Friday, October 20, 2006

More More Science Station Lessons for Pella

For the third day in a row, The Gazette's Janet Rorholm has provided a quality and helpful bit of page one journalism regarding the financing of edu-tainment venues generally, and the Cedar Rapids' Science Station in particular. Janet Rorholm, "Chilling Effect; Non-Profits in C.R. Area Fear Science Station's Money Woes Could Hurt Their Fundraising," The Gazette, October 20, 2006, p. 1A.

[For October 19 see
, Nicholas Johnson, "More Science Station Lessons for Pella," October 19, 2006, and Janet Rorholm, "A Plea for Help; Support Urged to Keep Debt-Ridden C.R. Science Station Open," The Gazette, October 19, 2006, p. 1A.

[For October 18 see, Nicholas Johnson, "Science Station Lessons for Pella," October 18, 2006, with its links to
Janet Rorholm, Debt Dooms C.R. Science Station; Center, IMAX Theater to Close Nov. 15 Unless 'Sizable' Bailout Spares Them," October 18, 2006, p. A1, and State29, "IMAX Theater in Cedar Rapids Creates a Lot of IDEBT," October 18. 2006.]

From today's (October 20) story I've selected the following quotes for commentary:

1. "Anytime there is an incident or an event like this . . . it’s going to have an effect on the non-profit sector,’’ said Dan Baldwin, president of the Greater Cedar Rapids Community Foundation.

Baldwin makes a point that is often, understandably, overlooked by those caught up in the heat of controversy regarding their own financial shortfalls. When any single non-profit appears to be poorly managed -- confronting closure because of having taken on an unrealistic debt load or, as in this case, having failed to notice what is alleged to have been a substantial embezzelment by one of its employees -- it reflects not only on that single institution, but on non-profits generally.

2. (a) "There is no value for someone to open up a checkbook and cover past sins if its operations can’t be sustained,’’ he [Tom Hauer, president of The History Center’s board] said.

(b) Lee Clancey, president of the Cedar Rapids Area Chamber of Commerce, said the community needs to place more emphasis on operations when attractions like the IMAX theater are built. ‘‘We have built these wonderful cultural institutions, but we have not built into them a method to help sustain them operationally,’’ she said. Most of the fundraising for such attractions is for bricks and mortar, she said. But nearly none of it is given to create an endowment that could help pay for ongoing operations, such as supplies or utilities . . .."

Business plans. I've braced Hauer's and Clancey's comments together because they both deal, in part, with the necessity of what we call "business plans."

I would say that business plans are merely a sub-set of what we call "common sense," but for the fact that good business plans are not that common.

They are common sense in the way that gathering data and best practices, evaluating options and possible future scenarios (including "exit strategies"), establishing numerical mileposts of progress -- in short, "thought" and "planning" -- are pretty basic essentials for any undertaking, whether marriage, starting a war, planning a career path, saving for college, trying to lose weight, or writing a will.

In most cases, it's not that the people who don't do this are irresponsible or ignorant. It's often simply that they've been hired to do something else: to run an institution, or program, that is already in place. (The story is told of Barry Goldwater in the 1964 presidential election when he was approached by a questioning reporter moments before Goldwater was to begin speaking at a rally. "What do you think about . . ." the reporter began. Goldwater interrupted him: "Don't ask me what I think. I don't have time to think. I'm talking.")

I used to say that if any given factory had not been visited by an efficiency expert within the last five years or so that any bright sixth grader could walk through it, observe the processes, and make recommendations that would save at least 10% to 30% of the costs of operation.

Why? Because, as the old line has it, "When you're up to your a** in alligators it's hard to keep your focus on the fact your original mission was to drain the swamp." It's not that the assembly line workers wouldn't have been observant and smart enough to come up with comparable suggestions to those of the 12-year-old -- in fact, they are often the best source of such ideas -- it's that they, and their supervisors, were never given the time, nor asked, to think about it.

Realistic business plans -- precisely defined purposes and measurable goals, data- and experience-based projections of revenue streams, anticipation of possible set-backs -- are hard work. They take time, lots of time, research, thought and analysis, often when promoters feel they have little time available -- coupled with the greatest excitement and desire to get started.

Moreover, there's a kind of macho notion that planning is for sissies. "No risk, no glory." "The school of hard knocks." Rudyard Kipling's poem "If" contains the lines,

"If you can make one heap of all your winnings
And risk it on one turn of pitch-and-toss,
And lose, and start again at your beginnings
And never breathe a word about your loss
. . .
Yours is the Earth and everything that's in it,
And--which is more--you'll be a Man, my son!"

So far as I know no one has ever written a poem, or a feature film script, about someone who successfully spent the extra time planning because he or she wished to avoid the loss that requires one to "start again at your beginnings."

Factor in lack of experience, laziness (or the demands of other obligations), disinclination to do research, the realization (with pulic projects) that "it's not my money," and numerous other human qualities, and the remarkable thing is not that a third of all businesses fail within the first few years, it is that so many succeed.

Since we're looking for lessons from the Cedar Rapids' experience that might be useful to the folks in Pella, many of the fundamental problems with the rain forest project have involved the absence of some of what would be business plan basics. There is now something called a business plan for the rain forest, but it still has some major omissions. See, Nicholas Johnson, "Earthpark Business Plan: A Review," August 12, 2006.

Operating costs. As I've occasionally pointed out, the focus on the rain forest promoters' inability to raise a dime in ten years is a bit of a diversion. Sure, that's a deal breaker. If they can't raise the $150-$225 million to get started one doesn't even reach the question of their ability to create a revenue stream adequate to keep the thing going. But what has always seemed more significant to me than the rain forest's construction costs are its operating costs.

As I've quoted Lee Clancey from this morning's Gazette story:

‘We have built these wonderful cultural institutions, but we have not built into them a method to help sustain them operationally,’’ she said. Most of the fundraising for such attractions is for bricks and mortar, she said. But nearly none of it is given to create an endowment that could help pay for ongoing operations, such as supplies or utilities . . .."

's a common problem with boosterism -- whether Cedar Rapids' edu-tainment venues or the rain forest project. A generous art collector may be willing to give his or her collection of very valuable works, and even give the cash to build the new wing on the art museum to display it, but is not interested in creating the endowment fund, the income from which can provide operating costs for the foreseeable future. An expansive and expensive English castle and estate may pass to a young couple who quickly discover they can't afford to accept it because of the maintenance costs.

This is one of the most significant elements of any business plan: What are realistic estimates of the revenue streams and operating costs? What sources of funding will be available to make up the difference -- or what costs will be cut -- if that revenue proves to be inadequate from time to time?

Pella, are you listening?

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