Why Nonprofits are Ditching Business Plans for the Social Business Model Canvas
“Evolve or die.” This saying is even truer today than when I started Social Impact Architects. Just two decades ago, I learned about social business plans in business school at Duke, but today traditional business plans are being replaced by a more efficient tool: the business model canvas. Developed in 2005 by business scholar Alexander Osterwalder, the business model canvas is a widely used framework for analyzing a new business idea. The canvas addresses key components around how the business would operate?—?like revenue and value proposition. Its popularity can be attributed to its universality?—?nearly any business idea can be analyzed through this framework. And it is simple and easy, which is why it has replaced the business plan as the first step toward business creation.
In our work at Social Impact Architects, we have created a customized version of the business model canvas for our nonprofit and social entrepreneur clients called the “social business model canvas .” (HUGE THANKS to David Claps, our former senior consultant, for all his effort in adapting this model to the social sector.) We needed to shift the model for a few key reasons:
Testing Ideas?Early
The canvas allows us and our clients to test new ideas early in the strategy development process using criteria unique to the social sector (e.g., community need, sustainable revenue streams). A key benefit of the modified canvas is that it forces social entrepreneurs and nonprofit leaders to acknowledge the tension between impact and revenue. A viable social sector business idea must support both. The idea must generate community benefit that brings something new to the table and ensure support through a mix of revenue streams and a plan for long-term sustainability . If the idea can’t pass the test of the social business model canvas?—?for example, because you discover that your unique value proposition doesn’t connect to how you generate revenue?—?you can quickly see that the idea is not feasible or needs tweaking before much time or effort is invested.
Simplifying the Business?Plan
Fewer nonprofits and social entrepreneurs are investing in traditional business plans due to the cost and time involved. We suspect this is the case because of the chicken-and-egg scenario nonprofits and social entrepreneurs face: to fund a new business idea, you need capital from your trusted partners and funders. But to secure the new capital, you need to expend existing capital on developing a business plan you can use to influence your funders. This is an expensive task, especially when organizations have limited unrestricted funds available, making it a high-risk endeavor. A social business model canvas allows organizations to articulate the business fundamentals of a new idea without going into extraneous detail. It is also easily digested and highly presentable?—?perfect for sharing with external stakeholders.
Embracing Lean Startup Principles
The traditional business plan is also falling out of favor with entrepreneurs. Compared to a business plan, the canvas better complements the tenets of lean startup in which you develop a quick prototype and gather rapid feedback for further iteration. It helps you get your ideas on paper quickly in a way that is easily shared when you’re looking for input from your colleagues, customers or funders.
While the standard business model canvas is beneficial for nearly any type of business, it was not built with the nuances of the social sector in mind. We have added, merged, renamed or removed components from the original framework so that it answers important questions and serves as a litmus test for social business or program ideas. Additionally, the main components are supported by the bookend considerations of anchor purpose and impact.
Anchor Purpose
Similar to a mission statement , all components of the idea should connect with your stated anchor purpose. If they do not, you can see right away the idea may lead to mission drift or need further finessing.
Stakeholders
Think about stakeholders broadly. They are not just funders, but also those you intend to serve as well as community members at-large. It may help to define your primary and secondary stakeholders and analyze how the idea will affect these groups in similar or dissimilar ways.
Community Need
In general, we advise clients to work in areas of well-documented community need . Otherwise, potential impact may never be fully realized. You should be able to articulate how your idea will meet a need?—?and that the need is not already sufficiently addressed by another organization.
Unique Value Proposition
You should be able to articulate what value your idea creates?—?for your organization, for your community, for all your stakeholders?—?and how it is unique. The unique value proposition should describe why your idea is worth doing.
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Key Talent, Activities and Resources
Think about all the inputs needed to get your idea off the ground. This could include additional funding, more or different staff, or more time from executive leadership. Be sure to prioritize these needs so you can launch in the order required.
Costs
While it is tough to come up with every cost without moving into to a traditional business plan and financial model, you should have a basic understanding of the main cost drivers. It may help to think through both fixed and variable costs as well as start-up costs. Do not forget to include the operating costs that will add to overhead as well as variable programmatic costs.
Reach
No matter the size and scope of impact intended, the success of your business idea is likely predicated on growth. In this section, think about how far and how fast you want to grow your reach and how you will do it. Organically over time? Through partnerships? Understand the viable options.
Outreach Strategy
Think about how you will attract attention to the business in the short-term and the long-term. If this is a client-based idea, will you bring in initial clients by hiring a well-connected local leader? If your idea is to launch programs in a part of your state you have not worked in before, will you secure a partnership with a leading organization in that region? The strategy can vary, but before you get moving, you must understand the pathways to build awareness.
Sustainable Revenue?Streams
Your revenue streams will likely connect to your stakeholders?—?some segment(s) of those you serve will generate revenue for the business line or organization. Make sure you understand what will generate revenue, not only at the start of the business, but also in the long-term. If your business model relies on earned income, you will also need to determine how the market will support your pricing. For example, is the market most agreeable to fee-for-service or sliding scale pricing?
Impact
Think about your idea in the future. If your business or program idea takes off, how are your stakeholders positively impacted?—?in the short-term and in the long-term? How will you measure it? Like the anchor purpose, this is the foundation of the canvas.
Our hope is this revised version of business model canvas will serve as a valuable tool whenever you are working on strategy and considering changes to your social sector business or program. With traditional business plans falling out of favor, we hope this template will help you think through your ideas more efficiently. We also suspect this may be a useful tool in times when organizations are looking to strategize quickly and cheaply to respond to emergent community needs. We welcome your feedback after you use the canvas and look forward to sharing new insights and tips as we refine it.