015, September 21). Uber Loses Bid to Force Arbitration on California
Driver. Bloomberg Business. Retrieved from http://www.bloomberg.com/news/articles/2015-09-21/uber-loses-bid-to-force-arbitration-on-california-driver
RESNIK, J. (2015). Diffusing Disputes: The Public in the Private of Arbitration, the
Private in Courts, and the Erasure of Rights. Yale Law Journal, 124(8), 2804-2939.
Weber, L. (2015, September 24). Two Drivers Seek Repeal of Uber Arbitration Policy. 
The Wall Street Journal.
Zarankin, A., Wall, J. A., & Zarankin, T. G. (2014). Mediators' Cognitive Role Schema. 
Negotiation & Conflict Management Research, 7(2), 140-154. doi:10.1111/ncmr.12030

 

 

 

 

Quality ≥ Speed > Cost = A Formula for Creative Projects

The holy trinity of project management is scope, schedule and budget (or quality/speed/cost depending). This is what the Project Management Institute calls the “triple constraint”. Companies can’t escape these constraints, but they can adjust the mixture to achieve their projects. Creative projects are constrained differently than other projects like technology or construction and so their priorities are a different balance.

Scope ≥ Schedule > Budget   ...Why?

Why the “greater than or equal to” sign between scope and schedule? Because in the creative sector, quality always equals or is more important than speed for two reasons. First, quality is the reason the company started; and second it's also what drives every project. Clients are looking to the creative company to solve a quality problem. Unreasonable attempts to save costs by reducing quality is not a good brand for creative companies. Quality is the brand for creative companies, and therefore the most critical aspect of what they do. To unreasonably sacrifice quality for speed or cost risks the entire value proposition.

Quality is also why creative projects are started in the first place. Every creative project is likely a quest for quality. Projects such as prototyping, new product roll-out, a company rebrand, or an ad campaign are all defined by a new level of quality. The best creative companies can promise speed along with quality, but for fledgeling enterprises “design within reach” can shift into “fast but okay”.

Regarding cost, creative companies rarely base their appeal on price. Price wars rarely work for commodities but it never works in the creative sector, where the audience is shopping for a particular or unique experience. Forget cost as the prime directive but remember that each project is a three legged stool. If you shave off too much quality, speed or budget, there is an adjustment to be made. Here are some scenarios to consider for creative projects.

The “Send It Back to the Kitchen” Scenario

In this scenario, the client isn’t satisfied and sends it back to your team for better quality, now what? Under few circumstances should a creative project be pushed back in schedule. This seduction of more time will hurt the relationship with other clients - as well as your current dissatisfied client - when you can’t deliver on the original deadline. It will conflict with your other projects in numerous ways, it will fluster vendors, jostle PR deadlines, confuse management and support staff and set a precedent of pushing things back when quality is poor. In short, the company looks amateur and it’s other projects suffer.

It’s far better to negotiate how much it will cost to deliver the better quality on the same timetable. Either invoice the improvement in quality, absorb the cost (gulp!) or strike a compromise. The client will respect a creative firm that insists on staying on schedule.

The “I Need It Yesterday” Scenario

In this scenario, the client wants you to give them the same quality but faster, For example, a firm just got word that their designs need to go to production this spring instead of summer. In this example, reducing the design quality is very tempting. But remember that your company’s identity is based on quality. Creative companies sometimes need to be fast or affordable, but they can never be shoddy. Consider hiring on additional staff or consultants to meet the deadline and explain that cost to your client. They may be insistent on reducing quality instead of paying more. Again, remember that a creative company’s identity is not based on its price point but on quality. Explain that what they are really asking for is “brilliance in a crunch” and that is very expensive service to provide.

The “We’ve Never Done That Before” Scenario

In this scenario, the company has a project they’ve never attempted before. Be aware that new endeavors are going to need more time to get the untested form up to the quality of your tested forms. This absolutely costs the company more and takes more time. A company can’t enter a new form of project and be rookie of the year - unless additional resources can be pledged or you hire some veterans. The company should pair outside veterans with current staff to research the best, base and worst case scenarios. Then the company can generate a quote for a project, and even give a contract with performance based compensation so that the speed and cost can be flexible. With performance based compensation, the company can afford the costs of speeding up the project.

Hiring in Non Profits and For Profits

Many people can tell you what their job is, the job title, the industry they work in, etc. But if you ask them what sector of ownership they are in, not everyone knows how to answer that. If you're like me, you've had a lot of different jobs over the course of your life. I focused a lot on what industry I wanted to be in (art, culture, higher ed, etc.) but I didn’t realize that my industry would dictate the sector of ownership would be in - almost every company I worked for was non profit.  The working world is very much divided between three primary sectors of ownership: for profit, public and non profit.

But the distinctions between sectors is not always so clear cut. Sure a non profit with 501c3 status is undeniably a non profit, but it may in fact generate a profit at the end of the year. Meanwhile, there's no guarantee that a for profit business will profit at all - it could turn a loss for several years in a row. A publicly owned organization like city hall is thought of as bullet proof but even city governments like Detroit have filed for bankruptcy. All of this uncertainty has an effect on the employees working for the entity in question.

Weighing the long-term advantages for each sector, let’s consider how a career can be profoundly affected over a lifetime depending on which sector you're employed in (or contracting with). What sector can offer you the most job security and advancement opportunities, the most pay and benefits, the best culture? Here's an overly generalized table to start the conversation.

A overly generalized chart of advantages, warnings and disadvantages for each sector.

A overly generalized chart of advantages, warnings and disadvantages for each sector.

What is the difference between these types of ownership that drive such trade offs? Simply put, ownership should create the correct market incentives. For profit firms are driven to increase shareholder wealth (they are FOR profit) and they follow the market's need for various products and services. However, there are certain industries that do not follow the market so well and lend themselves to public ownership, such as transportation, utility provision, national security, et al. In the US, most industries are privatized but there are many Americans (soldiers, teachers, public works) who get their paycheck from federal, state, county or municipal governments.

Besides for profits and public orgs, there may still be areas of service that are not being addressed by the market or by public mandate and this is where nonprofits come into play. Services like assistance for the mentally challenged, arts and cultural projects or health care and job education below the poverty line will never be cost effective enough for profit or high enough on the ballot box for public agencies to be sufficiently mandated. Because of the difficulties of working outside the market or public mandate, many nonprofits are funded by grants, endowments, foundations, trusts or other indirect sources.

COMPENSATION 

Non profits are widely known to not offer competitive pay compared to positions in the for profit sector (see Dan Palotta’s excellent TED talk). Studies indicate that the discrepancy is typically 25% for positions of the same title. Additionally, the average smaller size of a non profit may mean more managerial oversight responsibility along with less pay. There are disagreements on what metrics to use since the titles between the two sectors may not be appropriate to compare, for example President can mean one of the highest salaries in a Fortune 500 company versus a volunteer position (with an expected donation) in a small non profit.

In “Compensation in the Nonprofit Sector”, Ruhm and Borkoski argued that the difference in wages between for profit and nonprofit employees is not statistically significant. They attribute this difference in compensation was due to shorter working hours and location of nonprofit jobs in low-paying industries. Further, this is partly due to the two sectors being divided by industries that are profitable (consumer electronics versus foodbanks for instance) and the more profitable industries can pay higher wages.

It’s also important to note that women represent up to 80 percent of workforce in nonprofits - possibly tied to the industries of human services and education which have predominantly female coworkers. This phenomenon could be highly linked to the average lower salary in a nonprofit as women notoriously receive less pay than men across the board.

techrepublic

BENEFITS AND PERKS

When the term non cash compensation is thrown around, it means benefits and perks including deferred income plans, retirement contributions, paid or subsidized health, dental, life and other insurances, paid vacation, sick and personal time, stock options and many other add-on benefits to working for a particular employer. Free coffee machines, workout facilities or paid travel accounts are other forms of non cash compensation. Because of their lower cash compensation, nonprofits are looking to recruit and retain employees through company specific benefits and perks. However the small size of non profits (many are 2 - 5 people) means less economy of scale and group discounts to insurance and memberships are less feasible on this small scale.

ADVANCEMENT

Money isn't everything. Advancement within a company or within an industry is important to those who seek greater challenges or more ownership through time. Many individuals realize early on that they will need to rise through the ranks of a particular industry before reaching their desired role or salary. The different sectors each offer advancement but there are different pathways towards these terminal positions. There are also some particular struggles of recruitment and retention within nonprofits.

It is difficult to recruit from within a nonprofit for certain positions due to several factors. Development positions in particular can be a grueling and high pressure since many orgs consider it the primary or most dynamic source of revenue. IT, finance, operations and other occupations that are shared between for profit, public and non profit are difficult to recruit since non profit compensation is lower than the other sectors. 

On the plus side for would be employees, entry level positions in small nonprofits typically have less qualifications and can be used to springboard into higher positions several years down the road. The 2013 Nonprofit Employment Trends Survey showed that entry-level vacancies “were most often filled by candidates from outside of the nonprofit sector. Mid-level vacancies were most often filled by staff promoted from within the organization.” This is a healthy life-cycle where non profits can recruit from outside their sector and promote from within.

However, in the same survey, the retention of leadership was also at issue since many nonprofit orgs lack a formal strategy for successioning an executive director or president. Experience with nonprofits is required for these senior level positions but more and more there is an expectation to have skills from the for profit sector. It may be equally important for senior positions to have perspectives on municipal, state or federal agencies that supply funding or assistance to the non profit. For this reason, senior and executive vacancies are commonly filled by senior managers and executives from other nonprofit organizations. Those of us in the nonprofit sector have seen the shuffling of E.D.s between orgs.

There is an expected increase in hiring in the Finance/Administration/Operations area for nonprofits - following 17% in 2013 up from 14% in 2012 . This could be a refreshing and healthier balance of staff since nonprofits often under-invest in infrastructure and long-term growth. This lack of financial foresight is often done to minimize overhead for programs, which is often seen as a measure of efficiently using grants or foundation money. Some nonprofits are disallowed to use funds for various expenses and some are also capped in what they can offer in executive pay as well.

JOB SECURITY

"Job security" is also not about money as much as it is the lessening of the risk of unemployment, it's the measure to which an employee can expect to continue working at a given position or company. The ability to continue employment has a real value to an employee (and an employer!) and is a major factor to consider when pursuing a particular career or employer. In non profits there is a staggering amount of voluntary resignations due to “burn out”. This trend is brought about by the excessive workload per wage that are put upon non profit employees

I'm not making up this trend of burnout, when a non profit adds more programming, 48% of organizations intend to use current staff to support the new programs. This is the most popular strategy year after year which culminates in a voluntary termination. The effect is compounded in that 74% of nonprofit orgs expect to use current staff to take over duties for eliminated employees. This is a truly frightening combination for the poor staff that stay on board! In the following charts we can see the anticipated turnover that can result in this compounding of responsibilities.

anticipated-turnover

Perhaps the most specific difficulty is a nonprofit’s oversight of profit in order to meet its passionate agenda. This predilection toward the passionate leads to hiring abnormalities based on relevance to the organization’s agenda rather than best candidate for long-term financial viability of the organization. We see the reverse issue in for profits where profitability is emphasized most often and can become the only agenda; a glaring oversight of how the employee feels about the product or service they intend to make, sell or perform.

In the for profit world there could be some opportunities for employees to redefine the mission only they rise through the ranks. Even more removed are public employees who are offered little room for this kind of redirection since agendas comes from elected officials who base their legislation and funding on public pressure. Human resource scholars Bezboruah and Oyum argue that non profit employees are more attached to this mission than employees in federal government and private sector employees, saying “the human resource challenge is the most significant because the [nonprofit] personnel are the architects and agents of the services.”

CULTURE

This difference in culture between the three sectors can be jarring for those who are considering a career shift. Nonprofits have begun recruiting executives (presidents, marketing directors, CFOs) from the for profit world in hopes they will make their organization more competitive, but the culture shock can be abrupt. It takes time for new employees to adjust to the different bottom line, people over profit. Of course for profits now use the phrase ‘multiple bottom lines’ to describe their social responsibilities; but the emphasis is clear enough in the very name of the sector “for profit”. Perhaps the culture of nonprofits may prove to be more advantageous in recruiting new generations since mission commitment has been found to work better for younger workers than for their older counterparts.

One of the peculiar challenges for nonprofits is that the people who pay for the service are not actually receiving the service. If you could see a spectrum of who pays for the services actually received, you'd notice that for-profit is mostly funded by direct sales to buyers, non profits mostly fund by indirect and then public organizations are somewhat in between. You may remember the national discussion on the Affordable Care Act whether it was a tax (merely government raising revenue) or a fee (recouping the cost of a benefit given to the beneficiary). And note that eligible gifts to a recognized charity by law cannot receive any benefit - this is the antithesis of a sale. All these differences reveal the differing cultures that will be in the workplace.

CONCLUSION 

It's not always logical to draw comparisons between a for profit firm, public agency or a non profit org if they are rarely within the same industry, with different payroll sizes, different budgets, locations, etc. I’ve found that most industries are almost entirely within one sector, for example there are not many non profit or public companies in the consumer electronics industry. However there are certain industries that are split between sectors, such as the USPS alongside FedEx and UPS or the presence of non profit and for profit hospitals and schools. There are even some private companies that are knocking on the door of previously public endeavors, such as SpaceX’s foray into NASA’s territory of space travel. Only when such companies of different sectors are in the same industry, same size, budget, location, is there a meaningful comparison. 

The percentage of US employment in nonprofits has grown from 5.6% in 1972 to current estimate of over 10%. Yet, nonprofits have consistently underperformed in market compensation and are not able to match many of the benefits offered in the public and for profit sectors. The lifecycle of nonprofit occupations is relatively healthy in that middle and upper level positions are filled from within the sector, although not necessarily within the org itself.

The growth of nonprofits must be evidence of some kind of perceived advantage for an organization. Could the advantage be the lower salaries than other sectors? Certainly the advantage is not in economies of scale since the bulk of nonprofits are so small, however the nimbleness of a small org is enviable to a large bureaucracy. And a further designation with 501c3 status allows tax deductible gifts as well. Perhaps the growth in non profits is due to the growing importance of socially responsible businesses with multiple bottom lines.

If nonprofit employees are more loyal to a mission than contributing to shareholder wealth, can this loyalty be used to drive better HR practices and improve retainment? Hopefully nonprofits can develop competitive career advancement opportunities for entry and mid level employees to keep their experience within the org and help them “bloom where they grow”. Burn-out will be a continued issue as long as nonprofits expect to place responsibilities for new programs and terminated positions on its current employees

What to Know Before Starting a Facebook Page

Facebook pages can be a very strong marketing tool for businesses, but they can also be an expensive time suck. Is a Page appropriate for your company? The answer is almost always "It depends." It depends on your time, your budget, and most importantly, who you are trying to reach.

THE DREADED "A WORD": ALGORITHM

Let’s start with a little background. Unlike Twitter and Instagram, Facebook users do not see everything that their friends and liked pages post. With an estimated 1,500 possible posts that they could show the average user, Facebook has to narrow it down to around 300 per day (1). All posts are run through an algorithm (dubbed Edgerank) that decides what a user’s news feed looks like. How does the algorithm work? It’s starts with data collection. Facebook keeps an “anonymous” record of everything each user does. Think of it like a folder on all your activities, but without your name attached.

This folder encompasses the basics like age, sex, ethnicity, location or relationship status, but it also goes much further. If you engage with any post (meaning a like, click or a comment), visit a profile or a page, post about something, etc. Facebook adds that data to your folder. If you have Facebook on their phone, it is also gathering GPS information on where you go (2). It even registers how long someone views a certain post (3).  All of these data points influence what content the user sees. 

Pages and Profiles register differently within Facebook’s mighty algorithm. Generally, it’s easier to get content seen if a profile posts it versus a page (4, 5). At its core, Facebook is about connecting people with people, not connecting people with brands. Most people do not want their news feed filled with companies and ads, so Facebook limits how many of those posts show up. They know if users see only companies and advertisements in their feeds, people will eventually stop using Facebook. 

When a Page posts an update, Facebook shows the content to a test audience of between 30 - 100 people. If no one engages with it, Facebook deems it bad content and will not show it to any more people. The more people who engage with the post, the greater the chance that it will show up in other news feeds. In many cases, the total number of people who “like” a Page doesn’t matter. I’ve seen Pages with 2,000 likes routinely beat the reach of pages with 8,000 likes. Reach all depends on how engaging the content is. 

VIEWS = $$$

Now here’s the scary evil part. It’s actually in Facebook’s best interest to limit the reach of Page posts. They created a problem (“No one’s viewing my posts!”) and then offered a solution in the form of paid boosted posts (“Take my money!”). A Page can pay Facebook to bypass the algorithm and show their content to X many of their followers or to X number of people from a chosen target audience. 

Facebook ads, or boosted/sponsored posts, make up a large portion of their revenue (6). It’s a pretty genius business strategy. The public freely and voluntarily feeds Facebook data in the form of what they like, where they live, how old they are, what their religion is, etc. Even if a person never posts a single thing on Facebook, their browsing habits still give the company valuable data. You know that saying “If a service is free, then you’re the product?” It’s never been truer. 

This data allows companies are able to get very specific with targeting. If I had a wedding dress company in New York City, I could target women aged 18 - 45 that live within 100 miles of NYC and recently changed their relationship status to engaged. (In fact, when I got engaged to Lucas, my Facebook feed was filled with wedding related ads. It was unbearable. Lucas’ feed had no wedding ads whatsoever, leading me to believe these ads were targeted based on gender.)

It’s enticing to sink a little of money into sponsored posts. It’s cheap, and it offers extremely targeted marketing. But be careful! Target wisely. Remember, you need engaged followers to like your page if you want your unsponsored posts to be seen. Make sure your target audience actually wants to like you. I have seen pages with 40,000 likes be rendered useless because the initial targeting wasn’t set up correctly. I’ve also seen pages use them very successfully. Whatever you do, do it with intention and thought. 

Additionally, be very mindful of the CPM (Cost per 1,000 impressions) or CPC (cost per link click). Just because your ad is being seen by 2,000 people does not mean that it’s an effective marketing tool.

TO POST OR NOT TO POST? THAT IS THE QUESTION

Reading this may make you think “Why should I have a Facebook page at all? This sounds terrible!” Many brands would agree with you. Trader Joe's, Apple, and Marlboro famously don’t have a Facebook presence (7). Apple’s dummy page has almost 1 million likes, despite it never being claimed by the company. These brands realize that Facebook requires a brand to cater to the audience at hand, rather than the audience it wants to reach. While it’s true that Facebook can provide useful data on a brand’s audience, what happens if the brand wants to reach a new target market? Given the way Facebook’s algorithm works, it will be nearly impossible to reach the new market without paying Facebook a pretty penny. As Elan Dekel put it in a Forbes.com article “Instead of building a database of users that you can contact at will, you are essentially paying Facebook to build a list of people that you can then advertise to.”(8)

None of this is to say that Facebook isn’t a valuable advertising tool. It is. But remember, a tool is only as good as the person using it. A firm understanding of Facebook's algorithm is the first step in a successful strategy, but you'll need a plan. With a thoughtful marketing and engaging content, a Facebook page could be a huge asset to your business or brand. 

FACEBOOK PAGE + ????? = PROFIT

Before starting a Facebook page ask yourself how it will fit within your overall marketing strategy. What market segment are you trying to reach? Get specific! “Women” is too broad. “Woman age 25 - 40 with at least one child and a college education” is more informative and will allow you to reach them more effectively. By defining an audience, you can cater what platforms you use to what you know your audience is using.

You should also set targeted goals for the Facebook page. Again, specificity is key. “I want Facebook to drive more traffic to my online store, leading to a 30% increase in sales over the next calendar year” is a much better goal than “I want sales to increase.” Specificity makes the goal more achievable. A general goal (like "I want more people to buy my product") is too broad to be successful. Not only could it be achieved in a hundred different ways, the goal's success is open to interpretation. By zeroing in on exactly what you want to accomplish, your team will be more likely to succeed.

Next, plot out what the Facebook Page will look like. You may find this document helpful. It gives some general best practices for heavily used social media platforms, Facebook of course being one of them. Form a plan for what types of content gets posted, how often updates will be posted, what content doesn't make the cut, etc. Project the time commitment needed to meet your goals and make sure your business is able to devote the staffing required. Never sign up for a social media account that you don't have time for. It's better to have a strong presence on 1 - 2 platforms than a lackluster presence everywhere. 

Above all, have fun and be creative! Social media is about being social, so take the opportunity to engage with your customers in new and innovative ways. Form a strong plan, check the status of your goals each week, and augment your strategies when necessary. It won't be long until your business is reaping the benefits!

Three Reflections on #museumselfie Day

What is your "self's" relationship with the art museum? I've really given this a lot of thought as we celebrate #museumselfie day. But I need to lay out three things that have stopped me in my tracks and made me rethink how people experience their "selves" within a museum. Chiefly, I'm concerned that many people leave feeling "museumed" but they don't usually leave feeling engaged. Taking a selfie can somehow change the experience into a two way engagement by making memories to anchor the experience. Of course, peppered into the post will be a recent #selfie or two!

IMG_20140803_111210_747.jpg

Olafur Eliason purposefully puts selfie moments into his works.
Hall Art Foundation, Reading VT


1) I WANT TO REMEMBER MYSELF AT A MUSEUM, NOT JUST THE ART

A lot of art museums don't let you photograph yourself within their walls, hoping that you have a good enough memory of being there, yet no document of your presence except the ticket stub and something from the gift shop. How then to make that memory last? How then to share the experience with others, to describe it? The irony here is that art museums mostly appeal to visual people but then deny them the visual method of capturing their memories. The #museumselfie is a great way to allow the experience of being in a museum to become a lasting, referenced memory of being there in that moment. And also a way to share your experience / memory with others (hint: get them to buy a ticket).

You're probably saying, "But Lucas, you can't photograph everything at a museum", and I understand that there are concerns about intellectual property, the financial consequences of sharing visuals that are supposed to be ticketed only experiences, "please buy the catalog", etc. Okay, okay, there's a rationale to "no photos" at certain ticketed experiences, but I think many museums are shooting themselves in the foot when they ban this crucial memory retaining activity. Let me be absolutely crystal clear that countless times as a gallery owner and museum consultant I've had to imagine many circumstances where photography would be an issue; but to this day, I've still never encountered a single exhibit that shouldn't have been photographed by the public. Museums are visual places that pride themselves on sharing their collections and we live in a hyper visual age of camera phones and sharing apps. A museum's relevance depends on visitors developing and sharing their memories. Hence the #museumselfie is successful.

Liz and I spent our time encouraging photos at 17 Cox... and in return our exhibits are remembered!

 Work by Floor van de Velde (left) and Amy Archambault (right)


2) I WANT TO TALK ABOUT WHAT I'M SEEING, OUT LOUD AND RIGHT NOW

The #museumselfie is a visual thing, but your "self" within a museum is also about what your thoughts are at that moment, how you record them and how you can share them. You need to record your feelings and bounce your thoughts in order to form a memory, and pictures aren't always enough.

Imagine if you could yell out down across the museum foyer, "Hey Jessica you gotta see this! Come up to the 5th floor! The harmony, the lighting, the wall text, it's amazing!" #saidnooneever #rightbeforetheykickedmeout #museumyelling

The "no photo" rule is usually coupled with an implicit "don't talk too loud" rule. I know, I know, it would be awful if people were yakking on their phone or yelling at each other from across the museum right? Or would it? Would it really be worse than that deathly silence that we experience at most museums? How can I engage if I can't speak in my normal volume? My ordinary excitement is instantly flattened by these extraordinary rules. Let me paraphrase a quote from Jerry Beck, the founder of the Revolving Museum.

"I never saw anyone laugh or cry while I was a guard at the (Boston) MFA. And that, to me, means we're missing something." Read more here.

What Jerry means (and I've talked with him about this) is that this lack of emotional engagement at museums is profoundly ironic - profoundly counterproductive - because most museums' missions are to engage the public and build their relationship to the art. The reality is that a very limited amount of people can connect and engage without talking out loud, without debating furiously, without laughing out loud or even weeping out loud. Show me an exhibit where people feel free to weep and laugh out loud and I'll show you an exhibit that will be remembered, an exhibit where I can remember my "self" and other's "selves" being there.

 
 

When I see this picture, I remember who I was with, 
what we talked about, why this artifact matters.
Aztec Calendar Stone, National Anthropology Museum, Mexico City


3) I MIGHT NEED TO TOUCH THINGS TO UNDERSTAND THEM

Walking around an art museum I feel a skeptical eye on me at all times. Of course the guards are enforcing the "no touching rule" for almost everything in a museum. Heaven forbid that my "self" comes in contact with what I'm trying to understand. Some of us are visual learners, some of us are verbal learners and some of us need to lay our hands upon the damn thing to understand it. That physical touch is a physiological equivalent of having a picture of ourselves with the visible art. Many art museums are now having a "process" gallery to show how things are made, or even better a workshop to let visitors try to make something for themselves. The hands on experience is an important form of the #museumselfie - it's another form of capturing a moment within the "self". Just like a photo, I can take the experience home, revisit it again, share it with others and convince them to go the museum as well.
 

MassMoCALeWitt.jpg

The sheer sizes at MassMoCA's are ideal for photos

Marko Remec and Sol Lewitt, MassMoCA

No selfies from DIA Beacon where photos are not allowed... boo


Post Script:

From my time as an art history minor, I had to do research at the museum. Usually (but not always) you're allowed to take notes at the museum on pencil and paper but taking notes on your phone is frowned upon or banned. For me snapping a pic of the wall text was really helpful but usually not allowed. If the museum isn't going to have copies of the wall text like tear off coupons at a supermarket, then just let me take a picture and bring it home with me!

8 Economic Forces on the Art & Design Sector

We've all heard ideas on how we can increase art & design sales but have we looked at the more abstract economic factors at work here?  In basic economics for any industry there are several forces that increase profit. What are the market forces that could drive up revenue or decrease costs for art & design sector?  Here are eight of them.  Some of them are more obvious than others, some of them are more worn out than others, and some of them just might work.

#1 INCREASE THE TARGET MARKET SIZE

Get more people to buy more things called art & design and the market grows.

Get more people to buy more things called art & design and the market grows.

An increase in market size for art & design is obviously good for art & design companies.  But let's unpack what it really means to increase market size.  Are we talking about that market as a whole?  Record sales at auction houses mean nothing to small potato artists.  A rise in sales at Ikea does not necessarily correlate to high end furniture design. Still, the argument is true that if more people are demanding art & design products then the amount of successful companies will grow. However, if you have a niche product, that particular niche needs to grow in market size too.  In other words, this growth has to be in what you are specifically producing and in the specific markets you're selling in.  


#2 PROMISE TO RAISE THE FUTURE PRICE

We're all familiar with this claim about high end products, "It will increase in value!"  High design, fine art and well-made products are assumed to be in good company with the few purchases in life - like gold, stocks, collectibles, real estate, etc. - that can hold or accrue in its financial value over time.  This value is appreciative as opposed to domestic electronics and cars which are assumed to depreciate over time.  Well-made, intelligently designed products are assumed to increase emotional, cultural or personal value over time as well, adding an intangible benefit to buying now versus later.  In short, if value consistently increases over time, speculative buyers will buy earlier. Investment theory holds that when potential buyers know that the value of their purchase will stay the same or increase over time (or at least not break due to shoddy materials or construction) they are more likely to purchase.

#3 INCREASE THE INCOME OF THE BUYING MARKET

Get your customers to have more money. Then you will have more money.

Get your customers to have more money. Then you will have more money.

Every small business has heard this, "I wish I could buy ______ but money is tight right now."  So, what if your clients had more income? This economic argument assumes that if the market that already wants to buy your product had more money then it would purchase more often or at higher prices.  It stands to reason that if your wannabe or low volume customers had better revenue (better paying jobs, better sales or padded bonuses) then there would be more purchases.

#4 DECREASE COMPLEMENTARY PRODUCT PRICES

Complementary products are those things that go together, for example batteries and battery operated toys are linked in value. If the cost of batteries goes up too much, the sales of battery operated toys will go down. Conversely if the cost of batteries goes down, sales of battery operated toys should go up. For example, if you’re a gallerist the selling price is indirectly affected by framing cost. If you're an online retailer, your customer's price includes the shifting cost of shipping (vis-à-vis oil price, stamp cost, freight industry shifts, etc).

#5 INCREASE SUBSTITUTE PRODUCT PRICES

Here's a sneaky one. By increasing the cost of direct competitors, one would hope that sales will go up as the market chooses your product as a substitute for their first choice. If the cost of all plastic outdoor furniture goes up, your renewable resource patio chairs could become more tenable as it closes the gap in cost.

However, the substitute must truly be a reasonable alternative to the buyer's first choice; for example a movie-goer, a concert-goer, a football fan, a scifi novel enthusiast must prefer to switch their first choice to purchase your entertainment offering. If other entertainment options increase in cost until it equals your product both in cost and perceived value to the buyer, it stands to reason that the purchase could go either way.

#6 DECREASE COST OF PRODUCTION

Every art production company already does this in some manner: lower your costs to increase profit. By buying bulk, using cheaper materials or processes, bundling (or bartering), you will be spending less and therefore make more of a margin. One major issue with this tactic is that production companies have already been employing this to diminishing returns since industrial manufacturing already toppled craftsmen and many trades.  In many industries, cutting prices by decreasing the cost of production is known as "a race to the bottom".  Indeed, factories keep increasing efficiency to lower their prices but as the trend continues industry wide there is a tendency for only the largest scale operations to stay in business and pushing out smaller operations who cannot afford the small margins. Fine or high end producers are already working in very small operations with little ability to streamline their production. Still, any ability to reduce overhead equals more profit.

#7 DECREASE TAX AND REGULATION OR INCREASE SUBSIDIES

I'm "too little to succeed". So where's my government bailout?

I'm "too little to succeed". So where's my government bailout?

With this tactic, we're looking at the government to adjust the market through tax cuts, subsidies, programs and regulation. The US government has not always paid much attention to the art and design industries so regulation is not likely to affect much except intellectual property. Since many art & design companies operate as small businesses they should take a hard look at tax planning. The company that can reduce their overall tax burden stands to benefit. Imagine if 1,000 design firms could save $1,000 a year on their tax return.  That's $1 million for design partners nationwide.

#8 DECREASE NUMBER OF FIRMS

Hey could you go sell your stuff somewhere else?  This is kind of my thing.

Hey could you go sell your stuff somewhere else?  This is kind of my thing.

Probably the most controversial tactic for an art or design business is to knock out their direct competitors.  The art & design industries are different from many other industries like major manufacturing and retail where monopolies or oligopolies battle for turf.  Art & design companies are a little more interwoven, at least on the regional scale. The phrase "a rising tide floats all boats" is often used to describe the strategic dependence that designers, artists, publications, art retailers and other organizations share in order to bolster their region's art market as a whole. Regionally, the market structure for art usually functions as a "perfect competition" where market share is widely distributed.

If I had an economic short list for art & design companies to focus on it would be:

- Promise your customers that your product will accrue in value. Make that promise come true.

- Look for materials or processes that will become more affordable as technology matures.

- Have an annual tax plan in place. Keep it simple but understand the impacts of income and expenses.

- Look at what is trending globally. And then ride a wave that is bigger than your company could ever create on its own. Find future demand and follow it.

What is an Art Business Worth?

How do you determine the value of an art business? I thought I'd share some basic findings which are not so basic considering how opaque the art industry can be. I think it bears mentioning that almost all art businesses are private companies - meaning their financial reports are not publicly available - and finding such data can be difficult.

WHAT (AND HOW) TO MEASURE?

My two primary sources were BizBuySell and BizComps. Through these data sources I wanted to answer the following questions: 

  1. What is the asking price for an art business? 
  2. How much would a buyer be willing to spend? 

BizBuySell is a website that compiles businesses for sale in certain categories. I used the "museums, art galleries and zoos" category to find current businesses for sale. I decided to throw out businesses that were not art related (such as zoos!) and was able to find 48 businesses for sale in art retail and art services.

BizComps is a paid subscription service that compiles a list of sold businesses in certain standard industrial classifications (SIC). An art gallery belongs to the SIC of 5999, a miscellaneous retail classification of which art gallery is a subset. Through BizComps I was able to find 11 sold art businesses since 2002 in the SIC 5999.

Examples of businesses for sale in BizBuySell

Examples of businesses for sale in BizBuySell

A few broad notes before presenting the findings:

  • Sometimes the sale of an business may include up to 1/2 to 3/4 of its value in its inventory.
  • An art business is often self-calculated with an estimate on its intangibles or intellectual property.
  • This category is weighted heavily in “fine art” and accompanying retail and services. It’s not appropriate for design or manufactured art products.

FINANCIAL FINDINGS

So, here's the data. The average asking price for an art business was roughly $274,000 and the median was around $150,000. This higher average asking price is abnormally skewed over the median because of two large asking prices for a body exhibit and telephone museum (a collection is essentially a big inventory) at $2.5 and $1.2 million respectively. However in the end, the average businesses sold for $154,000 and the median sale was $117,000. This lower sale price means that most businesses probably had their asking price haggled down or reduced over time - or only the best bargains were purchased.

We see a similar purchasing strategy in revenues - only the more profitable businesses were sold in the end. The average revenue (annual gross) of businesses for sale was $338,000 and median was $253,000; but revenue of sold businesses was averaged at $601,000 with a median of $447,000.

But what does this mean without comparing to the price that the business would sell at? Profitability is related to how much you invest. So I then calculated the asking price over the annual gross - which is essentially how many years will it take for revenue to equal the cost of buying the business. This proportion was less than a year in businesses for sale, about 11 months on average and 5 - 6 months on median. Again the sold businesses have a much faster recouping time - around 3 - 4 months of revenue to meet the sale price.

However, using gross revenue can be misleading since some businesses have less overhead and are more profitable than others, so I also calculated profit over the asking price (called the seller's discretionary earnings or SDE). SDE is a more useful denominator since it tells us how many years in profit it will take to pay off the cost of the business. Asking price over SDE was 3 years 2 months on average and 2 years 4 months on median, which is a pretty sad investment. Taking 3 years to pay off just the cost of buying the business - let alone expanding it - is nothing the average investor should jump at. Looking at the businesses that actually sold, we see that it was around 1 to 1.5 years for profits to equal the sale price.

In practical terms, many of these businesses would probably take on a 5 - 10 year loan of around $100,000 and that's going to be a $1,000 - $1,200 monthly payment. Most of these businesses for sale have weak numbers and I also highly question the veracity of some claims of revenue on Bizcomps. However, it does make perfect sense that the actual businesses sold on BizBuySell had healthier profits and revenues compared to their price.

OTHER FINDINGS

Did you know the average art business (for sale) is over 20 years old? I averaged the established dates of the businesses listed on BizBuySell and 1993 is the average established date (1996 was the median). Perhaps the skewing towards older businesses on BizBuySell is that younger businesses will straight up close their doors instead of trying to sell the business. I definitely think that potential buyers would more interested in businesses that have established themselves (and their clients) over a decade anyway.

I also tried to calculate the average staff for a business (using full time as 1.0 and half time as 0.5). I calculated that the average art business for sale has 2.5 employees (median was also 2.5). I think we can extrapolate that at least one of these employees is the owner since most small businesses are a sole proprietorship or partnership. This doesn't surprise me much given the small scale of most art businesses and the bevy of solo enterprises. Globally the average art company size is 5 people (this includes large institutions), but my findings were half that size. 

I also found that an incredible 10 out of 48 businesses for sale were willing to do seller financing. The range of seller financing was broad as well; whether it was a tiny $35k operation to a $1.5m company, the businesses were 21% likely to help finance the sale. For those late in their years business owners, there may be a non-financial desire to see their passion and their clients continue into the future. But what does this portend for the business owner who self-finances this? This could mean payments over many years. Could an ailing business owner allow a 20 year financing option? Certainly not a balloon payment, right?

When it comes to assets, only 5 of the 48 businesses for sale were attempting to sell real estate and 37 of the 48 listed inventory for sale with the business. As I mentioned before, inventory can make up a substantial amount of the asking price of a business (in dubious cases 100% of the asking price). The sale of real estate or inventory in a business is a dubious proposition. In one perspective assets are stronger since they are tangible and hopefully liquid (this might help the chances of a business loan). On the other hand, the business needs to be competitive and shouldn't have its sale price wrapped up completely in assets, but rather some intangible competitive advantages like client relationships or brand recognition.

LIMITATIONS

Please don't draw too many conclusions from this report. It should be noted that the distinctions between industries are often blurred and frustrate attempts to generalize. “Art” is often attached to a product or company to heighten its value.

Even within the art industry there is trouble distinguishing between business types. Galleries and art services are often blurred due to multiple revenue sources. For instance, many frameshops often have small galleries and many galleries will offer consultation services.

If you're really curious, you can find the full spreadsheets online here - just browse between the two tabs at the bottom. Thanks for reading!