A business model illustrates how an organization or combination of interdependent organizations sustains itself based on certain output metrics.
Furthermore, a business model addresses the basic question of concern by anyone starting or expanding an organization: Is the amount people will pay for the perceived value of the products and services delivered by this organization sufficient to cover its operational expenses and sustain it?
Consideration of this question begins with the posting, Business Models for a Local Economy, which outlined five key characteristics of business models for a local economy. In summary, these are as follows:
- Universal participation by community members
- Initial focus on meeting the needs of community members without fail
- Integration across all value-added steps from the point of consumption back to the points of production
- Utilization of community assets and resources without reliance on outside funding
- Application of performance metrics that deepen the resolve to establish a fully functioning local economy, spur creativity and innovation to find business solutions, increase the rate and degree of adaptiveness, and significantly improve the odds of long-term sustainability
The first two have links to previous postings that offer more detail. This post focuses on the two in bolded italics.
The previous posting, “Does Your Community Meet the Needs of Its Members?,” stressed the importance of community members knowing the following:
- Are any community members hungry; homeless; living in unhealthy and unsafe conditions; or are they confronted with no paid work; illness; limited healthcare, and inadequate life skills to influence their circumstances?
- How do you and your community keep score on needs met?
- What are you and other community members doing to impact the scorecard?
The results of this survey assist community members to focus their creative energy on conditions and circumstances that warrant their collective attention. Such an overview enables them to quickly define those opportunity spaces wherein the community has the most to gain. This quickly leads to the development of robust and dynamic business models that undergird the development of business cases for clusters of interdependent businesses and community-based organizations. Those clusters have the potential for significant impact according to the scorecard metrics of the community. Furthermore, when loaded into a portfolio they offer opportunities for members to reinvest in their community and manage the launch and expansion of clusters.
In effect, community members take ownership for their sustainability. To do so entails the development and application of business models that increase community asset utilization while prioritizing the introduction of essential work modules.
The following diagram builds on a basic framework introduced in the previous posting. Both illustrate the flows of work functions and assets required to prepare infrastructure projects and business clusters for launch, provide the means to carry them out, and track results through a system of output metrics. However, the one below describes each flow in more detail and establishes the relationships between them.
In order to add value, an organization solves a problem or meets a need or frequently, does both. As mentioned at the outset, a business model shows how the organization does that and sustains itself.
The problem to solve in a local economy is how to conduct efficient, affordable distribution of needs to the points of consumption or use. The term “last mile” as a descriptor originated in the telecommunications industry during the 1990’s to describe a situation where, despite the relatively short distance (the “last mile”) between mainline fiber optic cables and subscriber homes and businesses, the installation costs prevented connections. In other words, the efficiency of the global economy did not reach into the communities, neighborhoods, and rural areas that lacked the infrastructure to make the connection given the prevailing state of technology. It required the development of another solution, wireless, for instance, to solve the last mile problem.
A similar “last mile” problem exists in the local economy whether it is the delivery of food, energy, housing, education, health care, etc. Organizations execute work modules in each of these that add value throughout the integrated steps of preparation, processing, waste recovery and reinvestment in year-round and cyclical production. But getting those products and services delivered to the point of consumption and assuring their utilization by the vast majority (80-90%) of community members is a challenge. The infrastructure of food carts, commercial kitchens, electric-drive vehicles, battery exchange stations, anaerobic digesters, modularized do-it-yourself (DIY home construction kits), experience-based learning, accessory dwelling units (ADUs) for eldercare / healthcare, etc. is not in place. The local economy is in the same situation as many areas in the U.S. 10-15 years ago when looking for affordable ways to have high-speed Internet access. That last mile can be a killer!
An infrastructure of integrated work modules itemized above solves the last mile problem. It also inspires the development of a long list of potential business and non-profit organizations required to fill the gaps. This is where the assets and resources of the community are brought to bear on interdependent business and support organization clusters so they take shape and continue along their paths to successful start-up and build-up.
The development of a business model or number of interrelated business models guides the association of assets / resources to work modules as they deliver across the last mile to consumers. The purpose of the model is to show how to execute the work functions required to meet needs and keep the organization sustainable. The steps in business model development include the following:
- Identifying where assets and resources are located in the community (Maps)
- Aligning the assets and resources so they support the mission of the business cluster in the most efficient and least costly manner (Models)
- Monitoring what happens during operations of the newly aligned cluster in order to anticipate issues and opportunities before they become crises or target them quickly if they surface unexpectedly (Information)
- Applying practical experience, theories in practice, and action frameworks through human engagement and embedded intelligence to resolve problems, improve operations, and course correct if appropriate (Know-how)
- Loading a cluster of interdependent businesses and support organizations required to meet needs, add value, generate revenue, manage costs, and assure sustainability of operations for all involved into a community investment instrument (Portfolio)
The bottom line is that for a business model within a local economy to be effective and sustainable the consumers’ needs must be met; businesses and support organizations must collaborate to contain costs; and the value-added steps from consumption to production must be integrated to conquer the last mile. And there’s one more… The final key characteristic, application of a common set of performance metrics to help community members keep their investments on track, will be addressed in an upcoming post.
More to come…
Originally posted to Sustainable Local Economic Development on Tumblr by Steve Bosserman on Saturday, September 4, 2010
Frameworks for Understanding the World 