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Innovation

It’s been a while since my last post: I was busy with school, different venture competition applications, and a (tiny) bit of travel.

Tomorrow I am going to Skoll:EMERGE and I am thinking about a divide between Business Plan Competitions and Social Enterprise Competitions. Do we really need it? What IF there is an idea that is very viable commercially and also creates a significant social change?

I think that current divide presents a problem for the best projects: when a venture creates both profit and social and/or environmental impact. This hypothetical successful business model could be altered to create even more profits or even more impact, but it will loose a part of its hybrid characteristics.

So, I am thinking about a trade-off between profit and impact. In any organization we could think that there is a trade-off between a profit and an impact: anything from a bagel shop to a homeless shelter to an multinational corporation to a global NGO could have either profit or impact or some combination of both.

What a for-profit will choose:

On the graph to the left, each curve represents¬† a posible sets of combination of profit and impact for four different hypothetical organizations. If we look at the graph, clearly, traditional business plans will just focus on maximizing profit, so in cases of both black line, green and red line they’ll prefer a point that has zero impact. But in case of yellow dotted line, they will actually be better off with some impact–this will increase the profit.

What a social enterprise will choose:

The idea behind social enterprise (as I see it) is that profit has a place in impact-oriented organizations. Profit solves the problem of scallability and increases the efficiency. With this in mind, a green line social enterprise will choose a combination that is furthest to the right–it will have a highest sum of profit and impact. But about red line organization? It seem to be inefficient as a hybrid organization, yet I don’t know why or if such cases even exist. And a yellow line organization will pick the same point on the curve as the for-profit–this will offer a highest combination of profit and impact. A black line organization can theoretically pick any point on the line, depending on its short-term and long-term goals: whether it puts more emphasis on sustainability or on current impact.

A few questions arise:

1) For-profit and SE seem to merge in yellow–is that a problem? Wouldn’t SE funders push to a higher impact, even though it decreases efficiency?

2) How to distinguish a for-profit from SE in black organization? Is there any cut-off profit/impact ratio (like 60/40) for SE?

3) What to do with red case: is it better to have either strict for-profit or a strict non-profit?

4) Finally, could other organizations organization be redesigned to become more like yellow organization?

My interest is not academical: I have an idea for an organization that is both profitable and will create an impact. So I am thinking how should I frame and design this organization to better serve its goals and to get initial funding.

I’m just thinking and playing here, so if you could forward me some research or provide me some ideas/feedback/criticism, it would great!

I am adding a new category: book reviews. I read a lot on business, social change, & etc.–I just read a lot. So I am going to express my opinions here, as well as on amazon.com.

Business Model Generation

Business Model Generation by Alexander Osterwalder & Yves Pigner

Written by two guys from Switzerland together with 470 contributers from around the world, this book is not your typical business innovation book. First, it is very accessible, intuitive, and easy to use. It is indeed a “handbook for visionaries, game changers, and challengers”!

The essense of the book is the “Business Model Canvas”–a simple framework that solves the problem of defining what business model, creates a shared language, and spurs innovation. Here’s what it looks like:

An Example of Business Model Canvas

The Canvas consist of nine blocks:

  • Customers
  • Value Proposition
  • Distribution Channels
  • Relationships
  • Key Activities
  • Key Partners
  • Key Resources
  • Cost Structure
  • Revenue Structure

Any business model can then be described using these blocks. But the most important thing is that it allows people from different backgrounds to create business models together. If you are looking for a brainstorming activity, that involves hundreds of post-its, divers group of people, and gallons of coffee–add this book to the list!

The strong sides of the book:

  • Clear, concise, simple approach to business model innovation
  • Tested, re-tested, and refined–no bullshit
  • Great design by¬† The Movement–it’s a pleasure to read and fun to work with!

The weak sides:

  • Puts external context (market forces, etc.) outside–easy to get carried away and ignore the outside world
  • Uncompromising about where to each aspect of the business, which can potentially split the team.

Let me give an example of the last point. At the workshop, the author have said that the brand goes into Key Resources, but a marketing person behind me wasn’t satisfied. “You don’t have a business if you don’t have a brand!”–he said. Of course, a finance guy would have said the same about finance: we don’t put financing the separate box either. But putting each aspect of the business into a separate box would have made the canvas a mess. To illustrate that brand is not always a part of the business model: how many have heard about Hon Hai? I am sure far more people own stuff they’ve made.

Anyway. Overall, I really like this book. Tomorrow, I am going to put it into practice and brainstorm business models with social mission–I am excited to see how it works in a group!

Oh, the best part is that Alexander Osterwalder puts all his slides online! There he has also stuff on business models beyond profit and lots of other interesting stuff.

Enjoy!