By Cleveland Justis
Never before have there been more options for funding and finance of sustainable and equitable development enterprises. While government funding may be getting tighter, emerging opportunities are present in the many new funding approaches coming online in recent years. While many in the field will struggle for limited government and foundation funds, many other opportunities exist if one also considers the new sources of funding including microlending, venture philanthropy and socially responsible investing.
The relatively new term social capital has emerged to describe these new types of funds available for social impact. Hope Consulting estimates the opportunity at $120 billion. The Monitor Institute estimates a much bigger amount — $500 billion within the next decade. According to Monitor, impact investors actively seek to place capital in nonprofits and businesses that can provide solutions to social problems at a scale that philanthropy or government usually cannot reach.
While this infusion of capital provides an excellent opportunity for would-be social entrepreneurs, the basics of good business planning remain all the more important. The proponents of social capital are often looking for a solid business plan (yes, nonprofits and government agencies can and should have a business plan, too) in addition to the traditional measurements of impact for sustainable and equitable development enterprises. In my work with hundreds of nonprofit and sustainable development leaders, I’ve found that most think about funding and finance primarily through the eyes of the community and stakeholders. As a result, these leaders often under-develop the business model behind the venture. This works against the project since most funders are increasingly assessing financial sustainability as well as community impact.
Getting the business model right
In my work with social change organizations, I’ve found that those organizations with the most success have the following elements in common:
Understandable business model – Social change is complex, but explaining the work of the organization (and business model behind it) shouldn’t be. Creating and communicating your business model takes practice and discipline. Rubicon Programs, Delancey Street Foundation, and KaBoom strike me as organizations with particularly clear business models.
Clear need established – This is harder than it sounds. Of course, you need to articulate how communities will benefit but you also need to show, convincingly, how your organization is uniquely qualified to perform the work and that you’re not duplicating the work of others. Revolution Foods clearly articulates the need for healthy school lunches.
Easily changeable approach – Organizations (especially in the early years) need to remain nimble and flexible. You need to show that you can adapt to changes in funding, technology, and community needs. Even longtime enterprises must change. For example, Goodwill Industries has continued to evolve to not only help low-income people but also to provide jobs, help the environment by eliminating waste, and provide vocational training.
Robust partners with business, NGOs and government – Your organization can’t do it all. Help funders and investors understand how you’re leveraging the work of other entities through your efforts. RE-AMP has emerged as an organization adept at leveraging the work of others.
Repeating income and scale – To the degree possible, help investors understand how your organizational model is financially sustainable. Usually this involves some combination of earned revenue, long-term relationships with funders, and the ability to become more efficient with scale. Benetech is an international exemplar in this arena.
Tools to help
There are many tools to help develop a framework for an organization’s business model that are easily accessible via the web and in most libraries. One of my favorite tools is the Business Model Canvas (BMC) which is available for free download here. Their focus in primarily on for-profit businesses but the principles easily translate to nonprofits and government agencies. David Lapiana and colleagues recently came out with a business planning book for nonprofit organizations that offers a treasure trove of ideas from their deep experience in the field. I’m also a huge fan of anything written by marketing and social change guru, Seth Godin. His blog is available here. Finally, there are numerous online business plan writing tools – my favorite is LivePlan.
While I hate to end on a down note, I do feel the need to warn you of some of the common pitfalls I often see with business models.
People are often in love with their own idea despite evidence that it won’t work – Just because you like your idea doesn’t mean that it is viable.
Afraid to change – The most successful entrepreneurs and social change leaders embrace change. If your idea isn’t working don’t be afraid to modify or scrap it altogether and begin anew.
Uncomfortable with partnership – Partnership means giving up control and this is often a difficult and a necessary part of success.
Hubris – Need I say more?
Procrastination – The killer of so much good work and many good ideas. Sometimes you just need to get started….anywhere.
Readers: share your business planning lessons in the comments.
Cleveland Justis is a management consultant at the Potrero Group, LLC. He also actively writes about, teaches and lectures about social entrepreneurship at leading universities. Previously he served as executive director of the Headlands Institute and founding director of the Institute at the Golden Gate. Justis is an active volunteer for many community-based organizations and he’s the board chair of a large community foundation