For-purpose business models part three: who are your customers and what will you offer them?
For-purpose business and social enterprise is catching on. Customers want it. Employees are excited about it. Investors are backing it. And the world needs it.
So what’s the next step in making for-purpose business simply ‘business as usual’? We have to go to the heart of strategy and understand business model design.
In part one and two of this series we explored the need for for-purpose businesses and articulating your impact model via a strategic architecture. Part three covers your customers, what you’ll sell them and how to wrap it up in a value proposition. Get your copy of the workbook.
The eight steps in for-purpose business model design
Every for-purpose business leader should be able to answer the eight core questions relating to the eight steps in for-purpose business model design:
- What social impact will you create for which beneficiaries (what’s your theory of change, what’s your corporate strategy, and how do they link)?
- Who are your customers and what do they want?
- What products and services will you offer?
- Who are your collaborators and what are the market dynamics?
- What is your for-purpose business type/s?
- How will you finance the model and design your pricing?
- How will you organise your resources and design your operating model?
- Is your portfolio streamlined and balanced?
Let’s explore steps two and three – your customers and your products or services.
You know what impact you want to create, so how do you make it financially sustainable?
In some for-purposes businesses, the beneficiary group receiving the social impact you’re creating will have the ability to pay for the services they receive. More often than not, they won’t. This is always the case if your social impact is environmental. In this situation, a separate paying customer group is required to balance the business model.
Every for-purpose business model must have a customer group that can pay. A clear understanding of what customers want and how they want it is fundamental to a successful business model. Without creating value for customers there is no profit to generate social impact.
Step two in your for-purpose business: how to identify paying customers
This step in the process starts by brainstorming a list of potential customers. To identify potential customers, consider the strategic architecture you have developed in step one, and ask yourself:
- What unique resources and capabilities do you have (core competencies), and who might pay to access them?
- Who has a business need to access your audience or network that might pay for the privilege?
- Who has a reason to pay for the social impact you create? Who already pays the financial cost of the social problem you’re addressing? (For example, if your impact is improving mental health, consider businesses that pay the cost of poor employee wellbeing through sick leave.)
Once you have identified a long list of potential customers, they should be evaluated for their potential according to the criteria in the for-purpose business target market grid (criteria below).
Start by listing all customer groups (including your beneficiary group if they are willing and able to pay). Then give them a score of 1-3 (1 being low and 3 being high) against each of the criteria:
- Identifiable? Are there characteristics that define this customer group that you can use to put boundaries around it?
- Reachable? Do you have the ability to access this group via your promotion and distribution channels?
- Stable? Is this group/sector predicted to have strong future revenues / disposable income?
- Actionable? Is this group likely to want or need the products or services you could offer?
- Significant? Is the market size large and is there growth potential?
- Beneficiary impact potential? Is there possibility for this customer group to help you generate social impact for your beneficiary group?
- Mission aligned? Is there a values alignment between your vision/activities and theirs?
- Goal fulfilment potential? What are the goals of the customers in this market and what’s the likelihood you can fulfil them?
If you want to see what the target market grid looks like you can find it on page 20 of the workbook.
Step three in your for-purpose business: how to identify profitable products & services
Once you have identified the social impact you want to create, and the highest potential customers, the next step is to explore which products and services you could offer.
You may be wondering why the customer comes before the product or service you will offer.
The traditional business start-up manuals nearly always commence with identifying your product. However, over the past three decades this approach has been turned on its head, and the development of new products has focused on customers first. Companies such as Apple, Samsung, Google and GE are just a few examples of customer-centric business models. These businesses first identify what their customers want, then identify ways to fulfil their needs, wants and requirements with the products and services that they offer.
To identify possible products and services, we use a three step process, involving three ‘business model potential maps’. The mapping process will sort your product/service ideas into three groups:
- Future-proof: products that should be future proof and therefore move into full feasibility analysis and business case.
- Revenue generation spin-out: these products/services could work as discrete projects for revenue generation, however would need to be managed separately to usual operations to avoid distraction from social impact activity.
- Sandbox: products/services that have social impact potential, but require further adaption to create financial viability.
This step requires time and focus – it’s not a quick fix approach. You can check out how the process works on pages 22-26 of the workbook.
Designing your value proposition
The analysis and data you will have pulled together in steps two and three, along with the social impact analysis in step one, provides you with the information you need to arrive at a value proposition.
To identify a value proposition, we use the following basic formulas:
Value proposition for beneficiaries: “For (beneficiaries) that need (social impact) we offer (products/services) that are (point of difference).
Value proposition for customers: “For (customers) that want (customer needs) we offer (products/services) that are (point of difference).
Note that if your beneficiaries are also your customers, you will only need your beneficiary value proposition here, as it will serve both purposes.