Article by Joe Roberson, Guest Blogger and Tech for Good consultant at Working with Joe.
So you’ve won some funding for your project?
Ace. Nice work. You’re going to have so much fun building your product…
You’re probably thinking about the social impact you want it to create.
You might even have thought about the user value it should create.
But how much have you thought about the economic value it needs to create?
What is economic value?
It’s a way of measuring the financial benefit of your product to any stakeholder. That includes users, other organisations and even elements of your own organisation. It’s the third strand of the now notorious triple helix model of social innovation. And it’s equally as important as user and social value.
I’ll say that again. It’s equally important.
Apps don’t just sustain themselves. Websites don’t get updated on their own. Digital services need someone to oversee them. Someone’s gotta pay…Your business model depends on generating enough economic value to someone, somewhere to make it worth paying for or investing in. If your model fails to do this then so will your product.
Design your business model
A good business model will usually have a tested means of generating revenue from external sources. If it’s not generating external revenue then you need to find another robust way to turn its economic value into cash or resources that will sustain your product.
This means you need to spend time designing your business model. Just like with designing your product an agile approach can work really well. Identify your assumptions. Build a small model. Find a way to test it quickly for economic potential. Analyse the learning. Rinse and repeat.
“Always build a business, never just deliver a project”
Nick Stanhope, CEO, Shift
Have I made it clear how important it is to find a business model that works? If you need further convincing then watch this.
Here are the 5 most common models. Run them through your business modelling tools.
1. Absorb into your organisation’s core costs
Good for: when the product will have sufficient and identifiable value to the core performance and economic wellbeing of the organisation itself.
Not good for: startups who don’t have another means of revenue generation
Yeah, really. Just pay for your product’s ongoing development through your organisation’s core budget.
This is actually very easy when the product you’ve built delivers value to your core service.
Alexandra Rose digitised their paper food voucher scheme, making it easier for all stakeholders, including themselves, to access this core food service. The food service is already funded, so the cost of maintaining the digital system will be borne by their existing funding.
Children’s mental health charity YoungMinds built Headmeds, a content focused medication website for young people. They knew it would need regularly updating and chose to absorb these ongoing costs into their existing core web budget. They did this because of the site’s value to the charity’s brand and overall fundability. Headmeds’ economic value was in how it increased the whole organisation’s economic value and attractiveness to funders.
2. Go for a grant
Good for: when you won’t have any other means of revenue generation, but you will have strong evidence of potential
Not good for: startups not classed as a social enterprise, charity or CiC.
Do you already have a grant? If so make the most of it because your chances of getting another are slim.
Typically only about 1 in 7 tech for good projects manage to achieve a second round of grant funding, partly because there’s a lack of grant programmes funding pre-existing products.
However, if you expect to have strong evidence of the potential for revenue generation then this model could suit your product. Evidence could include an initial sale or two, several letters of commitment to your value proposition from senior folk in your target customer market, or even strong analogous examples of other products or services in your sector.
But that evidence won’t appear by itself. You’ll still need to do the work on your business model: create a proposition, find a way to test it, then continue to iterate until you have something robust to offer funders.
3. Sell to your users
Good for: when you have a broad user base, strong user value and a price point that makes it affordable for them and economically viable for your business. Startups.
Not good for: charities or social enterprises who are unwilling to charge users for a service
This model is unlikely to be popular with charities. But it’s a potential model for any tech for good startup existing in the grey area between private company and social enterprise.
If you’re a startup like Run An Empire then you’ll have built your product for the large personal fitness market, knowing that its social benefits will be measurable through improved physical health and emotional wellbeing. Or perhaps you’re the entrepreneur behind the freemium mindfulness app Calm, turning a profit while helping millions of people be mentally healthier and reducing their risk of mental health issues.
4. Sell to another stakeholder
Good for: selling to an existing organisation, where the organisation and its service users both benefit from the product
Not good for: where there is no organisation or service provider, or where the product is in direct competition
This is the most common model. Sell access, usually through a subscription, to folk who are connected to, or have a vested interest in, your beneficiaries.
We did this when I was leading MOMO, a free app for children in the care system. We sold annual subscriptions to children’s services, unlocking in-app features for children using the app in their area. DrDoctor does similar, selling product subscriptions to hospitals and making it easier for them and their patients to manage appointments..
This method of selling can fit neatly into pre-existing service procurement models used by councils, NHS Trusts and other large organisations.
5. Find social investment
Good for: startups or social enterprises who have evidence of commercial potential
Not good for: organisations who are unfamiliar with using loans or taking investments. As a sole means of revenue generation.
In the same way that angel investment is important for commercially focused startups, social investment is important for social startups, especially those who are ineligible for any kind of grant funding. It’s also widely available across the UK through folk like Big Society Capital and accelerator programmes like Bethnal Green Ventures.
However, social investment alone will not carry you. It will only work alongside another model, as a step on the journey towards becoming a sustainable business.
I’ve described the 5 main models, but that’s just for starters. For the main course you’ll need to take a model and explore its viability for your venture. That means researching, testing and iterating your model in the same way you’d expect to for your product. There’s plenty of excellent resources that can help, like the Lean Canvas or Business Model Canvas.
The sooner you make a start the more chance your venture has of surviving, and then thriving beyond your grant. Good luck!
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