This is a lecture I gave at the Artist Summer Institute, run by the Lower Manhattan Cultural Council and Creative Capital on Governors Island. Approximately 55 artists come, chosen by lottery. I spoke the morning of the last day, July 31, 2011. I was invited by Kay Takeda, the head of grants at LMCC, and Alyson Pou of Creative Capital.
Joseph Beuys famously said that everyone is an artist. We also live in one of the most vast market economies of all time, and so everyone is a business person too. Even if you decide to live in a yurt in Montana, that is a decision in relation to the economy.
There is less division between these three categories that people think. Ideally, we are all creative and political and economic actors all at the same time.
There are two kinds of creativity: writing a letter and designing the envelope. Making a painting is like writing a letter. Designing the envelope is building the structure of your working life, creating the ecosystem in which your artistic practice can thrive. When you think about something like business plan writing for artists, it is more of a “design the envelope” activity, but it is creative unto itself. For a long time, artists were not taught business because it was seen as a form of selling out. Then they were taught it as the equivalent of folding socks or tending goal—something you don’t want to do but you have to. The idea here is that designing the structure is part and parcel of designing the thing itself.
(Photo: Levi Brown) Uniqlo is an example of a large business with a well-designed model. They have very few, highly specialized, textile designers. They don’t make that many styles but replicate each in many colors. They are able to spread fixed costs over a huge number of units. And because they often take over the entire productive capacity of a factory, they are able to negotiate costs well too. To learn more, here is an article in New York Magazine: http://nymag.com/fashion/features/65898/.
Warby Parker (warbyparker.com) is a company that we will stick with as an example. They design eyewear which they distribute by a mail-order business.
First, the glasses themselves are really beautiful. They have “written the letter” as creativity or design is concerned. (Incidentally, I wear these frames, but have only had glasses for a month, and put them on at this point in the lecture. After the talk, I learned I am a glasses fidgeter – my apologies to those who were present.)
From a “designing the envelope” standpoint, Warby Parker is doing the same kind of work Uniqlo is – designing a cost structure with great efficiency and resourcefulness. (You can read a lot more on their website about the sourcing of materials etc.) What they found was that the eyeglasses industry was controlled by a few companies that were charging high prices. In economic theory, you can charger higher prices at the beginning but then more and more people will enter your industry and they will compete with you and this will lower prices. In this case, that didn’t happen. Warby Parker figured out how to make well designed glasses much more cheaply, and decided to enter the market and undercut those firms.
But what’s more, they had an additional, social “design the envelope” plan. In the same way that Toms Shoes is a “one for one” business—every pair of shoes you buy they donate a pair to someone in need—Warby Parker does the same with eyeglasses. But what’s more, if they just airlifted the glasses into a market, they would drive any existing / local eyeglasses sellers out of business. So what they do is donate the glasses to local non-profits that then train people—often women, as part of giving women more financial independence generally and within households. Those people then sell the glasses at agreed upon market rates in that area.
Neil (the founder on the right) once said to me that when he worked at a glasses nonprofit before business school (all the WP guys met at Wharton), he would find himself in a tiny village in sub-Saharan Africa with a person who was legally blind. He figured that if you are almost blind you would want any pair of glasses, but that that person would forgo glasses that were ugly. As he said, design matters to everyone.
These are figures I have taken from Warby Parker’s website. They are here to show something we will get into later– the idea that Warby Parker is engaged in “market sizing” and in story-telling. They have to describe the size of the possible group (market) of people who could be helped. They then use those numbers to tell a story about what is at stake and what the change is they want to see in the world.
These are just a few other examples of companies that have “designed the envelope” of their model in an interesting way. ReCaptcha is one of those programs that websites use to tell if you are a computer bot or a person. You have to type in the word (that invariably you can’t quite read) befpre you register or forward a newspaper article etc. When you type the phrase on ReCaptcha, it is actually a set of words in books that are being digitized by computers, and they are words the computer had trouble reading. So the fact of your typing it in here actually helps with the larger process of digitizing books.
Oberonfrm.com is a manufacturer of fish food. In the manufacture of human food there is considerable waste – water full of food waste – that companies have to pay someone to get rid of (as if paying a trash service). Oberon takes that waste water and turns it into fish food. So they are taking something people were paying to get rid of and turning it into a profit.
Take a moment and, individually or in a group, write down every possible use you can think of for a brick – like this one, with holes in it. Dan Roam did a brick brainstorm in The Back of the Napkin, but here the brick is a metaphor. (Image credit: http://www.liquidmatrix.org/blog/wp-content/uploads/2009/09/brick.jpg)Now – share those ideas, which may range: wall, house, weapon, paperweight, planter, for a kiln, to cook with, to grind up, as a stepstool, as a weapon. Two of the most interesting pieces of this conversation for me are (1) the inflection point where someone says something dark (“as a weight to throw a body into the East River” etc) and (2) the fact that if I do this in a room full of artists, no one ever says wall or house. It’s too obvious.
Classical economics is based around the idea of a brick as it is used to build a wall or a house. It has a known function. All bricks are interchangeable. You can compete on price. The known uses of a brick constitutes part of the “perfect information” economics assumes. For entrepreneurs, you will usually have a “brick” and circumstance will usually tell you that you have to do something besides build a wall or a house, and you will have to be materially resourceful. For example – the story of Google: Sergey Brin and Larry Page met when at least one was a prospective student being shown around. They didn’t initially like each other very much, apparently, but they then became collaborators and made a search algorithm. They tried to sell it to Yahoo and Netscape – everyone said “search is dead” and wouldn’t buy it. (The brick—your algorithm—can’t be a house—a tool you sell us.) So they hadn’t wanted to start a company but they did. And now they “organize the world’s information.”
Dupont was started as a gunpowder manufacturer, after members of the family moved to America from France and didn’t like the quality of American gunpowder. They happened to have known the French chemist Lavoisier and happened to be able to make gunpowder so they did. They used to be known as the “merchants of death” because their business benefitted in times of war. The family nearly lost its fortune a few times over and almost sold the company, only keeping it in the eleventh hour because of some calculations and productive stubbornness on the part of one of the members of the younger generation. Later, the company grew into what we know today. They make so many things we take for granted—Teflon, Lycra, etc—that it is easy to take them for granted. The gunpowder was the brick and they had to figure out how else to cast their expertise and infrastructure in practical science.
Ultimately, you start with a brick and have to be materially resourceful with it, but then you end up having to deal with a much more complex system – a whole house worth of bricks, or a company. “Organizing the world’s information” or “the miracle of science” is the house-level application of figuring out what else to do with the brick.
If you are an artist, you are usually moving into unknown territory. You are inventing the world. The working definition of art I use (adapted from Heidegger) is that a work of art is a new thing created in the world that changes the world to allow itself to exist. By this definition, you can’t plan from point A to point B because you invent point B by the process of trying to get there. Your process of making art is to make the thing that creates the world of point B. To get there, you need to have clarity on your sense of purpose, a guiding principle if not an exact set of directions. This is your lighthouse.
Conversely, many people talk about planning in terms of SMART targets, those that are specific, measurable, achievable, realistic, and time-bound. There is time and a place for this kind of thinking, when you know what you need to accomplish and you are executing it. But for the bigger picture stuff where you are “inventing the world” you need a lighthouse more than SMART targets because SMART targets only exist in relation to known outcomes. (Coming up with Facebook Lighthouse; relaunching a section of Facebook with a server upgrade SMART Targets)
(With thanks to Emilio Grossi, RISD alum, for the photo credit)To mix geographic metaphors, when you are making art, it’s a bit like being in the weeds. You don’t have a lot of visibility, you keep moving forward out of sense of purpose or commitment to process. This is what the creative process looks like from the inside.
This is what that process looks like to someone from the outside. It’s the “aerial view” instead of being in the weeds. I think creativity is an innate human quality but that many people shy away from it because they are used to looking at creative accomplishment – from the aerial view – instead of acclimating to creative process – in the weeds. As long as you have your “lighthouse,” you can be oriented, but it’s a different kind of orientation.
Another way of thinking about your “lighthouse” is as your MDQ. A workshop participant told me Stanislovski would have said this is your “super super objective.” Caroline Woolard of Ourgoods would say artists are already doing this – it is the same as your mission in your artist’s statement, your thesis. I happen to take a screenwriting class recently for fun, and so also found the idea of an MDQ useful.
In any film, there is the surface level MDQ that drives the plot forward. Then there is the larger underlying—often unanswerable—question. MDQ – Will Harry and Sally be friends or get together?Underlying unanswerable – Can men and women really be friends?
What do you think the MDQ is for Harold and Maude?(photo credit: http://www.altfg.com/Stars/h/harold-and-maude-cort-gordon.jpg)
And for Harry Potter? To me it’s also about being an everyday contributing member of society – with friends and imperfections and human fears and character – and also making a contribution, eg, vanquishing Lord Voldemort.(photo credit: http://cdn2.mymovies.ge/backdrops/6d2/4d5ff62a7b9aa154cf0036d2/when-harry-met-sally-w1280.jpg)
I have some friends who work in business planning – as investors or fundraisers – who remind me how little people actually read business plans. A business plan is a bit of a prop for a conversation. And that is that much more reason to make yours an individual document.
A business plan tells a story. It answers basic journalistic questions.
This slide looks at the root cause of the problem. Women don’t submit often enough, and these are teachable skills. Katie Orenstein, the founder, was taught them when she first started out as a writer, and so she decided she could be solution-oriented and teach them to others. In the above chart, women are actually batting slightly ahead of average but just not submitting.
This slide shows what is at stake – the idea that opeds are gateways to many other forms of thought leadership more broadly.
Here is another example of artists telling a story about their “business practice.” Imagine what the Christos would have said – about not accepting funding about selling their own drawings to fund the work, about the significance of the public monuments and spaces they operate in.
Entrepreneurs: Joe Gebbia, 27, Nathan Blecharczyk, 25 and Brian Chesky, 27 of AirBnB (www.airbnb.com)
Think of the way AirBnB tells their story – the false starts, the Democratic National Convention in Denver and the acute need for beds with all the hotels booked. Think about the fact that the founders had already received national television coverage for their separate cereal box project. How will you tell your story? You could give “a natural history of the idea” explaining how you got to the vision, or articulate a problem and what’s at stake, or invite people to champion a solution.
You can also think of a business plan as a work of art. It’s not, in the sense that you shouldn’t delve so far into the “productive procrastination” of writing one that you stop making your work entirely. But it is in the sense of – think about art from before the advent of photography, when the painting still had to serve a documentary function in that way. Even still, a painting of the same object could have many different variations. Still Life paintings – they are like a business in the sense you have chosen the thing to emphasize compositionally and given it a support. But then it’s just “stuff on a table” – like a “selling stuff” business – but the variations are endless. The next several slides are all just examples of how variable “stuff on a table” can be. Your business plan (with its rules of format and its assumption of profit, as logical as, say, linear perspective or use of shading) is like an artwork – with a structural documentary nature and then highly variable, even within a tight range. Even if everyone here wrote a business plan as an individual working artist, they would all be different one from the next, as much as these “stuff on a table” paintings are.
Stuff on a Table. (It’s a Morandi so of course it’s jugs and vases.)
Stuff on a Table.
Stuff on a Table.(credit: http://www.bestpriceart.com/shop-online/images/vault/abc_vangogh96.JPG)
Stuff on a Table.(credit: http://static.howstuffworks.com/gif/vincent-van-gogh-paintings-from-the-yellow-house-18.jpg)
Stuff on a Table.(credit: http://www.ibiblio.org/wm/paint/auth/cezanne/sl/cezanne.appg.jpg)
Stuff on a Table.
Stuff on a Table.
This is a section of business frameworks for taking a snapshot of your industry. When you go to write a business plan, these will figure into your market analysis and description of the business.
Michael Porter, the famous professor and business strategy guru developed this framework in 1979. It’s so ubiquitous, I often when teaching refer to it as “the Little Black Dress” (LBD) of economic models. It is similarly useful and expected in equal measure. See questions on the next page to apply. If we were looking at Warby Parker, their suppliers would be the plastics and acetate manufacturers and any designers that are contracted, etc. Their buyers would be us. (Your buyer or supplier will have more power if there is only one or a few of them.) there are a lot of substitutes depending on how you count – everything from contact lenses to Kmart frames to expensive designer ones. And there are barriers to entry in having to set up relationships to partners, to design glasses, to build a loyal customer base, and anything else you can imagine of this ilk. Barriers to entry will typically be in expertise or expense, or in intellectual property protection or regulation The overall industry (rivalry, in the middle) isn’t too steep – it sound downright collusive. It may get more competitive as they proceed.
Sharon Oster modified Porter’s Five Forces for non-profit organizations by separating out Buyers into Donors and Users. These are the supporters of the organization. Some people in the workshop thought Donors were more like Suppliers (of capital), which is interesting. But them regular buyers are suppliers of capital too.
Barry Nalebuff and Adam Brandenburger developed this framework in their book Co-opetition. Especially for artists, collaboration can be critical, and this framework helps you shift from pure competition to a combination of collaboration and competition. A classic example in a business context would be Coke and Pepsi. They compete viciously but if they didn’t, people would not drink as many soft drinks. You increase the size of the pie before you divide it up. The Milk Board operates this way. Milk producers work together to increase the number of people who drink milk, which benefits everyone. To apply this framework, think about your situation as a “game.” Who are all the players or the characters? Customers and suppliers stay the same, generally, as before. Now, which ones are people where if you win they also win? And which ones think that if you win they lose? These are your complementors (collaborators) and your competitors, respectively. Can you think of ways to make any of your competitors into complementors? (For instance, you could be furniture designers who sell into similar markets. But if you share equipment, it helps everyone. Or you could be art galleries – competitive but it’s better to all be located in the same neighborhood.) Damian Hirst, the Young British Artist, used to organize group shows – all those artists got famous together (as complementors) even though they could have thought of themselves as competitive with one another.
Thank you, Mark Crosby, for this photo.
These are standard sections of a business plan. They still map to journalistic questions.Practically speaking, sba.gov – the Small Business Administration – has excellent resources. Also check out Start-Up America, Scorenyc (which offers free one-hour consultations and Score has chapters in other cities). American Express Open Forum also has good resources for small business owners.
I am skipping the case studies here because it would involve posting other people’s confidential documents. . . .
Check out ourgoods.org. Also Crosstown Arts which we also discussed: http://www.crosstownmemphis.com/
Here’s a section that is more self-explanatory on how to use a few tools – as if a hammer or a wrench – to analyze as you go.
Look for the whole market you serve. Experiment with ways of defining it as broadly or as narrowly as you can. Then think of a rationale for how you can aim to reach a percentage of it. Experiment with those numbers too. For example, ourgoods.org looked at the number of professional artists and at the total NEA funding and then divided the funding to be able to say it’s $50 per person per year. Your job is to tell a story in numbers.
This is an amazing share of a market. . . . (Photo: Sarah McGee (Wall); Tomohiro Ohsumi/Bloomberg via Getty Images (Yanai))
Re-consider how what you learned here affects your assessment of the market size.
There are a few ways people categorize costs, and you will need to be versed in the basics both to write a budget and business plan and to think through what kind of business model will work for you. Fixes costs are your overhead – things that don’t change with the amount you produce. Variable costs are, as they sound, ones you only incur when you make something specific. Even more important is the concept of opportunity cost (possibly the most important concept in all of economics). Opportunity cost is the cost of your next best alternative. For example, if you weren’t at home waiting for the Time Warner Cable guy for three hours, what else could you be doing? If you left a job in corporate America to become an artist, the opportunity cost is the salary you would be making if you weren’t making your art. Opportunity cost is just information – it doesn’t mean you should go back to your corporate job, just that it’s a way of thinking about the choice you have made. Artists and entrepreneurs often fail to take into account opportunity cost by not valuing their own time or things given to them (eg a basement rehearsal space).
Understanding cost structure can lead to strategy, eg, in the case of Uniqlo, spreading overhead over many units. (Photo: Levi Brown)
We live at a time of highly successful businesses that use technology to have low variable cost structures. ZipCar, AirBnB, Kickstarter – once the technology is in place (a fixed cost/investment to set it up), it’s almost infinitely replicable. (ZipCar has to get the parking spaces and the cars too, but once it’s set up, the cost for each additional user is very small or negligible.)
Artists can also be creative with fixed costs. One of the best ways I know to do this is to collaborate – to share equipment so you all chip in for overhead. Asher Dunn, who designs this furniture has done this with his space Keeseh in Providence.See http://studiodunn.com/
And http://keeseh.com/ for the co-working space.
Here is an example. Don’t be thrown by the Excel notation. . . . If you invest $10,000 to make $12,000, that seems like a good deal. You make a 20% return. But, that’s only if you get the return in the same time frame. The theory of “net present value” is that you can discount future cash flows (DCF or discounted cash flow analysis) so you can figure out what they are “worth” to you now in the present. Let’s say, in this example, you get the cash flows over four years ($12,000 total but in increments). The formula to calculate net present value (NPV) is to take the cash flow and divide it by 1 plus the interest rate you think you could get otherwise. If you weren’t investing 10,000 here, you could get 5% return each year from the bank, so the rate – “r” is 5%. Then you reflect the dimension of time by raising 1+r to the number of years (or whatever time frame if 5% is a monthly or quarterly, not annual return). So if I get 2,000 in year 2, my denominator is 1+ 0.05 raised to the 2nd power which is 1.05 x 1.05 which is 1.25. You can see how that number gets bigger exponentially as you go across. So you discount the cash flows and analytically 5,000 in year 4 is really only worth 4,114 to you. (If you had 4,114 in year zero, it would be 5,000 in year 4.) The key takeaway is just again to be mindful of the timing of the cash flows because your investors will – and the real economic value of a project will need to reflect this. An everyday example is when someone wins the lottery, they will offer you a lump sum payment or a payment annually for decades. They’ve done this calculation. The annual payments look bigger but since you don’t get the money for a long time (and someone else gets the investment return on it), it isn’t as good of a deal as it may look.
This is a way of comparing options by taking into consideration the probability of whether they will happen. You multiply the odds by the payout, as in the example above. It’s a good mental habit for knowing the scale of something (eg lottery payouts are huge but odds of winning tiny, so the expected value is – I have to imagine since lotteries are huge fundraisers for governments – less than the price of a ticket).
Pulitzer Prize vs Income. Odds re pitching work. What your goals are. When to buy a lottery ticket and when to play it safe.
A good way of knowing “what success looks like.” This identifies the point at which you shift from loss to profit.
Take some time and make notes on each of these three sections.We didn’t cover budgeting in this workshop because Kay Takeda and others had taught it. You should be able to find good resources elsewhere for writing a project budget. Just start by brainstorming all your sources of income / revenues and all your costs, and see how to find support to put these in balance. Especially if you are a practicing artist, your business plan goal may not be to make money in your art, but to construct a “business plan” for your life so you can create an ecosystem – of day job and project work and whatever else – to enable you to make your art.
We looked at the two types of creativity – making the work and designing the structure and system in which the work gets made. We looked at material resourcefulness—the brick—and the complexity of then also designing the house. We looked at the importance of knowing your purpose, your Major Dramatic Question, your lighthouse. And we emphasized that business plans are storytelling devices and works of art, that invite people to support your project by showing them what is at stake, what contribution is to be made, and how you are uniquely able to do it.
Another way of thinking about envelopes is the business saying “back of the envelope” calculation. This is the phrase to describe the kind of shorthand analysis you can do literally scrawled on the back of an envelope or a cocktail napkin. One of the most important things I learned in business school (apart from the fact it’s always all about people) is the importance of being able to make decisions on incomplete information. To the extent you do not think corporate CEOs are overpaid, they are compensated for their ability to do this – to lead through uncertainty, to constantly hypothesize and iterate. Even though business and numbers always look like truth and it can be tempting to “figure it out” before you act, this is all part of your practice of moving forward.
Never forget that the original founder of economics was an artist. He created a thing in the world – economics – that changed the world to allow itself to exist. He never set out to do this. He was a Scottish moral philosopher (whose first book was on sympathy and imagination) who intended to write a series of volumes on the progress of man, the history of civilization, and the development of opulence. That book even has a section on the history of education. Also, economics was originally theorized to help describe the way we live not just to govern it. So the goal is to understand it well enough to decide when it applies and when it doesn’t.
Yes, I teach economics to artists so that it can help you with your lifeand help you amplify the reach of your work. But if I am being really honest, the pie in the sky version for me is for more people to understand economics, not just so that we can all be better citizens and hold people accountable for how they design or governmental and financial systems with intelligence and informed questions. But I want artists to understand economics enough to shape the system itself. One of the most fun parts about teaching for me is seeing people understand enough to make brilliant insights—to be creative with economics itself. The world would be a better place – for artists and everyone else – if more people did this.
Ultimately, a lot of artistic values are not economic in nature. These are the ones I think of – attention, choosing the be present and showing up. You can’t change the world without noticing it first. Participating, being game, getting in the fray. (This is a photo of Backstreet Boys concert my day-job office went to last summer and one of our interns dragged us up into the crowd from standing on the sidelines. You’ll also notice a lot of the crowd is not participating so much as documenting on their phones.) Your attention is the best resource you have.Finally – Generosity. Artists often have to be generous because you have to be willing to put something out there before you know if you will get something back. Economics should never get in the way of these things, only to help you do them.
review<br />Two types of creativity: letter and envelope<br />The brick and the house: material resourcefulness<br />Telling the story of your <br />business plan<br />Your business as a work of art<br />Finding your lighthouse<br />We looked at the two types of creativity – making the work and designing the structure and system in which the work gets made. We looked at material resourcefulness—the brick—and the complexity of then also designing the house. We looked at the importance of knowing your purpose, your Major Dramatic Question, your lighthouse. And we emphasized that business plans are storytelling devices and works of art, that invite people to support your project by showing them what is at stake, what contribution is to be made, and how you are uniquely able to do it.<br />Ultimately: <br /><ul><li>why it’s special