Developing and Organizing a Viable Business Model

Session 2 Levitt Social Entrepreneurship ProgramJanuary 25, 2014

Wor

ksho

p 2:

Aar

on L

evitt

Soc

ial

Ent

repr

eneu

rshi

p C

halle

nge

Flow of This Morning’s 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

Wor

ksho

p 2:

Aar

on L

evitt

Soc

ial

Ent

repr

eneu

rshi

p C

halle

nge

--I Ching

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

Wor

ksho

p 2:

Aar

on L

evitt

Soc

ial

Ent

repr

eneu

rshi

p C

halle

nge

Wor

ksho

p 2:

Aar

on L

evitt

Soc

ial

Ent

repr

eneu

rshi

p C

halle

nge

Let’s Talk…

• What is a “Business Model?”

• What is a “Viable Business Model?”

Wor

ksho

p 2:

Aar

on L

evitt

Soc

ial

Ent

repr

eneu

rshi

p C

halle

nge

Stages of Development

• Opportunity Identification, Clarification, and AssessmentLeads 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.

Wor

ksho

p 2:

Aar

on L

evitt

Soc

ial

Ent

repr

eneu

rshi

p C

halle

nge

Opportunity Identification/ Clarification and AssessmentGrowing 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

Wor

ksho

p 2:

Aar

on L

evitt

Soc

ial

Ent

repr

eneu

rshi

p C

halle

nge

Managing Risk?

• Traditional• Insurable

• Personal Liability• Property

• Financial• Investments• Debt• Returns

• Uncertainty

US

AS

BE

So

cia

l En

tre

pre

ne

urs

hip

Ce

rtifi

cate

Mo

du

le 6

Decision Model

US

AS

BE

So

cia

l En

tre

pre

ne

urs

hip

Ce

rtifi

cate

Mo

du

le 6

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

Wor

ksho

p 2:

Aar

on L

evitt

Soc

ial

Ent

repr

eneu

rshi

p C

halle

nge

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

Wor

ksho

p 2:

Aar

on L

evitt

Soc

ial

Ent

repr

eneu

rshi

p C

halle

nge

Dai

vd R

enz:

Mid

wes

t Cen

ter

for

Non

prof

it Le

ader

ship

at U

MK

C

Value Creation Cycle(from The Nonprofit Strategy Revolution. David LaPiana 2008)

Wor

ksho

p 2:

Aar

on L

evitt

Soc

ial

Ent

repr

eneu

rshi

p C

halle

nge

Market: -Clients - Donors & Funders

Organization

Capacity

Mission, Vision & Values

Strategic Fit

Strategic FIT

Viability Assessment

Three Basic Elements:•Market Assessment•Money Assessment•Management Assessment

Leads to Overall Assessment of Venture Feasibility and Viability

Wor

ksho

p 2:

Aar

on L

evitt

Soc

ial

Ent

repr

eneu

rshi

p C

halle

nge

Wor

ksho

p 2:

Aar

on L

evitt

Soc

ial

Ent

repr

eneu

rshi

p C

halle

nge

Payor Customers: -Donors & Funders

Beneficiary Customers (Clients)

The Market (Customer) Question

Market Viability Assessment

Builds on Assessment of Porter’s Five Forces

Focus on:•Demand•Competitive Advantage•Differentiator(s)•Price and Cost Structure

Wor

ksho

p 2:

Aar

on L

evitt

Soc

ial

Ent

repr

eneu

rshi

p C

halle

nge

This is the ability to produce social value by:•Using a unique asset

and/or•Delivering outstanding execution

•We employ the perspective of Porter’s Five Forces Model to examine and understand where and how we fit

Dai

vd R

enz:

Mid

wes

t Cen

ter

for

Non

prof

it Le

ader

ship

at U

MK

C

Competitive Advantage (The Nonprofit Version)

Dai

vd R

enz:

Mid

wes

t Cen

ter

for

Non

prof

it Le

ader

ship

at U

MK

C

Strategy vs. Reality

Let’s 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)

Wor

ksho

p 2:

Aar

on L

evitt

Soc

ial

Ent

repr

eneu

rshi

p C

halle

nge

Key Components of A Well-DevelopedProgram Design

(The Social Value Proposition)

Wor

ksho

p 2:

Aar

on L

evitt

Soc

ial

Ent

repr

eneu

rshi

p C

halle

nge

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

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

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

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?

US

AS

BE

So

cia

l En

tre

pre

ne

urs

hip

Ce

rtifi

cate

Mo

du

le 6

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.

US

AS

BE

So

cia

l En

tre

pre

ne

urs

hip

Ce

rtifi

cate

Mo

du

le 6

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?

US

AS

BE

So

cia

l En

tre

pre

ne

urs

hip

Ce

rtifi

cate

Mo

du

le 6

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)?

US

AS

BE

So

cia

l En

tre

pre

ne

urs

hip

Ce

rtifi

cate

Mo

du

le 6

Program Design

• Inputs

• Client

• Staff

• Material resources

• Facilities

• Equipment

Program Design

• Throughput• Service Definition• Service Task• Method of Intervention

• Outputs• Unit of service• Service completion• Quality

Outcomes

• Numeric Counts

• Standardized Measures

• Level of functioning scales

• Client satisfaction

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

Wor

ksho

p 2:

Aar

on L

evitt

Soc

ial

Ent

repr

eneu

rshi

p C

halle

nge

Return to Viability AssessmentThree Basic Elements:•Market Assessment

•Money Assessment

•Management Assessment

Leads to Overall Assessment of Venture Feasibility and Viability

Wor

ksho

p 2:

Aar

on L

evitt

Soc

ial

Ent

repr

eneu

rshi

p C

halle

nge

Money Viability Assessment

Initial Consideration of•Revenue Potential

•Investor Potential

•Available Capital

Wor

ksho

p 2:

Aar

on L

evitt

Soc

ial

Ent

repr

eneu

rshi

p C

halle

nge

To Integrate These: Compass Point’s “Dual Bottom Line Matrix”

Wor

ksho

p 2:

Aar

on L

evitt

Soc

ial

Ent

repr

eneu

rshi

p C

halle

nge

Management Viability Assessment

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

Wor

ksho

p 2:

Aar

on L

evitt

Soc

ial

Ent

repr

eneu

rshi

p C

halle

nge

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?

US

AS

BE

So

cia

l En

tre

pre

ne

urs

hip

Ce

rtifi

cate

Mo

du

le 6

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

US

AS

BE

So

cia

l En

tre

pre

ne

urs

hip

Ce

rtifi

cate

Mo

du

le 6

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

Wor

ksho

p 2:

Aar

on L

evitt

Soc

ial

Ent

repr

eneu

rshi

p C

halle

nge

Alter’s “Hybrid Practitioners”

• Nonprofit with Income-Generating Activities• Cost Recovery• Earned Income

• Social Enterprise

• Socially-Responsible Business

• Corporation Practicing Social Responsibility

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 MotiveStakeholders AccountabilityIncome Reinvested in Social Programs or Operational Costs

Profit-Making MotiveShareholder AccountabilityProfit Redistributed to Shareholders

The Summary: Key Elements of Feasibility or Viability Assessment

1. Explain the Venture2. Market research on potential customers3. Desire and Need for Product or Service4. Assets and Capacity (including management, personnel, facilities, & competence)5. General Business/Revenue Model and Pricing Strategy6. Preliminary Financial Information:

a) Start-Up Costs and Time needed to begin to generate revenueb) Start-up capital needs and availabilityc) Pro Forma/ Financial Projections (including estimates of revenues

needed to break- even and timing to break even)7. Discussion of feasibility:

a. Mission relevanceb. Risk acceptabilityc. Competitive capacityd. Quality & quality assurancee. Feasible for your organization now?

Wor

ksho

p 2:

Aar

on L

evitt

Soc

ial

Ent

repr

eneu

rshi

p C

halle

nge

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.

Wor

ksho

p 2:

Aar

on L

evitt

Soc

ial

Ent

repr

eneu

rshi

p C

halle

nge

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

Wor

ksho

p 2:

Aar

on L

evitt

Soc

ial

Ent

repr

eneu

rshi

p C

halle

nge

• Questions?

• Comments?

• Clarifications? Wor

ksho

p 2:

Aar

on L

evitt

Soc

ial

Ent

repr

eneu

rshi

p C

halle

nge