APS1015H Class 5 - Business Modelling and Assessing Business Potential for Social Enterprise

APS 1015H: Social Entrepreneurship

Class 5: Business Modeling and Assessing Business Potential for Social Enterprise

Wednesday, October 12, 2011

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Instructors: Norm Tasevski ([email protected]) Karim Harji ([email protected])

© Norm Tasevski & Karim Harji



Agenda

•  Centre for Social Innovation •  Idea Jam – Recap •  Business modeling your social venture •  Assessing business potential •  What did we learn – Today? •  Next week

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Recap

Business Modelling for Social Enterprise…

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A Caveat…

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When we business model for social enterprise, we focus on the “business”, not the “social”…

But don’t worry, we will come back to the “social” later…


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A Second Caveat…

“Business Model”

“Business Form/Legal Structure”


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A Third Caveat…

“Business Model”

“Business Plan”

Business Model 1st!!! (Business Plan 2nd)

Why business model 1st and plan 2nd?

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Because…

It is a cure for “We Need a Plan-itis”


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And…

It is a Quick way to assess Profitability/Sustainability –  Why spend months building a plan if you don’t have a real

sense of profitability/sustainability? –  If your model doesn’t make money, even with the most

ideal conditions…

…STOP! (…and rethink your business model)


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One More…

It breaks down highly complex business ideas into easily digestible (and visual) chunks

–  Gets to the heart of what you need to know to:

Set Strategy

Make a Go No-Go Decision

Make Potential Investors/funders (and business partners) Happy :)

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Are small and visual (1 page with about 10 supporting pages)

Are big and complex (often 50-100+ pages)

Cover many topics (business description, financials, marketing strategy, HR strategy, Operations Strategy management team, etc, etc, etc)

Business Models

Focus on a few topics (Will you make $$? How do the pieces fit together?)

Take weeks/months to create

Take a few days (possibly hours) to create

Are necessary for investors, funders, business partners, etc

Feed the business plan!!

Business Plans


Our Goal for Today

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We’ll be building business models for YOUR business idea…


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Some Definitions

•  “A business model describes the rationale of how an organization creates, delivers and captures value – economic, social, or other forms of value”

Wikipedia

•  “A description of the means and methods a firm employs to earn the revenue projected in its plans. It views the business as a system and answers the question, “How are we going to make money to survive and grow?”

BusinessDictionary.com

•  “A business model describes the specific way the business expects to make money. While a business plan is on paper (lots of paper!) a business model should be small enough to stay in the heads of the owner and staff. If a business model is on paper, it should be one page, and it would be more clearly shown as a diagram than as words.”

AudienceDialogue.net 17


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Customer Segments

What you need to care about is… –  Customer “Pain” –  Difference between a “customer” and a “client”


Empathy Mapping


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Who are your customers?

What does their Empathy map look like?


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Value Proposition (the “Offer”)

What you need to care about is… –  The “value” you are creating for customers (in terms

of products/services), and the “pain” you are alleviating

–  An exchange of value


Quick…

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What is the last thing you bought?


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Customer Utility


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What is your value proposition?


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Channels

What you need to care about is… –  How the customer receives the offer/value prop –  The physical “movement” of the offer into the hands

of the customer


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Relationships

What you need to care about is… –  Personal and impersonal interaction with the

customer –  The “movement” of information (e.g. marketing,

communication)


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What Channels will you use?

What relationships will you make with your customers?


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Revenue Streams

What you need to care about is… –  Cash!!! (specifically, how cash flows into the

enterprise) – “Money In” –  Pricing models


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Key Resources

What you need to care about is… –  Assets… –  …and how these assets create value –  Includes human, physical, intellectual, and financial

resources


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Key Activities

What you need to care about is… –  Actions (specifically, the actions you plan to take to

generate value) –  Both “direct” and “indirect”


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What are your key activities?

What are your key resources?

Break

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Key Partners

What you need to care about is… –  People/organizations that are integral to enabling

you to do business –  How you partner, and what you partner on

What makes a good partnership?

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Common Vision!

Discreet Missions!

Same Core Values!

A Commitment to Invest in

the Partnership!


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Who do you need to partner with?


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Cost Structure

What you need to care about is… –  Fixed costs, variable costs, economies of

scale…“money out” –  At this stage, focus on your cost assumptions! (don’t

worry about actual $$)


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So…what does a completedBusiness Model Look Like???


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$$ Microloans

Branches

Personal

BOP Entrepreneurs

-Branches -Brand -Capital

Lending and

collecting $$

Government

-People -Capital Costs

Interest rates


Tip…

•  Be a Business Model “Alchemist” – You need to go through the business model process many times in order to figure out which model best fits

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“Sticky Ideation”…

What we Don’t Know!

What we know!

Bridging the Gap!!(turning what we don’t know into what we know)!

Assessing Social Enterprise Business Potential…

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A Caveat…

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When we assess business potential, we don’t just care

about…

…and…

…we also care about…


Our Strategy…

1.  Assuming the perfect scenario, does our business model generate money?

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If yes…

2.  Does the model still make money once real world conditions are factored in?


What is a “Perfect” Scenario?

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–  Porter’s 5 Forces line up perfectly (i.e. low to no entry

barriers)

–  You operate absolutely efficiently (e.g. resources used to their maximum capacity)

–  The business runs flawlessly (i.e. no mistakes are made anywhere along the value chain)


Why Use a “Perfect” Scenario?

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Most Importantly: –  If you can’t make money even with the most ideal

conditions…

Also: –  The perfect scenario is often the easiest to build a financial

model from –  It provides a baseline – All other scenarios can be

measured against this ideal case

…STOP! (…and rethink your business model)

Ready?…

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Step 1: Identify Cost Drivers and Revenue Sources!

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Step 2: Calculate your margin!

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-???!-???!


What Do You Need To Calculate Your Margin?

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Data!!!!


Data Sources

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Call key industry players (suppliers, competitors, etc)

Search databases (industry, scholastic, etc)

Conduct web search (Google, etc)

Ask people!!! (friends, potential customers, etc)


A point on “asking people”…

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There are…

Lovers

Don’t give a %&$#ers

Haters

Listen to HALF of what they say!!!


What did we learn?

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