Business Model Development within a Local Economy

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

Food Systems, Economies, and Ecosystems

What We Are Doing

Over the past three months several of us have made presentations to various groups providing an overview about the recently awarded USDA-SCRI grant proposal and our general strategy for the ensuing program. Our primary purpose is to facilitate the continuing development of local and regional food systems as a viable and sustainable counterbalance to the predominate global food system. Ideally, local and regional food systems work seamlessly with the global food system to form a total food system that provides the overall advantages of price, variety, and quality while contributing to community health, vitality, and well-being.

Local and regional food systems, together with renewable energy and distributed manufacturing, are an integral part of local and regional economies. The interdependence of these three features prominently in the design of our strategy. While the mission of our USDA-SCRI initiative is focused on food systems, when seen in the bigger picture these systems become a platform by which local and regional economies are established, strengthened, and grown. Building local and regional economies is our broader agenda.

A local or regional economy is shaped by the social, political, cultural, and geographic context and conditions in which it exists. Such an economy is defined by complex webs of interwoven interrelationships and behavior patterns. Because of this characteristic, our understanding of them is benefited by adopting an ecological perspective or seeing them as part of ecosystems.

There are several types of ecosystems: natural, human, urban, etc. Each of them is characterized by several factors such as participants, source – sink dynamics and flow, and landscape patterns. Using these factors to inform an ecosystem health index and provide insight on how well an ecosystem is functioning is of particular interest.

Such an index is especially helpful when determining which course of action among several alternatives achieves the imperative at hand with the least amount of collateral damage and unintended consequences or side-effects. An obvious instance is with agriculture because of its pervasiveness and the degree of environmental impact its practice has on a local, regional, and global scale. Under the aegis of the USDA-SCRI grant there will be ample opportunities to apply the metrics of agroecosystem health in helping local and regional food systems become more efficient, effective, and less disruptive counterparts to the global food system.

The Business Ecosystem

Adopting an ecosystems view is also helpful within a business context. In the mid-1990’s, Jim Moore observed the dynamics of natural ecosystems and noted the similarities they have with those in a business setting. He coined the term business ecosystem to label the dense webs of interrelationships among suppliers, service providers, customers, competitors, communities within a social, political, and economic environment in which any given business starts, survives, and is sustained.

Moore’s “business ecosystems” thinking has led to a unique and powerful understanding about business strategy and in so doing significantly expanded the business development repertoire. It has also encouraged the growth of small and medium-sized enterprises (SMEs) in several areas. Perhaps the greatest experimentation with this approach has been Europe where the European Commission (EC) linked Moore’s concept business ecosystems concept with Information and Communications Technology (ICT) to form digital business ecosystems. The primary purpose at the outset was to establish networks of connectivity among participants in SME ecosystems in order to stop the decline in the numbers of SMEs in several European countries. Early results show this strategy is successful as indicated by a reversal in the decline of SMEs complemented by signs of an increase in their numbers across the Continent.

Business Ecosystems in the Context of the USDA-SCRI Grant

Fundamentally, the strategy underscoring the USDA-SCRI grant proposal is the digital business ecosystems approach applied to local and regional food systems. The graphic below illustrates the flow dynamics among ecosystem participants in the interconnected regions across the upper-Midwest and mid-Atlantic states:

Social network facilitation, as part of the ICT backbone for the project, catalyzes regional networks and convenes leaders within them to prompt the formation of business ecosystems.

Business ecosystem particants conduct research, deliver education and training, and launch pilot projects directed toward building local food systems within given regions.

Local food systems development links with complementary efforts in renewable energy and distributed manufacturing systems to drive relocalization. This heightens participation at local levels which increases the experience base among players and drives changes in the formulae for land use practices, inclusion, workforce development, and government collaboration. The net effect is that the rules are rewritten so they facilitate the rise of functional and sustained local and regional economies.

Healthy, vibrant, adaptive, and innovative local and regional economies offer a constructive counterbalance to the global economy; they become attractors for new business start-ups and the expansion of existing businesses. Glocalization results as fully-functioning local and regional economies mitigate the downsides of the global economy and position the total economy for sustainable growth. Successful glocalization feeds larger regional networks of players and leadership of business ecosystems providing the wherewithal to fuel additional research, education, and pilot projects. This closed-loop cycling generates AND reinvests resources within the same local and regional economies which relieves the dependency on outside funding, like the USDA-SCRI grant, to spur local and regional economic sustainability and vitality.

A Broader Vision

The bottom line is that with thriving, interconnected business ecosytems, local and regional economies capable of maintaining themselves while spurring business growth and community well-being will result. Although the USDA-SCRI grant is directed toward social networks and local food systems, these are milestones along the path to a broader claim. Our vision is of capable local and regional economies operating in concert with the global economy to provide people with the means to enjoy a reasonable quality of life in communities assured of survival and sustainability. For us, this is the ultimate goal of the grant proposal. Thanks in advance for your participation over the next three years to make the vision a reality!

Originally posted to Local Food Systems by Steve Bosserman on December 27, 2008 17:04