The Business Model, or Is Your Idea Viable?

If you’re like most nonprofit founders I’ve met, you’re excited about setting up your programs and getting to work, but this may mean you’re less attuned to things like “what are all the supporting activities I’ll need to plan for?” and “who are our customers going to be?” That all sounds too businessy to bother with. After all, aren’t you starting a nonprofit to get away from all that?

Nope.

Even if your idea for a nonprofit has a mission that undoubtedly provides a benefit to the community, this does not automatically mean that your idea will work. A sustainable nonprofit organization needs a solid business model to provide the foundation for long lasting community service. But what exactly is a business model?

A sustainable organization needs a solid business model to provide for long lasting community service. Click To Tweet

It’s a collection of important information about how your organization offers value to the community, who will benefit, how much it will cost, how it gets paid for, and what you’ll need to do and have in place in order to pull this all off.

Importantly, a business model helps you plan how your great idea will be something that actually works, so it’s a good idea to develop this early on as you begin to define your nonprofit. Like a lot of steps in the startup process, this one can seem overwhelming, but it doesn’t have to be. In fact, if you can answer nine questions, you’ve already done most of the work.

I’ve listed these questions in the first column of the table below (we’ll get to the second column shortly):

Question

Name

1. What are you offering that is of value? Value Proposition
2. To whom are you offering it? (Who are your customers or clients? Who benefits?) Customer or Client Segments / Beneficiaries
3. What relationship do you have with them in order to make this work? Customer Relations
4. How do you deliver that value to them? Channels
5. How do you capture enough resources (including money) to make it work? Revenue Streams
6. What do you need to do to deliver the value? Key Activities
7. What resources do you need to have in order to do this? Key Resources
8. What partnerships do you need to make this all work? Key Partners
9. How much does it all cost? Cost Structure

A company called Strategyzer has developed a free tool they call a business model canvas which lets us put all this up on the wall where everyone can see everything in one place. The nine questions turn into nine building blocks that are named in the second column above. These are arranged on the canvas in a way that easily relates important aspects of your idea with each other.

Let’s say you run a soup kitchen. (I’ve overly simplified this to illustrate the tool.) The value proposition might be “nutritious food” and one of your customer segments might be “homeless families” who you serve person to person in a friendly way. Your delivery channel would be the physical space you serve up the food (the soup kitchen itself) which is in a convenient location for the community you serve. Key activities would include buying food, cooking meals, etc. When you’ve filled in all the blocks in the top part of the canvas, you would get an idea of what costs might be involved, for example “food purchases” and “staff salaries”. Throw this up on the canvas and it looks something like this:

At this point, a quick glance tells you there’s no income to support your costs, so you need to figure out how you’ll bring in money. Since the customers in this situation don’t have the means to pay for the food, you need to provide something of value to someone who will pay for it. But how? Part of the answer could be to find foundations with a mission to serve the homeless. These folks would be happy to grant you some money, right? You’d add this information to the relevant blocks. Maybe it looks something like this now:

 

When you’ve reached this point for your own startup nonprofit, it’s time to begin checking your assumptions. Get as many reality checks as possible early and often.

Talking over your idea with people in the community who are already doing similar work and/or are working with a similar population is an invaluable way to gather information that will help you build your business model and make your idea more practical and effective. Go out and find those people. Offer to buy them coffee and pick their brains. Working through this tool before you sit down with them can make your time more productive (and save you coffee money).

Of course, you’ll continue to tweak this business model as your idea develops, but it’s important to start early to grasp all the hidden work you’ll need to do alongside the obvious stuff.

There’s a lot more to this tool than I have presented here, but this post is already kind of long, so I’ll stop now. Hopefully, I’ve introduced a tool that can help you better assess the amount and kinds of work you’ll need to do in order to successfully establish the nonprofit of your dreams.

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