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Incubating nonprofits: The experiences at arts incubators provide insight into the business assistance needs of the 501 set

by Meredith Erlewine

June 2000

No matter how purposeful, a nonprofit organization’s mission is not what will bring it success. Whether an organization’s work is to save whales, preserve cultural heritage or find a cure for cancer, to flourish it must build organizational capacity by proactively securing funding, projecting a professional image, garnering community support and building a strong base of funders, volunteers and customers or members. Building that capacity involves adopting many of the best practices of successful for-profit businesses, such as marketing strategies, personnel development and forging strategic alliances.

Incubation can be an effective way to help nonprofits master those proficiencies, but some of the issues inherent to nonprofit organizations aren’t covered by the corporate model. It’s donors vs. investors, zero-based budgeting vs. initial public offerings, volunteers vs. staff and building organizational capacity vs. taking a product to market.

And although a nonprofit organization’s goals may not include taking a product to market, “the underlying issue is product,” notes Suellen Burns, executive director of ArtsBridge in Chicago, Ill. “For a nonprofit arts organization, its product is art vs. paper towels or accounting service. The driving force is less often revenue and more often the opportunity to create the product. And what it takes to do that are creative forces plus an infrastructure and tools to support the product.” Enter arts incubation – which has been incubating nonprofit arts organizations for more than 10 years.

You might be wondering why an incubation program would want to help nonprofit organizations. There are lots of reasons. Nonprofit organizations often have a profound impact on a community’s health and economic well being. The more professional and efficient those organizations, the more their communities benefit. In the social services arena, that could mean more effective food banks, job training, literacy and housing programs, and AIDS- and other health-related advocacy groups. “Many social services organizations fill some serious needs in their communities,” says Mary Kahn, director of Entergy Arts Business Center (EABC) in New Orleans. “When a food bank loses a third of its funding because its board lacks direction or management skills, for instance, it will affect a lot of people.”

In the arts community, healthy arts organizations don’t just improve the quality of life – they often play a primary role in a city’s tourism industry and can be a major source of employment. For example, Tennessee Williams New Orleans Literary Festival, a client of EABC, held its 14th annual festival in March. The five-day event drew nearly 4,000 attendees, 40 percent of whom came from out of town. And when members of the New Orleans symphony avoided bankruptcy by entering and successfully graduating from EABC, it meant that 80 people got to keep their jobs.

Though the following examples of nonprofit assistance come from the world of arts incubation, the insight is valuable to anyone called on to help the nonprofit community.

Long-range (strategic) planning

“Many times, [young nonprofits] don’t know what a strategic plan is or why to get one,” says Joe Rodriguez, arts officer at the San Jose Arts Incubator (SJAI) in California. SJAI requires clients to complete a three-year strategic plan that covers everything from values and mission to budgets and projections to capital campaigns and organizational charts. Rodriguez explains that the three-year plan provides an organization direction, not a destination.

Management Assistance and Organizational Development Enterprise (MODE) in Houston offers nonprofit arts organizations help with strategic planning through its Stabilization Enterprise (SE) program. “Stabilization Enterprise is the graduate school of capacity building,” says Luci Dabney, MODE executive director. “It’s a year-long program of facilitated training and consulting to develop a strategic plan. This throws everything up in the air: Should our organization exist? Go away? Expand? Do we have a good mission? Is our facility adequate? What’s the right governance structure? Do we have enough working capital? Should we have cash reserves?”

Annual planning

According to Burns, “the need for annual planning among arts organizations is staggering, particularly for newer groups.” Annual planning forces organizations to look intensely and strategically at what they hope to accomplish in the short term and identify those goals that are tangible and measurable. “Then they need to ask themselves, ‘Who is going to do it, when, what are the specific steps, and do we have the resources to do it?’”

At ArtsBridge, annual planning helps client organizations move from crisis management to proactive management. In its technical assistance package for client organizations, ArtsBridge assigns to each organization a consultant who helps with the first-year annual plan. At least one representative of the organization’s staff and board (ideally more) are required to attend a series of meetings. Members of Arts Bridge’s staff join them. “The process of creating the plan is, in part, designed so the group learns how to do it on its own. In the first two years, our consultant is writing the plan. By year five, the organizations are doing it on their own and perhaps only presenting it for review,” Burns says.

Once the plan is created, the consultant meets with the group about once a month for a checkup that involves work plan implementation, reviewing goals, assessing success, discussing upcoming goals and providing advice and feedback. If a special issue arises, such as the need to create a comprehensive marketing plan or revenue development campaign, the consultant may refer the organization to another consultant who specializes in that area.

Fundraising

Assisting nonprofit organizations with fundraising involves helping groups position themselves, learn to make the ask, balance outside funds with self-generated revenues and more. Rodriguez says that one of the biggest technical assistance challenges arts incubation program managers face is changing arts organizations’ patterns of thought regarding fundraising accountability. According to many arts incubator managers, organizations often think funders will respond to a message of: “We have problems, just give us money and we’ll go solve them.” Community support for the arts and nonprofits in general is not a given and funding is increasingly competitive. Fundraising has become a challenge and an art.

“[The business incubation model] helps arts organizations go from ‘We’re great, give us money’ to ‘It’s a competitive environment. What’s our marketplace?’” Kahn says, explaining that the business incubation model is an excellent tool to take arts organizations to that level of professionalism because it teaches them to work with a game plan. “It’s a radical but effective model....” she says. “[It] forces the organization to decide on its mission, its marketplace and how it’s going to get there, which requires a game plan and good financial health. They’re no longer waiting to be given money or to be discovered.”

Before a nonprofit can even think about raising funds, it needs to organize and prepare itself for the process in much the same way a business would prepare to seek investment capital. “An organization needs a fund development plan and must be able to market it so that a potential funder can see where he or she fits into that plan,” says Rodriguez.

Burns says helping clients with fundraising is more about teaching them to build and maintain relationships with those funders than it is about teaching them to write a good grant or annual letter asking for money. “People give to good people. Obviously, they have an interest in an organization’s mission and want to support its cause, but they also believe in the individuals involved in the organization,” she says. Sometimes donors may even make their giving decisions because of who is on the board or who is involved as a volunteer. Arts organizations need to learn that as staff, board members and volunteers leave an organization, there’s a good chance that donors may follow suit. Therefore, it’s important to build relationships beyond the individual who made the initial connection.

Financial management

Whether it’s getting a clue about what financial statements are or learning how to create them on a computer instead of in a ledger, early-stage nonprofit clients almost always can use some help with financial management.

According to Beverly Portis, executive director of MetroArts of the Capital Region in Harrisburg, Pa., the number one financial management issue for most nonprofit organizations is not having enough. That being said, it’s imperative that organizations learn to do a superb job of managing their budgets. At ArtsBridge, clients must meet several financial management objectives before they are eligible to graduate:

  • The organization must have an adequate fiscal management system with internal controls in place and use a monitoring system involving the board treasurer and senior staff.
  • The organization must have developed organizational and program budgets that are approved and evaluated annually by its board of directors.
  • The organization must submit financial statements to its board of directors on a monthly or quarterly basis.
  • The organization must maintain all financial records in a manner suitable for auditing and arrange for an annual audit (review or compilation) by an independent CPA according to budget level and state law requirements.
  • The organization’s board of directors must monitor tax and other legal payroll requirements.

Board development

Depending on an organization’s size and age, it may have all kinds of questions about its board of directors. What is it? What are the members supposed to be doing? How do we get board members? What mix of skills and experience should they have? How do we manage them? How much say should they have? Why won’t they show up to meetings? How do we have a meeting? Incubators can help answer a lot of these questions.

Generally speaking, nonprofit organizations’ board members are not paid, and it is their charge to have the interests of the general public in mind and to represent them. “The public is trusting the board of directors to ensure that the organization is meeting the community’s needs,” Burns says. Boards for nonprofit arts organizations ideally have responsibilities with governance, policy, ensuring financial stability, leveraging and helping to attract resources, supervising senior staff, making sure the organization is reaching its mission and overseeing the development and realization of goals.

Portis says it is important for nonprofit organizations to put a lot of thought into the people they have on their boards. For instance, she reminds clients that it may not be the best idea to have all of their friends and relatives on the board, because they may not have the skills the organization needs.

In San Jose, Rodriguez brings in an outside consultant to work with clients to create a board work plan that helps the organization revisit its mission and specific purposes and, in many cases, prompts the organization to redesign its offerings. The work plan helps the board look at the organization’s by-laws and procedures. “Once it becomes a working document, they can start to see what [the board] needs to drive the organization’s vision. Then they can put together committees that reflect the specific needs of the organization,” Rodriguez says.

According to Rodriguez, an organization typically will decide that it needs to have executive, programming, finance and marketing committees. “The board then recognizes that they can’t do it all and must recruit new board members and develop a board manual so that new members have something to refer to,” he says. It is important that organizations recruit board members who not only have a strong commitment to the organization’s mission, but also have skills and contacts that are of high value to the organization.

In an effort to prepare potential board members for positive and effective roles, MODE offers a daylong training session. “We teach [potential board members] about nonprofits, about board services and resources available to board members,” Dabney says. “We suggest that they look for opportunities based on their interests, and pair the training with a Board Fair so that the potential board members have an opportunity to see what types of organizations are out there.”

Volunteer development

To say that nonprofit organizations, particularly arts organizations, depend heavily on volunteers is an understatement. Volunteers are what fuel the creation and growth of arts organizations. With volunteers come a unique set of human resources challenges:

  • Finding volunteers: “Organizations need to look for individuals who find a kinship to the organization and its specific mission,” Rodriguez says.
  • Managing volunteers: A nonprofit organization’s board (or staff person, if it has a paid staff) must prepare to best use volunteers’ time. An organization may designate a board member, staff person or even a volunteer to serve as a volunteer coordinator, and may need help from incubator staff with creating job descriptions and preparing to interview, evaluate and even dismiss volunteers. “There are issues of accountability even though they’re volunteers,” Burns says. “You rely on them to show up.”
  • Rewarding volunteers: “The reward should be in doing the activity,” Rodriguez says. Beyond that, it’s imperative for organizations to recognize volunteers during an event. “It’s a different kind of compensation,” Burns notes. “You need to acknowledge and thank them, and learn their motivations and try to feed and nurture those motivations.”

Personnel development

Once an organization has developed its volunteer base to the level that it can offer year-round programming, it must prepare to make the conversion from no- or half-time employment to full-time leadership. An incubation program can help the organization decide the best way to bring on paid staff. “For instance, when it’s time to pay someone, paying the artistic director may not be the smartest thing to do first,” Rodriguez says.

To hire that first paid staff member, an organization must prove that it is stable by having the financial and organizational infrastructures in place to handle the hire. “If they’re mainly operated by volunteers,” Portis notes, “nobody’s looking at the organization on a full-time basis. So the challenge is getting that organizational infrastructure in place. You must have committed volunteers who will keep pushing until that happens.”

According to Portis, an arts organization that’s ready to make the transition from volunteer to paid staff has the following qualities:

  • It is programmatically strong (ex: if it’s a presenting organization, it has an established audience, quality presentations, a schedule of events, a site/venue for performances and the credibility and awareness that comes with all of this).
  • It exhibits a pattern of growth in its audiences that suggests the organization can financially substantiate moving to the next level.
  • If the organization is all volunteer, the commitment and services of those volunteers have been very strong, in terms of resources (including financial support) and time.
  • “It is the job of the person hired to bring the organization to the level that it can support that person. Sometimes, the first paid person may be a business manager instead of an executive director,” Portis says. She provides the example of an organization that hired a business manager as its first paid employee. “The organization felt the board of directors should continue with fundraising, but felt that no one was consistently looking at mail, answering phone calls and keeping the office organized. They felt that getting in shape organizationally was their most pressing need,” she says. If it does happen to be an executive director that is first brought on as paid staff, it likely will be that person’s charge to increase the organization’s financial stability.

Grant assistance

Grants are an inevitable part of a nonprofit’s revenue stream, at least in the early years. An incubator’s assistance with grants may range from reviewing a proposal to actually providing a grant. ArtsBridge helps clients with grant writing by providing samples of grants in the incubator’s resource library in addition to resources about grants. Staff also is available to review grant applications. “We don’t rewrite them, but we’ll look for what’s missing or weak points,” Burns says. Staff encourages and assists clients with creating core grant proposals, so when the opportunity to submit a proposal arises an organization simply must tailor the proposal to the particular funder.

Some arts incubators, such as MODE, offer their own grant programs. Clients of MODE’s Stabilization Enterprise program are eligible to receive strategic planning and implementation grants to help them work toward achieving sustainability. During the first of the program’s two phases, MODE provides diagnostic and planning grants for clients to engage consultants in a series of meetings that culminate in comprehensive strategic and one-year operational plans that detail achievable artistic, financial, structural, leadership development and marketing strategies. In the second phase, organizations compete for grant dollars (that require a match) to fund specific action items in their strategic and operational plans.

Several arts incubators, whether or not they offer grant programs of their own, also are affiliated with grant making organizations. MODE clients, for instance, can apply for grants through the incubator’s parent organization, the Cultural Arts Council of Houston/Harris County (CACHH). Eligible activities include organizational capacity building, activities that provide accessible arts opportunities for people in their own neighborhoods, and professional art performances and activities in underserved areas of the Houston inner city and Harris County.

Technology

Dabney says nonprofit organizations simply must master technology if they want to come out ahead. “Foundations are moving to Web-based granting and will come to expect that applicants are ready to handle that,” Dabney says. “I don’t care who is kicking and screaming…I want to make sure our community isn’t left behind.” To ensure that it is not, Dabney implemented mandatory use of electronic methods of grant application. MODE partners with United Way to provide clients computer training, and clients must apply for all grants via the World Wide Web.

Dabney also is helping her clients create a Web presence as a way to increase their audiences. “We’re a big city geographically, and the Web can play a big role in creating community,” Dabney says. For instance, the Web allows performing groups who tour to inform not only the far reaches of the city, but people around the country, of where they’ll be and when.

Kendall Hardin, executive director of ArtServe in Ft. Lauderdale, Fla., agrees that nonprofit organizations must take full advantage of the power of technology in order to do business. Hardin won’t be satisfied if her clients merely know how to cruise the Web or send and receive e-mail: She is in the planning stages of Project Kaboom, an all-encompassing computer training program that ArtServe will provide. “On the first night of the intensive, multiweek course, students will open up a computer and learn exactly what’s inside. By the time they leave, they’ll be designing their own Web pages,” Hardin says. Those students who master all of the required proficiencies (tested by objectives such as creating computerized mailing lists and financial statements) will take home the computer they trained on. The course will include training in what Hardin calls the four cornerstones of advancement: organizational development (issues related to the organization’s board, staff, volunteers and stakeholders), marketing, fundraising development and strategic planning. “We’ll put technology in the middle and train for change,” Hardin says. “Just think of an organization’s potential if these skills are mastered when it is just starting out.”

Adapted from Incubating the Arts: Establishing a Program To Help Artists and Arts Organizations Become Viable Businesses, NBIA Publications, Summer 2000.

Helping nonprofit organizations with legal issues

Nonprofit arts organizations face as many legal hurdles as does a technology or manufacturing firm. Several arts incubation programs team up with volunteers-for-the-arts legal groups who can advise clients on such issues as:

  • Intellectual property issues (Example: If an artistic director of a dance troupe choreographs a piece, who owns it?)
  • Contracts—agreements and disagreements, how to contract, looking before you sign, working with agents and attorneys
  • Internet law
  • Employee status (Example: Are a dance troupe’s dancers independent contractors or employees?)
  • Copyrights
  • Royalties for commissioned work
  • Licensing (Example: Video rights for performances)
  • Filing 990-Ts (business income tax returns for exempt organizations)
  • Nonprofit incorporation

501 nonprofit status

Some organizations may need help from an incubation program with securing 501 status or with deciding whether to secure that status at all.

Organizations that do want to organize as a 501 must have a good number of ducks in a row. “At that point it becomes very legal,” Portis says. The group must get its board of directors in order, establish a mission and hire an attorney.” Portis says an arts incubator can be of great value to clients in this area. “We have a network of attorneys who will provide pro bono incorporation services – which could cost as much as $2,500 in the open market,” she says.

MetroArts considers the following to be qualities of an arts organization that is ready to incorporate as a nonprofit:

  • Wants to do own fundraising.
  • Has a vision and a mission; sees itself growing and serving the community in a certain way.
  • Has some type of strategic plan or is prepared to create one; presents evidence that the organization can go from the present into the future it is describing.
  • Has clear cut goals.
  • Provides evidence of community support (through things like tracking attendance and proof of corporate sponsorship or underwriting).

Keywords: arts incubator, accounting/financial management -- client, board of directors, social entrepreneurship, strategic planning, volunteer management

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