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Global Social Benefit Incubator 2008
Exercise 3: Business Model
The Business Model for an organization describes the key income and expense drivers for the organization, and the critical success factors (key assumptions) related to the financial sustainability of the organization.
Submit Your Business Model
Task Overview:
In this third and final exercise you will identify THE income (revenue) “drivers” that “monetize” (fund) your value proposition. It is useful if at least a portion of the funds that you need to operate or scale will be based on income for products or services provided (“earned income”) because earned income reduces your dependence on contributed income (grants and/or fund raising) . It is imperative that the earned income be a by-product of producing the products and/or services for your beneficiaries and not be an additional defocusing initiative that would distract you from your primary purpose. Note that the earned income may not come from the direct beneficiaries, but rather from an indirect beneficiary (e.g., a government or NGO) that pays for the products or services based on their effective delivery. In addition to the key income drivers, you also will identify the key expense (cost) drivers that are necessary to create these income streams. The income and expense drivers are often described using “fishbone diagrams” which list the key income and expense drivers and the % (of totals) for each driver (income and expense. Note that income drivers and expense drivers often are based on price and quantity. For example, the income from cataract surgeries depends on the number of paying beneficiaries and the amount each pays, while the expenses for the surgeries depend on the total number of surgeries and the costs for each.
After identifying the income and expense drivers, you will identify the Critical Success Factors (Assumptions) that are necessary to sustain the income drivers and control the expense drivers.
Background Resources:
Reference on business models: Richard G. Hammermesh, Paul W. Marshall, and Taz Pirohamed, “Note on Business Model Analysis for the Entrepreneur,” Harvard Business School Report 9-802-048, January 22, 2002.
1. Business Models
2. Business Decisions and Trade-offs
4. Examples of Earned Income Models
5. Examples of Contributed Income Models
6. Examples of Blended Income Models
Example: Aravind Eye Care System
Example: Aravind Critical Success Factors
Exercise:
3.1. Identify the key income drivers for your organization.
Fishbone Diagram (modify and fill-in for your organization)
Submit Your Business Model
Submit Your Business Model
Task Overview:
In this third and final exercise you will identify THE income (revenue) “drivers” that “monetize” (fund) your value proposition. It is useful if at least a portion of the funds that you need to operate or scale will be based on income for products or services provided (“earned income”) because earned income reduces your dependence on contributed income (grants and/or fund raising) . It is imperative that the earned income be a by-product of producing the products and/or services for your beneficiaries and not be an additional defocusing initiative that would distract you from your primary purpose. Note that the earned income may not come from the direct beneficiaries, but rather from an indirect beneficiary (e.g., a government or NGO) that pays for the products or services based on their effective delivery. In addition to the key income drivers, you also will identify the key expense (cost) drivers that are necessary to create these income streams. The income and expense drivers are often described using “fishbone diagrams” which list the key income and expense drivers and the % (of totals) for each driver (income and expense. Note that income drivers and expense drivers often are based on price and quantity. For example, the income from cataract surgeries depends on the number of paying beneficiaries and the amount each pays, while the expenses for the surgeries depend on the total number of surgeries and the costs for each.
After identifying the income and expense drivers, you will identify the Critical Success Factors (Assumptions) that are necessary to sustain the income drivers and control the expense drivers.
Background Resources:
Reference on business models: Richard G. Hammermesh, Paul W. Marshall, and Taz Pirohamed, “Note on Business Model Analysis for the Entrepreneur,” Harvard Business School Report 9-802-048, January 22, 2002.
1. Business Models
- The Nature of the Venture’s “Income Engine”
- Translating a social benefit venture concept into…
- One where Revenue is > Expenses
- Knowing how much CASH it will take to achieve
2. Business Decisions and Trade-offs
- Income (revenue) drivers (earned and contributed), and the key variables influencing each (e.g. numbers, amounts)
- Expense (cost) drivers (for each income driver)
- Critical Success Factors
- The most important elements of business model relative to achieving a surplus of income over expenses AND meeting the needs of the target market (beneficiaries).
- Third-party Earned Income Model:
- Indirect beneficiaries (those who benefit from the market creation or the impacts of the products or services) provide the income
- e.g. A government agency or NGO pays to rebuild houses after an earthquake
- Fee Based Income Model
- Unit Sales of any product or service
- Fee per use or output
- Micro-financed or Deferred Payment Model
- e. g. Cell phone services in developing countries
- Development and marketing of software products that leverage success in the current direct market to segments of developed country markets
- e.g. Internet and cell phone based mass transit schedules, crop planting and cultivation best practices
- Subscription Model
- Fees to join service
- Internet Service
- Ability to Pay Model
- Those that can afford to pay subsidize service delivery those that can not
- Market Place Models
- An “eBay” type market for goods and services needed by the direct market
- Organizing the direct market to provide web based services to other target markets
- Marketing indigenous good to the rest of the world
- These models then facilitate advertising and affiliate revenue models
- Franchising/Licensing Model
- Enable other organizations to provide your services in different markets or regions, in some cases, the national or regional governments
- Cause Related Marketing Model
- Pay for the good or service to create market or to gain brand/company awareness
- Pay per use or output
- e.g. Participation through local market distribution in leading edge programs like Grameenphone or Hewlett-Packard's "e-inclusion" (e.g., digital photo entrepreneurs)
4. Examples of Earned Income Models
| Model Type | Description | Example |
| Volume or unit | Price per product unit | Sale of LED lights |
| Subscription (member) fee | Fee for content or membership | Fee to join Co-op |
| Advertising revenue | Sale of advertising space or time | Advertising on sides of ambulances, or in free clinics |
| Transaction fee revenue | Fee per transaction or activity | Fee for training course |
| Licensing revenue | Fee for Intellectual Property (specifications of a product and/or service) | Fees for manufacturing licenses |
| Franchising revenue | Fees for Intellectual Property (specifications of products, services, and processes), plus fees for “Brand” (name and marketing), plus fees for supplies that meet specifications | Franchise outlets for health care products |
5. Examples of Contributed Income Models
| Model Type |
Description | Example |
| Donations | Gifts from indirect beneficiaries | Food Bank |
| Indirect beneficiary | Indirect beneficiary pays for products or services because of effective value creation | Factory pays for day-care for children of workers |
| Out-source | Government or NGO outsources products or services (in their budget) | Providing free prostheses to amputees |
6. Examples of Blended Income Models
| Model Type | Blend | Example |
| Blended earned | Fees for products and services | Fees health care and medicines |
| Hybrid | Contributed and earned income drivers | Grants for research to develop products plus sales |
| Learn and earn | Fees for training/education plus fees from products or services created by trainees/students | IT trainees earn money for data processing services |
Example: Aravind Eye Care System
Example: Aravind Critical Success Factors
- Low-cost workflow for eye care system
- Successful training of all staff
- Maintain > 40% paying clients
- Re-invested surplus in staff training, improved processes, and new technology
- Motivate staff through work environment and competitive compensation
- Use partnerships for in-field diagnosis and for new technology development
Exercise:
3.1. Identify the key income drivers for your organization.
- (Hint: from the background resources, which income models could be applied for your products/services?)
- Describe these using an Income (revenue) Fishbone Diagram for your organization. (An editable blank fishbone diagram is include below)
- (Hint: what are the costs for product/service development, sales and marketing, and administration).
- Describe these using an Expense (cost) Fishbone Diagram for your organization. (An editable blank fishbone diagram is include below).
Fishbone Diagram (modify and fill-in for your organization)
Submit Your Business Model
