Saturday, August 20, 2011

Capital Punishment

An article in today's New York Times tells of the woes of the American Folk Art Museum. Borrowed $32,000,000 to build a signature building. Failed to attract the attendance numbers or financial support they projected. Had to sell the building, with the proceeds only covering the debt. Consolidated into a small space that cannot support the fixed costs of the collection.

There are a number of typical nonprofit pitfalls in this story, topped by the need for the cushion of an endowment and the importance of tough minded projections of the impact of major investments. Build a spectacular attraction, and it still may be tough to compete for admissions.

While the building seems to have been a wash in this story—the sale of the building covered the debt, after all—the increased operating costs that came with expansion were likely a major factor in the museum's downfall.

As noted in prior posts about difficulties in other nonprofit sectors—see Is Salvation a Kroc? and Facilities and business plans—good preparation for a facility undertaking does not start with hiring an architect. It begins with overall stategy and planning (Understanding Facilities Part 1 and Part 2) and a comprehensive exploration of financial scenarios (Critical Issues 6: Financial Modeling).

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