Making for-purpose business, business as usual – Part four
13 December 2021 at 4:54 pm
In the final part of their four part series, Tara Anderson and Andrew Curtis of The Dragonfly Collective look at how to balance your model, and why collaboration is crucial.
For-purpose business and social enterprise is catching on. Customers want it. Employees are excited about it. Investors are backing it. And the world needs it.
So what’s the next step in making for-purpose business simply “business as usual”? We have to go to the heart of strategy and understand business model design.
In this series, we unpack the what and how of for-purpose and social enterprise business models, taking the lessons from our new internationally recognised for-purpose business model workbook.
In parts one to three of the series we explored your impact model, your customers and your products and services. In the final part in the series, we unpack why collaboration matters, and how to balance your model.
The eight steps in for-purpose business model design
Every for-purpose business leader should be able to answer the eight core questions relating to the eight steps in for-purpose business model design:
- What social impact will you create for which beneficiaries (what’s your theory of change, what’s your corporate strategy, and how do they link)?
- Who are your customers and what do they want?
- What products and services will you offer?
- Who are your collaborators and what are the market dynamics?
- What is your for-purpose business type/s?
- How will you finance the model and design your pricing?
- How will you organise your resources and design your operating model?
- Is your portfolio streamlined and balanced?
Let’s explore steps four to eight.
Step four: Understanding the market and deciding on your approach to collaboration
A fundamental difference between a for-purpose business model and a corporate business model is your approach to collaboration.
For a traditional business, the goal is to acquire and defend. For a for-purpose business, the goal is to contribute to the ecosystem so that all for-purpose businesses working to the same goal are enhancing each other’s impact. The higher the tide, the more all boats rise.
The first step is to identify all the players in the ecosystem and markets where you operate. This should include your competitors, partners or collaborators and any others that play in your space (each of the markets you operate in).
The second step is to map all those organisations into the power matrix. Using an excel table, give each organisation a score from 1-10 for their level of “interest” and their level of “influence”.
- Interest = concern or care for your mission
- Influence = ability to support or resist you in delivering your mission
Once the scoring is complete, you can plot all the market players into the competitor and collaborator map below.
While this analysis will give an overview of the key competitors and external stakeholders in the marketplace there is still some more analysis that will be useful in getting your business model completed. You can find advice on tools that will help with this process on pages 28 to 30 of the workbook.
Step five: The 16 for-purpose business model types
- recognition that there are a diversity of ways to achieve social impact through a for-purpose business and that there are “different ways to make and bake the cake”;
- recognition that your for-purpose business may combine different “types:” to achieve your social impact (although fewer types is always simpler); and
- ideas and precedents that can provide a valuable “proof of concept” to inform the development of your own for-purpose business.
This is the point where you should test your assumptions from steps one to four (strategic architecture, customers and products/services) and tweak your thinking if needed.
- Revenue model: how will you generate financial income?
- Financial projections: what revenue do you need to cover all your costs over what period of time to ensure you always have cash (cash flow is the most important element of financial projections – run out of cash and your business stops)
- Sources of finance: how can I avoid debt-finance, and what other funding options are available for a for-purpose business?
- Costs and price points: what will it cost you to generate revenue and subsequently what price will be sufficient to cover costs while at the same time be acceptable to your customer/markets?
Depending on whether you’re already an established for-purpose business (in which case completing this step will not be new to you) or at start-up stage (in which case you may want to see if you can get some pro bono support at this point) financial modelling tools are pretty much the same whether you are in the private, public, charity or for-purpose business sector.
For advice on pricing strategy and resources for financial modelling, check out page 36 of the workbook.
Step seven: Creating your operating model
Once you have sorted the finances out, the next step is to sort out the major operational issues and answer another question: how will you organise your resources?
If you’re a start-up, this will require you to be clear about what type of legal structure you want to be and whether or not you think there may be value in registering your organisation as a charity.
This is also the point to consider your staffing model, organisational structure, legal and other legislative compliance issues, partnership and stakeholder management and a range of environmental and trade issues including:
- health and safety
- environmental impact
- qualifications and skills
- relevant legislation
- terms and conditions of supply
- waste disposal
- contract management
At this stage you may have that line from a Coldplay song replaying over and over in your head – “nobody said it was easy, nobody said it would be so hard”. But the good news is, if you’ve got this far you’re nearly there.
Step eight: Balancing your portfolio
Finally, you can now look at your for-purpose business model portfolio as a total package. To check that you have a financially and socially balanced portfolio we suggest you use the for-purpose impact and profitability map.
This map allows you to identify where your products/services sit on a graph that measures profitability and social impact. It’s an enhanced version of what was once called the mission/money matrix. it can be used repeatedly to check that your portfolio of activities are maximising both impact and profit.
Putting your for-purpose business model on the page
Now that all eight questions have been answered and the workbook tools applied, you can bring it all together with your “business model on a page”. It looks like this:
What to do next
The tools provided here offer a guide to developing a viable for-purpose business model, to help executive teams wanting to build a purpose-driven business.
The original motivation for creating this workbook arose from the bigger question of how to create a more sustainable and fairer economy – one where profit is an enabler of social impact, rather than profit being an end in itself. For-purpose and social enterprise business models are one way to step towards that reality.
Building a fairer and more just world will take all of us. Changing our economic system is a result of work that is greater than the sum of its parts. No one business, industry, or sector can do it on their own. It’s a mosaic, and all the pieces of the mosaic are crucial (with no gaps, and no overlapping pieces).
So, the question to answer is what piece of the mosaic of a fairer world will you build?
Designing a for-purpose business model is never finished. It requires constant monitoring, review and tweaking as the environment and markets change. For-purpose business models are inherently tricky to design well, particularly striking the right balance between social impact and profitability.
But therein lies the immensely rewarding opportunity: to create business models that not only balance the books, but effectively build a fairer and more just world.
For all of us.