The LA Times show business blog summarizes a new report for the film industry that suggests the best way to return to profit in bad times is not through cutting production. It might seem counter intuitive to make more movies when budget constraints are so severe. But the analysis showed that a bigger slate of films had a greater probability of turning an overall profit...a version of diversified investment perhaps.

Arts organizations are faced with a similar conundrum as their earned and contributed revenues hit the skids. The impulse of board and leadership is to trim production quantity and even quality in response to declining contributions and sales. But that impulse is problematic for several reasons:

1. Many arts organizations are subject to high levels of fixed costs -- especially those with a venue. By definition, fixed costs (heat, light, security, maintenance, etc.) accrue whether or not the space is used. In these cases, eliminating activities that contribute even a small amount to fixed costs doesn't save money.
2. Arts organization revenue -- both earned and contributed -- is driven by the enthusiasm, passion, and trust of its patrons and donors. As the fire and forward thinking dissolves in cutback after cutback, arts leaders can create a vicious and downward cycle.

Michael Kaiser suggests as much, frequently, in his book The Art of the Turnaround. He believes that even those in the thick of a cash flow crunch can envision bold projects three to five years out that will excite donors, buyers, and staff. Without that forward momentum, it can be difficult retain and increase contributed income.

The key is to remember, as you and your board are adjusting the current and coming fiscal year, that revenue is a dynamic number, driven in large part by the excitement and energy you create among your prime supporters. Although deep and painful cuts may be unavoidable, it will be essential to find ways of maintaining the energy and essence of your organization beyond the current budget cycle.