G&A Interview Series: Museums in Times of Crisis
Mike Devine shares his perspective on how COVID-19 shutdowns are impacting museums. He answers the #1 question he’s hearing from clients right now, as well as how museums can safeguard their financial future while planning for better days ahead.
Mike Devine is President of Gallagher Museum Services (GMS), the business strategy and planning division within G&A. Mike brings over 25 years of financial, investment, and operational-related experience with over 20 years of museum and cultural center experience. He launched his career as a CPA with Ernst & Young and later served as Partner for an investment wealth management company. Mike first met the G&A team when he was President of the Malrite Company—the owner of the International Spy Museum. After launching the Spy Museum as the first “self-sustaining” museum in 2002, he went on to consult as a financial advisor to other museums and cultural institutions. In 2016, Mike joined G&A to lead GMS. He is currently helping several cultural institution clients navigate through the COVID-19 crisis.
Can you share your perspective on the major crisis museums are facing today?
MD: This current crisis affects museums across three interrelated areas. First, museums are worried about the safety of their teams and staff; second, the impact on their guests and constituents—that can include donors and board members, as well as visitors; and third, the financial impact. The financial impact has a material influence on the decisions they’re making in the short-term, which, in turn, has an additional effect on all three areas.
What is the #1 question you are hearing from clients right now?
MD: “How do we manage cash through this situation?” We are doing a lot of analysis around, what we call, burn rate. That’s how much cash a museum has on hand, on a monthly basis, and how much they absolutely have to pay out each month for expenses. To analyze the burn rate, there are multiple layers of analysis—from how many staff members they can keep on payroll to non-staff expenses that can be reduced.
How do COVID-19 shutdowns affect museums in operations compared to museums in development?
MD: For development projects—depending on what phase they’re in and assuming the project budget is funded—we can keep them running with very little impact. Exhibit designers can still design, programming can still be planned. They already have limited staff and, from a revenue standpoint, they are not expected to earn money yet. That said, we are finding that museums in the development stage are being very conservative in their decision-making given the uncertainty of how long this crisis will continue.
For museums that are open, there’s a huge dependency on earned revenue. They have a full staff. They have operating expenses. When you close the museum, all the private event revenue, ticketing revenue, F&B revenue—it all stops. That’s where this crisis is unfolding rapidly within our industry. According to AAM, there are 726,000 people employed by museums throughout the country. This has ramifications that go beyond the museum entity. It goes out into the community they serve, the state, the industry, and the country at-large.
How would you say this crisis compares to some of the events we’ve seen in the past?
MD: We’ve helped our clients navigate many difficult situations, from local disasters to national disasters. September 11 happened just before we launched the International Spy Museum in Washington, DC. Then we experienced Hurricane Katrina and the impact on the National WWII Museum in New Orleans, and the Las Vegas Shooting and its impact on The Mob Museum. In each situation, it required museums to reconfigure and re-think what they’re doing for the short-term and the long-term.
September 11 may be the closest to what we are seeing today, in terms of a large-scale event that required wide-scale shutdowns. At that time, people were concerned about flying, visiting big cities, and terrorism. While the key crisis is different today, we are faced with a similar slew of unknowns. We don’t know when we can re-open and we don’t know what the new normal is going to look like after this crisis is over.
Today, we also have to question whether people will feel comfortable being around other people again. We are re-thinking the operating model for museums to account for social distancing. Can we stretch the day out longer? So, instead of having 300 people an hour on a busy Saturday, can we manage only 100 people per hour? Can we design an operating model that will make people feel comfortable, and can we market this new model effectively to potential visitors? And, of course, these shifts will have significant impacts on staffing and private events. There’s a lot to consider here.
What are some of the lessons learned from past events that can we apply to this current crisis?
MD: The one thing I would say is this reinforces the need for diversified revenue streams. At GMS, we’ve always prided ourselves on building museums that have a self-sustaining revenue model; one that’s not as reliant on government subsidies or donations. Today, that model is a pain-point. For museums that rely on earned revenue, their main source of income has been completely cut off, literally overnight.
For museums that have other sources of revenue, such as endowments and donations, they still have revenue that can be accessed. This highlights the need for a well-established, diverse portfolio. It also requires us to look at the staffing model to support those different revenue streams. You need the development staff to capture contributed revenue, and you’ll need Government Affairs and grant-writing specialists to make the most of your city, state and federal funding opportunities. Proper staffing, modeling, scheduling, and planning are all going to be critical parts of re-imagining a post-COVID-19 institution.
What are some of the first steps museums need to consider to safeguard their finances?
MD: Focus first on the cash burn rate. What are the essential costs you have to spend right now, including your staffing costs and the non-staffing costs? How can you minimize each line item on your income statement and in your budget to manage the cash flow during this situation with a significant reduction in revenue? Then, start looking at ways to minimize risks for the future.
Right size your business and operating model. Do not assume that things will immediately return to normal. Be conservative and ramp up operations and staffing accordingly to fit your attendance. And finally, focus on finding ways to cross-train within various disciplines. Museums that become flexible and nimble in their staffing and operating models will emerge from this crisis more efficient, effective, and healthy
So many museums are having to furlough employees or perform layoffs. What are some of the ways you see museums can avoid this?
MD: I do think the government’s Payroll Protection Program (PPP) that was just released is critically important to keep as many staff employed as you can. In theory, the money you’re getting from this loan should be used to cover your payroll. Those dollars will help keep staff intact through June.
However, for the front-of-house staff like ticketing and guest relations, a furlough may be the best option for them right now. Some government incentives through the unemployment benefits expansion may mean more money in their pocket. It could be a better option for the staff in the short term. In general, any government funding that’s available should always be acted on.
Are there actions you would caution clients against taking right now?
MD: This ties into the question about lessons learned. For institutions who make the decision to let go of their development, sponsorship, or programming staff, they are going to find it’s much more difficult to bounce back. Those positions will take years to replace, as well as years to recoup the loyalty and trust of donors and sponsors who were nurtured by those members of the team. And, as I mentioned before, those roles will be critical to support the long-term financial stability of the institution.
Beyond staffing, another mistake can be to eliminate all marketing initiatives. We know from data provided by Colleen Dilenschneider of Know your bone, it costs significantly more to re-engage lost audiences than to retain them in the first place. Finding smart ways to maintain marketing momentum will be an important factor in achieving financial stability post-COVID-19.
What’s your best guess on how long it will take museums to bounce back after social distancing guidelines are lifted?
MD: That’s the biggest question: what’s the new normal and how will it be different? We’ve done many studies on the impact of previous events—such as September 11, the Las Vegas Shooting, and Hurricane Katrina. I would say, in general, it took about a year for them to get back to “normal.”
What’s interesting about the subprime mortgage crisis from 2007-2010 is that it drove an increase in museum visits. People couldn’t afford elaborate vacations, so taking a ‘staycation’ became popular and people visited their local museums. I’m not optimistic that we will see it play out that way after COVID-19. Unless a suitable vaccine becomes available, social distancing guidelines could have a more lasting impact. We are conservatively modeling this as a 3-year process to get back to normal. If it’s less time, we’ll be thrilled—we just have to take the worst-case scenario for planning purposes.
What modeling are you doing and what are the considerations.
MD: For most clients, we have three different models: Optimistic, Middle, and Low. From a fiscal year perspective, we’re managing the client’s cash flow based on the reopening date and then modeling it out. If they open in July and they ramp up 50%, what’s that going to look like? Or if they don’t open until September and ramp-up to 50%, what does that look like? Every scenario requires a different plan of action. If it’s opening 3-months later, that’s three more months of cash needed. Whatever it is, we can provide the roadmap for clients to be successful.
How can museums harness this time to start planning for better days ahead?
MD: What’s encouraging is during the first couple of weeks, everyone was concerned with crisis management. Now, people are looking for ways to come out of this better. They’re seeking a silver lining. How can they reinvent themselves while they have the time? What do they want to do differently and who do they want to be when they come out of this? We know from experience, there’s nothing like a crisis to put things in perspective. And I know, the future of museums post COVID-19 will be no different.
Have questions you’d like Mike to answer? Get in touch with him at [email protected]
GMS is the strategic planning division within G&A. They have seven staff members located throughout the U.S., who serve the following disciplines: Business Planning & Feasibility, Operations & Financial Management, Traveling Exhibitions, and Owners’ Representation.
- Mike Devine | President, GMS
- John V. Christie | SVP, GMS
- Petr Spurney | SVP, GMS
- Robert Bready | VP – Operations, GMS
- Spencer Downey | Financial Analyst, GMS
- Kevin Barrie | Manager, GMS
- Adam Tate | Manager, GMS