When a for-profit enterprise wants to build its capacity to do something (manufacture a product, launch a new service, provide a new option for their clients, or the like), they face a classic business question — should we rent the capacity, buy the capacity, or build the capacity? If they need a new manufacturing process, for example, they can either outsource the manufacturing to a third party (rent), purchase a fully operational plant or a competitor that already does the work (buy), or construct a new facility from scratch that will become part of the company’s assets (build).
The answer to a rent, buy, or build question is usually determined by the math (which pays the highest return on investment over an identified period) and by the strategy (will owning the process give us a strategic advantage, or will renting keep us quick on our feet). But smart businesses recognize and engage the choice whenever such decisions present themselves.
Yet, experience with nonprofit arts organizations suggests that they tend to make rent, buy, or build decisions without such reflection. Rather, these choices are made based on tradition or common practice without full analysis of the dynamics in play. Should we build or buy a theater to call our home? Should we hire a consultant to run our capital campaign or develop an internal board capacity to do the job? Should we hire professional staff? These are all rent, buy, or build decisions with complex implications behind them.
And since nonprofits have a fourth option to the question — borrow at no cost — such decisions should demand even more consideration at every step.
Rent, buy, build, or borrow decisions live at every level of an arts organization, especially if we use broad definitions of the terms:
- Rent – pay for limited-term use of a reasonably complete capacity. This can be for a physical asset like a performance venue, or for a professional capacity like strategic planning consulting or third-party box office solutions.
- Buy – find and internalize the capacity to your organization, either by purchasing a capacity outright (like a theater or gallery space), or by adding the capacity to your professional set (hiring artists, staff, or administrators through an on-going salary contract rather than per service).
- Build – identify an individual, group, or asset that’s not quite ready to deliver the new capacity, and prepare it to do so (building out an old warehouse into a performance space, sending current staff to professional development for a new skill set, constructing your own software solution).
- Borrow – leverage your organization’s access to volunteer labor, shared space, and community goodwill to get the capacity without direct expense.
Since most arts organizations are very lean and highly leveraged, it’s useful to explore these options for every major growth or strategic choice you make, and every asset you currently use.
This is great, Andrew. I think “catalyze” is another option that exists for nonprofits – or maybe is part of your “build” definition. Seems to me that this is a key difference between forprofit and nonprofit models. Because nonprofits are mission driven, sometimes the best option to serve a need is to give the program or idea away and let someone else do it, or to seed development of a service in the community. This can be a very effective way of establishing a service or program with little or no ongoing overhead to the originating organization.
Great point, Laura,
The rent, buy, build, borrow framework assumes that an organization REALLY needs to have that capacity itself. But they should always be asking if there’s another way for the community to get that capacity or service (catalyze, enable, provoke, whatever), or even if the big idea is even necessary at all (abandon, delete, ignore, defer, delay).
You’re also right that nonprofits in particular, and community initiatives in general, have a unique opportunity to focus energy around a problem, even if they don’t end up delivering the solution.
Unfortunately, nonprofits are also unaware of technical assistance from community development loan funds that can help them make sense of their financials. Forward Community Investments (http://www.forwardci.org) is one example of a nonprofit group dedicated to helping other nonprofits in Wisconsin make better financial decisions. Nonprofit Finance Fund (http://www.nonprofitfinancefund.org) is another that operates on a national scale. They can be great resources to help nonprofits work through some of those tough conversations about how to build the stronger future that helps build the organization along the way.