A successful business model requires methodical planning and anticipatory coordination of interlinking components.
By understanding the relationships between each of these components, we can begin to conceptualize how a business, like an organism, can become sustainable. The inputs need to correlate with the outputs in appropriate production capacity, just as revenue streams must be sufficient to maintain costs. Ultimately balance needs to be achieved for an organization to have any hope of sustaining. This classic business model canvas can be used as a system of checks and balances when designing a business (either for-profit or not) to help planning the logistics.
By understanding the relationships between each of these components, we can begin to conceptualize how a business, like an organism, can become sustainable. The inputs need to correlate with the outputs in appropriate production capacity, just as revenue streams must be sufficient to maintain costs. Ultimately balance needs to be achieved for an organization to have any hope of sustaining. This classic business model canvas can be used as a system of checks and balances when designing a business (either for-profit or not) to help planning the logistics.
Using the classic business model, there are 9 areas of business modeling that need be addressed to ensure sustainability.
- Value Proposition: sitting center stage in the diagram above, an organization must identify what "gift" they offer and provide for their consumers through a powerful value proposition. Proposing value to a consumer means understanding your clients’ needs & interests as well as becoming familiar with the goods & services provided by comparable competitors.
- Customer Segments: by identifying the specific groups of people that would benefit from your service, you can start constructing a business plan that can strategically reach out to they people you are trying to connect with. For nonprofits, this includes the targeted client population as well as donors (funders & volunteers) as well as other nonprofits and community group affiliates.
- Customer Relationships: communicating and cultivating meaningful relationships with clients is essential to maintaining your client base. A business model must identify the profitability of certain kinds of clients and manage customer relationships (like follow-up, recognition, thanks) accordingly. Know your allies and don’t dump a bunch of money reaching out to remote populations that will not generate compensatory profit. Life the hedgehog: know your niche and serve it well – don’t try to be everybody’s buddy.
- Channels: integrating communication and distribution channels that reach out to customers can have high levels of impact on the sustainability of an organization. Considering that many distribution channels implements modes of transportation, this component of the business model requires a comprehensive understanding of the life cycle analysis of a variety of products and services.
- Key Partners: developing alliances with partners and like-minded groups is essential for nonprofit survival. As we have learned through the example of organizational ecosystems, no SCO lives in isolation, so they must establish a network of partners with other NPO’s and/or grant foundations, for example. A business must also recognize their level of dependence and quality of (reciprocal) interaction with each identified partner.
- Key Activities: this section basically identifies what programs the organization will provide for their clientel, but also includes business operations such as marketing and project management. To establish sustainability, we must look at the efficiency of programs, and continually check in to assure that each program is directly related to the core mission. We have learned about mission drift in many of our readings and the orange book discusses the balance of high/low impact/cost with relation to these core activities.
- Key Resources: while this is often focused on human and technological resources in the traditional for-profit business model, a nonprofit that is seeking sustainability, should also consider the financial and environmental resources that contribute to the functions of an organization.
- Cost Structure: this section pertains to the last exercise we did in class in understanding direct and indirect costs. It is also essential that an nonprofit who receives funding “with strings attached” will properly allocate those funds to the appropriate costs. SCO’s need to know which components of the program are associated with the highest costs and determine if the cost structure is appropriate. (not all organizations are meant to be multi-million dollar entities)
- Revenue Streams: these streams should be sustainable and diversified to ensure continual funding. This component of the model requires the executive director to put a price on the organization’s core activities.