02/23/2012 05:04 pm ET Updated Apr 24, 2012

Business Strategies for the Creative Economy

Creative individuals and their entrepreneurial ventures are characterized by enormous profit potential as well as huge market and execution risk. Get the formula right and align with Picasso, Madonna, Spielberg and Jobs. Otherwise, the average American starving artist makes less than $23,000 a year (U.S. Census Bureau 2008.) Smart governments know that encouraging innovation is where their future lies because the creative economy's contribution is growing and already represents 11 percent of the economy in a small country like Denmark. (Center for Culture and Experience Economy, 2010)

What differentiates entrepreneurial ventures in the creative economy is their dependence on one or a few individuals' intangible breakthrough ideas as opposed to raw material, property and energy. However, private investments are virtually unattainable for these ventures due to a lack of good process and metrics, making it impossible to construct a viable business case. The resultant financial pressures can propel these ventures to less than desirable outcomes.

During the last few years, our Design Quantification team researched how artists and designers think, and discovered how they can actually improve each other's performance. So, what can artists learn from designers? In one study, we asked successful artists and designers to explain their creative concepts and measured their focus on various success indicators such as users' identity, needs and behavior. We found that industrial designers pay more than twice as much attention to these indicators than do the artists, while the artists spend twice as much attention on themselves and their trade when compared with industrial designers.

This suggests that artists have an opportunity to further excel by simply understanding their users better and they can easily do this by leveraging methods developed in the consumer product industry, beginning with the following three approaches: position art work, managing resources and risk, and Integration of art and business.

Positioning artwork in a market risk -- execution risk matrix, helps to balance creation and consumption. Low market and execution risk is associated with "me to" products, while high market and execution risk is associated with exploring new needs and expressions and therefore with creating breakthrough innovations. Top performing artists always innovate.

Managing resources and risk over time is critical for creative professionals to stay in the game for the long haul. Venture capitalists expect to hang in for three to five years before a carefully selected start-up might return 20 times their investment, and only 1 out of 20 will do this. For art, risk goes down and the value goes up as the art proceeds to the first sale, followed by sales from galleries and on to when critics and museums finally show interest, so one needs to pace cash flow in order to finance the entire journey.

Design has been shown to bring the most value to organizations when integrated with business and, in entrepreneurial ventures within the creative economy, the creative professional is the business. Just as from within an international corporation, products flow from one's values, beliefs, attitudes and vision.

The integration of art and business reminds me of advice received from a wise friend. "It doesn't matter what your major is, as long as you minor in business."