February 26, 2014

The Innovator's Dilemma in Theater

We’ve all been to the theater and seen a play set in an Upper West Side living room where upper-middle class to wealthy characters complain about things that we find utterly banal. Inevitably, there are older people in the audience eating this play up. While they’re finishing up their nosh we’re thinking, geez, I have so many talented friends who can write a better play about more contemporary themes. Well, we all have talented friends but there’s a good reason that big beautiful theater is choosing the content that it is: The Innovator’s Dilemma. It was brought to light by Clay Christensen, one of the world’s greatest researchers on innovation and the theory reads as follows:

Successful companies can put too much emphasis on customers' current needs, and fail to adopt new technology or business models that will meet customers' unstated or future needs...such companies will eventually fall behind.

This is exactly what’s happening inside that theater that just produced the banal play with $100+ tickets. They’ve been around for awhile and they serve customers that demand a product that meets their complex requirements. They have a beautiful theater in an expensive neighborhood, produce shows with elaborate sets and provide donors with varied perks for their contributions. They’ve built a machine (artistic, development, marketing and operations departments) that is focused on serving the needs of their patrons. They are so good at this that serving the needs of their patrons eventually becomes their tragic flaw.

Having a laser-like focus on their current customer’s stated needs leaves two openings:

  1. Fulfilling customers unstated needs
  2. Fulfilling different needs of new customers

While the big theater (the incumbent) improves their laser-like focus there’s room for a new company (an entrant) to focus on entirely new customers. The entrant’s focus is on customers who wouldn’t buy the incumbent’s product in the first place. The new customers value aspects of the entrants productions that the incumbent does not provide. This can be anything - intimacy, physicality, site specificity - think big, think small, think different! These new customers value what the entrant provides but also don’t value what the incumbent provides or else they’d be doing business with them instead. This leaves the entrant running a business with a drastically different cost structure - oftentimes there’s no theatre, donor program or staff to maintain. The entrant’s cost structure and prices are vastly lower than the incumbent’s. Overtime, the entrant can expand their productions to fulfill more needs and can expand their market segments into ones that encroach upon the incumbent. The entrant is then taking customers from the incumbent.

Eventually the incumbent will feel threatened but they can’t change fast enough to stem the bleeding. They have a large installed base of customers who are used to their specific productions. They have expensive products (productions, donor perks, theatres) and often expensive sales channels (marketing and development departments) to maintain. It’s not possible for incumbents to drastically cut spending or rapidly pivot to provide a new kind of content.

Instead the incumbent spends money on increasing features and performance (even nicer sets, donor perks, better looking development officers, etc.) This increase leads to a product that costs more but whose improvement in value is important to less and less customers. This is The Innovators Dilemma. The entrant begins at the bottom of the market and marches up the graph. The incumbent is forced to march up the graph as well but their march marginalizes their patron base as they offer more and more value to less and less people who require that additional value. Eventually the incumbent will play to empty houses and the entrant will still be growing. The difficulty is then for the entrant to avoid becoming a victim to the innovator’s dilemma themselves.

This is the problem currently being faced by Roundabout. Their cost structure requires them to sell tickets at a high enough price to maintain a large staff, multiple theatres, marketing campaigns and everything else required to mount shows at the quality and volume that Roundabout does. The necessity of a high ticket price demands that they produce shows that appeal to the stereotypical theater audience who can afford those tickets. By necessity they have to largely ignore the audiences of the future because they (myself included) cannot afford to drop $100 plus on a show.

We can complain about Roundabout and theatres like them until we’re blue in the face or we can take this as a huge opportunity to start the theatre companies of the 21st Century. We know how anxiety provoking running a company is. How do you find an audience and figure out what they value? How do you experiment with new business models? How do you convert prospective ticket buyers to actual ticket buyers? How do you transition from friends & family donating and purchasing tickets to strangers?

Luckily there’s been a tremendous amount of research done in this sphere and we are going to cover how to apply it to the theatre on this blog. If you’d like to speak to us about how we can help your company on a one-on-one basis then feel free to reach out to us via email or on Twitter @CityAstronaut.


About Form

Form was created to bring a scalable, repeatable and sustainable growth framework to the arts. We’ve taken a page from startups and are applying a framework that allows companies to test their business models and scale them in a low-risk and low-cost manner. Together we can build the theater companies of the 21st century.

Our Office

c/o AlleyNYC
500 7th Avenue, 17th Floor
New York, NY 10018

Email Newsletter

Tips on how to grow your organization, delivered straight to your inbox.