Thriving (in a Downturn)

Posted by
This article is part of the June 2020 issue of Hand to Hand, “Tightening Up: Streamlining Museum Operations.” Click here to read other articles in this issue.

By Charlie Trautmann, Sciencenter

As with all of the contributions to this issue of Hand to Hand, the text of this article was written before the current outbreak of the novel coronavirus that caused all children’s museums to temporarily close their doors in March 2020. To preserve relevance, the editor and I have made a few minor modifications to the original article, but because I believe that leadership at all levels involves short-term management decisions made in the context of long-term thinking, I hesitated to make major changes. While the details of how children’s museums will operate after re-opening is still unclear, what is clear to me is that the key points made in the article will likely remain relevant—and become perhaps even more so—in the future.   

How can a children’s museum withstand short-term fluctuations of the economy and also thrive in the long term? Although many factors are involved, three areas that stand out as keys to success include:

  • Building community value
  • Managing finances wisely
  • Practicing appropriate governance

In this article, we’ll examine each of these broad topics and show a few examples of how children’s museums can use them to increase their strength and capacity to succeed.

Building Community Value

Successful museums are, first and foremost, essential to their community—not just nice, but necessary. During downturns, communities rally to the aid of their most essential assets—and this is where children’s museums should strive to position themselves. There are several ways to build this sense of being “necessary” in a community.

Recognize that the more a museum gives away, the greater the return of community support. It might seem counterintuitive that giving away admissions, programs, and other benefits can lead to greater income. However, when a museum provides free or low-cost services that a community wants, it is more likely the community will value the museum as necessary and worthy of philanthropic support, especially in tough times.

For example, several years ago the Sciencenter held informal meetings over coffee with our county’s Head Start coordinators. We found that early STEM learning was a high priority for them, but was an area in which they had no expertise. A natural partnership evolved over the next several years, starting with the museum providing free programming. This led to a modest budget for regular events for caregivers and children at the Sciencenter. Head Start supplied hot dinners, coordinated the schedule, and publicized the events, while the museum provided space, activities, and staff educators. Members of the local government, donors, and educators now consider this partnership an important asset and a key part of the educational infrastructure in our community. More than one million dollars of new program support has followed, much of it from private donors who became inspired with serving those families with the fewest opportunities.

Create exhibits, programs, and events your community is passionate about. How can a museum do this? It’s simple, just ask! Talk with museum members, guests, and others in the community to learn about their interests and aspirations. Advisory groups, parent groups, and teachers are all happy to share their ideas. The Mid-Hudson Children’s Museum, while listening to its audience, found that food security was a top issue. As a result, they initiated a weekly farmers market in a pavilion on their site and rapidly won the praise of their community. Food turned out to be a versatile topic for education about nutrition, STEM, and culture.

At the Sciencenter, staff and volunteers were losing enthusiasm for a long-running offsite Egg Drop event, in which participants designed a device to protect an egg from breaking when dropped from three floors. But our community readily provided a solution by suggesting an onsite Halloween event. The new event drew twice the attendance of the former event and attracted people to the museum instead of to an offsite location; sponsorship for the new event increased five-fold over the old event.

Actively work for diversity. When developing activities for new audiences, it is important to remember that removing barriers to participation is necessary, but not sufficient to ensure that the activity will be truly embraced by a new audience. For example, free entrance admission and transportation alone won’t cause families from traditionally underrepresented communities to flock to a museum. Many museums incorrectly believe that if they promote their programs broadly enough, everyone will respond by participating. However, making new audiences feel welcome requires hard work: to demonstrate a sincere commitment to inclusivity and cement a true sense of welcome, you must reach out over the long haul and develop new relationships. Consider inviting members of the new audience to serve on the staff or board or as volunteers. (Trautmann et al. 2018; Dawes 2017).

The Sciencenter became aware of a need for families with children with sensory processing disorders to have a safe space to take their children. Rather than just offering free admission, the museum partnered with a local nonprofit serving families with disabilities and learned about the specific needs of this audience. The resulting pay-as-you-can Sensory Hours program—held on Sunday mornings when the museum was otherwise closed—became highly used by families and their children, and within several years received generous multi-year support from New York State.

Managing Finances Appropriately

The best financial managers work to meet both short-term metrics as well as long-term goals that transcend their own tenure. It’s a philosophy that requires transparency of financial results, conservatism in estimating income, long-term thinking, and the indirect benefits that come from giving back to the community. Here are several ideas for maintaining strong financial hygiene.

Develop a diverse mix of income sources. Work toward a mix of earned, contributed, grant, endowment, and other forms of support. At the Sciencenter, we maintain five primary sources, none of which provides more than 30 percent of total income. Combined income from admissions plus memberships is maintained below 20 percent of total revenues.

Recognize that earned income comes in two categories. Earned income can come from either visitors (e.g., memberships, entrance and program fees, gift shop, food service, parking, etc.) or non-visitor sources (venue rentals, grants, exhibition rentals, educational services, leasing of unneeded space, etc.). Having a business model that actually minimizes income from visitors is a great way to strengthen community relationships and increase the incentive for donors to support your museum. Some museums, such as the Children’s Museum of Tacoma, have gone as far as instituting a “pay as you can” model. Many others have embraced Museums for All, a cooperative initiative between the Association of Children’s Museums and the Institute of Museum and Library Services in which visitors showing an EBT card at the front desk pay $3 or less for museum admission.

While some museums attempt to squeeze every dollar from their visitors during each visit as a way to close the nonprofit funding gap, museums that take a different approach and subsidize operations through non-visitor revenue sources (and thereby promote frequent visits and being a child’s “home away from home”) are much more likely to be regarded as “necessary” if and when financial difficulties appear. Museums that charge $20-25 admission per person hardly tug at the heartstrings of most donors.

On the other hand, increasing earned revenue from non-visitor sources, such as rental of unneeded space, exhibition rentals, or sales of educational materials, is viewed positively by communities. It signals an entrepreneurial spirit that reduces costs to visitors, diversifies income sources, and bodes well for long-term financial wellbeing.

Know the difference between capital vs operating costs. Many museums have unknowingly entered into financial trouble because they ignored the difference between capital and operating costs. Capital costs, such as one-time costs of constructing a new building or addition, are relatively easy to raise, because donors are generally inspired by the vision of a new, tangible asset. However, boards and staff are transitory, and often the board and staff that raised the money for a new facility are gone when the need for ongoing operating support becomes the reality.

The best insurance against these kinds of costs is for a museum to be conservative and realistic regarding its projected attendance and the operating budget estimates for a new facility. Interactive museums in the U.S. typically see about six visitors/sq ft/year, with children’s museums slightly higher than average and less-interactive natural history museums slightly below average. Be wary of any estimate for a new museum of greater than eight visitors/sq ft/year, and of greater than two to four visitors/sq ft/year for an addition to an existing museum (Trautmann 2017).

Start (or grow) your endowment. All museums should have an endowment, if their governance allows for it. If your museum does not have an endowment, start one. A good rule of thumb is to shoot for an endowment equal to twice the annual operating budget, which will produce enough annual income to support about 10 percent of the annual budget. The Sciencenter began its endowment in 1994, just as its first capital campaign was ending; many board members were opposed on the grounds that operational needs were more critical and that “we can always start an endowment in the future.” With a steady drumbeat of promotion, however, the museum’s endowment grew to $5 million in the twenty-five years that followed and now provides almost 10 percent of the museum’s operating income—slightly more than the museum’s annual fund.

Avoid debt! Museums should avoid taking on debt of any type, but especially long-term debt. This discipline requires conservatism during capital campaign planning to avoid starting a construction project that ends up costing more than can be raised. Debt makes a museum highly vulnerable to financial downturns, because debt service remains, even if revenues decline. In addition, debt service is about as un-appealing a case for support as it gets, and donors often shy away from supporting an organization if they learn that their support dollars are going to a bank to service a debt, rather than delivering programs to the museum’s audience.

Unfortunately, debt is often advocated by business-savvy board members who are used to the tax advantages of debt financing of for-profit organizations. Because nonprofits have no tax advantages, however, debt financing brings few advantages and, on the other hand, can be debilitating. The only type of debt a museum should take on is short-term borrowing for well-defined cash-flow purposes, such as when receipt of a confirmed grant or donation is expected after the expenditures of a program or other project are incurred. For construction projects, building in phases is the best way to complete a large capital project with reduced financial risk and without long-term debt.

Practicing Appropriate Governance

Improving governance is easy to ignore, because even though it’s important, it is rarely urgent, and therefore rarely rises to the top of a CEO’s list of priorities. However, at least 5-10 percent of a museum’s efforts should be devoted to “sharpening the saw” of governance. Good governance makes every other activity of a museum more efficient and effective, and helps a museum avoid debilitating issues that can absorb large amounts of management time and attention later on. Here are several suggestions for improving governance.

Develop short but strong mission, vision, and values statements (MVV) and use them regularly in making decisions. Short, specific statements are easier to remember than long, inclusive paragraphs and are more likely to inspire staff, board, volunteers, members, and friends to use them in daily decision-making. Well-crafted MVV can serve as effective initial filters for accepting or rejecting ideas that cross a director’s desk. All museums are constantly approached by those who offer partnerships with strings attached, and starting with “Does this idea advance our mission, vision, and values?” is a good way to begin the decision-making process.

Think of diversity, equity, and inclusivity (DEI) as a process, not a destination. Many museum board members and staff think of diversity as a destination (“We’ll recruit two members of color to our board and then we’ll be diverse.”) Instead, think of DEI as a journey, which we start, continually get better at, and continue for as long as we serve our museum audiences.

While good museums are resilient, the best museums seek to be “anti-fragile.” Good museums weather storms, but the best museums have an active process for learning from them, so they can become stronger and better over time, much as a muscle ultimately becomes stronger after being temporarily weakened by exercise. A muscle needs more than just exercise, it needs nutrition and rest. Trainers call this the “Fitness Cycle,” characterized by stress, recovery, and adaptation. Similarly, the best museums do post-mortem exercises to learn from stressful events, whether financial, operational, governance-related, etc. In this way, they become more able to avoid similar situations in the future as a result of their learning. For these museums, problems become a laboratory for learning and continuous improvement. COVID-19 is no exception, and once museums are (hopefully!) able to view the current pandemic in hindsight, it will be helpful to document their experiences, share them, and learn from both theirs and others.

Prepare for the Black Swan. A Black Swan is an event that is so unlikely that it literally doesn’t fall on any reasonable distribution of statistical likelihood (Taleb 2007). The novel coronavirus that is currently affecting people worldwide is an example of a Black Swan: no one had predicted that such a viral outbreak in Wuhan, China, would cause such widespread disruptions to business and life worldwide. On a more local level, the sudden illness or death of a key staff or board member; a fire, hurricane, or earthquake; or even a water main break that closes the street by a museum’s entrance—all of these events can severely affect a museum’s capacity to deliver on its MVV and survive as an organization. The best way to prepare for a Black Swan is to conduct periodic scenario planning, train board and staff, discuss options with an insurance carrier, and maintain a liquid reserve fund equal to three to six months of operating expenses.

Building community value, managing finances wisely, and practicing appropriate governance are three broad areas of museum operations that directly affect a museum’s capacity to thrive, especially in the difficult environment caused by a financial downturn. While I have shared a few specific ways in which museums can address these topics, there are many other actions that could be appropriate for individual museums and their communities. These examples are meant to provide a starting point for discussion; creative staffs and boards can brainstorm other specific measures that make the most sense from the perspective of their own communities and financial contexts.

Charlie Trautmann teaches and conducts research on early childhood education in the Dept. of Psychology at Cornell University.  He was previously director of the Sciencenter in Ithaca, NY for twenty-six years and has served on the boards of the Association of Children’s Museums and the Association of Science-Technology Centers. He holds a PhD in Civil Engineering from Cornell.

References

Dawson, E., “Not Designed for Us: How Science Museums and Science Centers Socially Exclude Low-Income, Minority Ethnic Groups,” Science Education, 89:6, Nov. 2014, p. 981-1008 https://doi.org/10.1002/sce.21133

Taleb, N.N.  The Black Swan: The Impact of the Highly Improbable, Random House, 2007, p. 400.

Trautmann, C.H., Bevilaqua, D., Chen, G., Monjero, K., and Valenta, C., “Reaching New Audiences at Science Centers and Museums,” Informal Learning Review, Denver, CO, May-June 2018, pp. 13-19.

Trautmann, C.H., “The Business of Science Centers,” ASTC Dimensions, Association of Science-Technology Centers, Washington, DC, May-June 2017.