Developing and Organizing a Viable Business Model

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Developing and Organizing a Viable Business Model

• Session 2
• Levitt Social Entrepreneurship Program
• January 25, 2014

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Flow of This Mornings Session

• Introductory Dialogue and Activity
• Business Models and Their Value
• Stages of Social Venture Development
• What Is Your Venture or Initiative?
• The Two Pillars of a Viable Social Venture
  Business Model
• Strategic Development
• Core Business Model Elements
• Market
• Money
• Management
• Next Steps in Our Program and Process

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NO GOOD ENDING CAN BE EXPECTED IN THE ABSENCE
OF THE RIGHT BEGINNING.

• --I Ching

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Lets Talk

• What is a Business Model?
• What is a Viable Business Model?

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Stages of Development

• Opportunity Identification, Clarification, and
  Assessment
• Leads to
• Viability Assessment (or Feasibility Assessment)
• Leads to
• Business Plan Development
• But not in a single cycle linear process a
  strong venture development process will involve
  multiple iterations, gaining refinement from each
  cycle.

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Opportunity Identification/ Clarification and
Assessment

• Growing Out of Exploration of Session 1
• Asset Identification and Evaluation
• Asset Valuation
• Opportunity Identification and/or Clarification
• Opportunity Evaluation
• Opportunity Valuation
• Risk Assessment
• Result Overall Assessment of Opportunity Worth
  Further Exploration and Development

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Managing Risk?

• Traditional
• Insurable
• Personal Liability
• Property
• Financial
• Investments
• Debt
• Returns
• Uncertainty

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Decision Model
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Some Risks to Assess(from Dees et al 2001)

• Management Capacity
• Workforce Capacity
• Organizational Culture
• Organizational Infrastructure
• Enterprise Concept
• Level of Required Capitalization
• Prospects for Long-Term Funding
• Prospects for Changes in Marketplace
• Changes in Knowledge and Technology
• Stakeholder Backlash
• Competitor Response

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A Sound Business Model Integrates

• Viable and Relevant Mission and Vision (the
  social purpose)
• Real Value Proposition
• Social Value Creation Cycle (in the form of a
  logic model or theory of change)
• Resources to Finance and Fund It
• Capacity to Implement It

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Value Creation Cycle(from The Nonprofit Strategy
Revolution. David LaPiana 2008)
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Strategic Fit
Strategic FIT
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Viability Assessment

• Three Basic Elements
• Market Assessment
• Money Assessment
• Management Assessment
• Leads to Overall Assessment of Venture
  Feasibility and Viability

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The Market (Customer) Question
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Market Viability Assessment

• Builds on Assessment of Porters Five Forces
• Focus on
• Demand
• Competitive Advantage
• Differentiator(s)
• Price and Cost Structure

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Competitive Advantage (The Nonprofit Version)

• This is the ability to produce social value by
• Using a unique asset
• and/or
• Delivering outstanding execution
• We employ the perspective of Porters Five Forces
  Model to examine and understand where and how we
  fit

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Strategy vs. Reality
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Lets Talk

• Share with your colleagues
• In two minutes or less (your elevator speech)
• What is your venture or venture concept? What is
  the social venture or program initiative that you
  have determined has great potential for creating
  social value? What is the social value
  proposition and how do you expect to deliver on
  it? (or your best case scenario)

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• Key Components of
• A Well-Developed
• Program Design
• (The Social Value Proposition)

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Mission Vision

• Mission, Vision, Values
• The mission
• Continuing philosophical perspective
• Makes explicit reason for the agencies existence
• The Vision
• Is what can be accomplished by providing mission
  services
• An end state

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Strategy and the 5 Ps

• Strategy as a Plan
• Strategy as a Ploy
• Strategy as a Pattern
• Strategy as a Position
• Strategy as a Perspective

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Objectives

• Provide short-term and long-term outlook
• Intermediate results Immediate impact or change
• Final results The long-term impact or ultimate
  change
• Should be stated in measurable terms
• Time frame
• Target of change
• Results

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Program/Product/Services

• What services will you provide?
• This is an obvious question, but one that
  requires detail and specificity. In addition to
  describing the services, you must also outline
  the service delivery pattern.
• At what times of the day will you provide the
  services? Will the services be provided on site
  or at a remote location?

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Market

• Who will you sell this to?
• Who is the target market for the program?
• Understanding the demographics of the target
  market will inform marketing strategies, pricing,
  and service delivery. For example if you will be
  providing clinical services, your price will be
  influenced by reimbursement schedules of
  third-party payers. Additionally, it is
  important to clarify if the target market demands
  the services, or are you providing services that
  will require you to create awareness. The two
  scenarios will require differing marketing
  approaches.

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Implementation

• How will these services be delivered and sold?
• Is this place-based, or Internet-based, or some
  combination?
• Where will the actual business be located and
  what kinds of facilities will be needed?

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Capacity/HR

• Who will manage and who will staff the
  enterprise?
• This decision is grounded in the internal
  assessment.
• How many people will you need, and will you hire
  new staff or use (or redeploy) existing staff?
• Implicit in this discussion is the issue of
  capacity. If you use existing staff, what
  additional capacities will you need to develop?
• If you hire new staff, what will you pay them
  (e.g., comparable to nonprofit salaries or to
  for-profit market rates)?

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Program Design

• Inputs
• Client
• Staff
• Material resources
• Facilities
• Equipment

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Program Design

• Throughput
• Service Definition
• Service Task
• Method of Intervention
• Outputs
• Unit of service
• Service completion
• Quality

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Outcomes

• Numeric Counts
• Standardized Measures
• Level of functioning scales
• Client satisfaction

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These Add Up to Becomea Logic Model

• A very useful device to plan and explain
• Your assumptions and expectations for how you
  expect to link
• Inputs, which will support
• Activities, which will lead to
• Outputs, which will add up to
• Outcomes, which will result in
• Long-term Outcomes and Community Impact

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Return to Viability Assessment

• Three Basic Elements
• Market Assessment
• Money Assessment
• Management Assessment
• Leads to Overall Assessment of Venture
  Feasibility and Viability

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Money Viability Assessment

• Initial Consideration of
• Revenue Potential
• Investor Potential
• Available Capital

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To Integrate These Compass Points Dual Bottom
Line Matrix
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Management Viability Assessment

• Mission Compatibility
• Core Competencies
• Venture Capacity (including complexity)
• Core Constituents or Stakeholders

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Structure

• How will the program be structured?
• Will the venture be a program of the existing
  organization or will the venture be a separate
  subsidiary?

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Structural Options

• Social enterprises typically take one of three
  general forms (Alter, 2009)
• the social enterprise is constituted as a
  discrete organization,
• the social enterprise is part of the
  organization, or
• the social enterprise is a subsidiary or
  affiliate of the organization.
• Consider legal implications

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Social Venture Planning

• In other words, social venture planning is the
  process by which we plan and articulate how we
  will integrate
• Money
• Market
• Management
• o successfully deliver social value

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Alters Hybrid Practitioners

• Nonprofit with Income-Generating Activities
• Cost Recovery
• Earned Income
• Social Enterprise
• Socially-Responsible Business
• Corporation Practicing Social Responsibility

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Purely Philanthropic to Purely Commercial
Traditional Nonprofit Nonprofit with Income-Generating Activities Social Enterprise Socially Responsible Business Corporation Practicing Social Responsibility Traditional For-Profit
Mission Motive Stakeholders Accountability Income Reinvested in Social Programs or Operational Costs Mission Motive Stakeholders Accountability Income Reinvested in Social Programs or Operational Costs Mission Motive Stakeholders Accountability Income Reinvested in Social Programs or Operational Costs Profit-Making Motive Shareholder Accountability Profit Redistributed to Shareholders Profit-Making Motive Shareholder Accountability Profit Redistributed to Shareholders Profit-Making Motive Shareholder Accountability Profit Redistributed to Shareholders
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The Summary Key Elements of Feasibility or
Viability Assessment
1. Explain the Venture
2. Market research on potential customers
3. Desire and Need for Product or Service
4. Assets and Capacity (including management, personnel, facilities, competence) 5. General Business/Revenue Model and Pricing Strategy
6. Preliminary Financial Information Start-Up Costs and Time needed to begin to generate revenue Start-up capital needs and availability Pro Forma/ Financial Projections (including estimates of revenues needed to break- even and timing to break even)
7. Discussion of feasibility Mission relevance Risk acceptability Competitive capacity Quality quality assurance Feasible for your organization now?
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Move to a Business Plan?

• If the venture is deemed feasible
• Build on all of the information of the
  feasibility assessment.
• Add depth to each of the elements of the
  feasibility assessment to create a business plan.

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Wrap-Up For the February Workshop

• Develop and Clarify Your Logic Model (complete
  the form)
• Read the materials on financial viability
  assessment in preparation for next workshop,
  which will focus on Funding and Financing Your
  Social Venture
• Contact your Levitt Program facilitators and
  advisors (Laufer, Helm, and Renz) as needed to
  help

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• Questions?
• Comments?
• Clarifications?