TIM managers have just completed a remarkable benchmarking week in Britain, visiting 13 organizations, including LandRover, BT, BP, Virgin, Rolls Royce, RBS and Manchester United.

Our visit included a trip to the Prince of Wales Theatre in London’s West End, where we met with Richard Pulford, CEO of the Society of London Theatre, a trade association of theatrical producers.

We learned many things about the business of producing plays and musicals. The main lesson: It is not enough to create value. (London plays and musicals create enormous value, and memorable customer experiences, for 14 m. theatre visits annually!) Some shows have run for decades — Agatha Christie’s The Mouse Trap ran for 57 years,  Phantom of the Opera for 27 years, Cats for 21 years!.  

But you have to capture that value in order to sustain the business. London theatres are sustained only by the fact that producers tend to be wealthy and can afford to lose money. Only one play or musical in 10 makes money, two break even and 7 lose! Why? Market failure — inability to capture value. Here is how Richard Pulford explains it:

West End theatres are crucial for London. They bring in many tourists, who spend on restaurants, cabs and hotels.  For instance, total hotel revenue is £ 415 m. yearly. Much of this comes from theatre-goers. Perhaps £ 1 b. in tourist revenues is directly related to the theatres. Yet, the theatres cannot capture this revenue, it is an ‘externality’. [Perhaps they could, if they practiced market segmentation, like Manchester United…but they do not, and have not apparently benchmarked Man Utd.]. A rare strike in the theatres drastically cuts tourism.

We were convinced that with market segmentation, with the techniques used by Manchester United, BT and other businesses we visited, London theatres could be profitable. They could capture more of the value they create. Yet they appear to avoid benchmarking other businesses, because theatre is, well, theatre is artistic, not business. But why? In social entrepreneurship, powerful business principles are used to do good in the world and to help people. Why not do the same in theatres?

Every business begins and ends with creating value for its clients. But every business must also know how to capture a large portion of that value. Businesses that do not are doomed to lose money. They will disappear, unless, like the theatre, they have wealthy backers willing to lose money forever.